UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2004

or

For the transition period from            to

Commission File Number:

Genitope Corporation

525 Penobscot Drive
Redwood City, CA 94063
(Address of principal executive offices, including zip code)

(650) 482-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 28, 2004, 23,869,340 shares of common stock of Genitope Corporation were outstanding.

GENITOPE CORPORATION

TABLE OF CONTENTS

     The terms “Genitope,” “we,” “us” and “our” as used in this report refer to Genitope Corporation.

     Genitope, Hi-GET, our logo and MyVax are our trademarks. In addition to Hi-GET, our logo and MyVax, we have applied to register Genitope with the United States Patent and Trademark Office. Other service marks, trademarks and trade names referred to in this report, such as Rituxan, are the property of their respective owners. Genitope Corporation has no relation with Pfizer, Inc, or any of its affiliates or with Pfizer’s GENOTROPIN^® products.

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

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GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

The accompanying notes are an integral part of these financial statements.

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GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

The accompanying notes are an integral part of these financial statements.

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GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

     Genitope Corporation is a development stage enterprise focused on the research and development of novel immunotherapies for the treatment of cancer. Immunotherapies are treatments that utilize the immune system to combat diseases. Our lead product candidate, MyVax personalized immunotherapy, is a patient-specific active immunotherapy that is based on the unique genetic makeup of a patient’s tumor and is designed to activate a patient’s immune system to identify and attack cancer cells. MyVax is currently in a pivotal Phase 3 clinical trial and additional Phase 2 clinical trials for the treatment of B-cell non-Hodgkin’s lymphoma (“NHL”). We were incorporated in the State of Delaware on August 15, 1996 and have incurred significant losses since our inception.

Basis of Presentation

     The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair presentation of the financial statements, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period. Further, the preparation of condensed financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. Actual results could differ from those estimates. A change in facts or circumstances surrounding the estimate could result in a change to estimates and impact future operating results.

     The financial statements and related disclosures have been prepared with the presumption that users of the interim financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2003 included in our Form 10-K filed with the Securities and Exchange Commission.

Liquidity

     To date, we have not generated any revenues, and we have financed our operations and internal growth through private placements of common and preferred stock, our line of credit facilities, our completed initial public offering in November 2003, interest income earned from our cash and cash equivalents, and most recently, our completed follow-on public offering in June 2004. We are a development stage enterprise and have incurred significant operating losses and negative operating cash flows since our inception in 1996 as we have devoted substantially all of our efforts to research and development activities, including clinical trials. For the three and six months ended June 30, 2004, we incurred a net loss attributable to common stockholders of $6.8 million and $13.4 million, respectively, and negative operating cash flow of $13.1 million for the six months ended June 30, 2004. As of June 30, 2004, we had an accumulated deficit of $101.2 million. The accumulated deficit resulted principally from our research and development activities associated with MyVax, including our pivotal Phase 3 clinical trial and additional Phase 2 clinical trials, and several non-cash charges associated with our preferred stock financings. The accumulated deficit includes a non-cash dividend of $18.4 million related to our preferred stock financings in April and May of 2003, $0.8 million of non-cash interest expense relating to the amortization of the discount on the convertible notes in April 2003, a non-cash charge of $3.5 million associated with the extinguishment of convertible notes and cancellation of the related warrants issued to preferred stockholders in August 2003 and non-cash interest expense of $1.9 million associated with warrants issued to the guarantor of our two line of credit facilities. We have repaid all outstanding borrowings under these facilities, and in November 2003, we terminated both facilities. As of June 30, 2004, we had cash, cash equivalents and short-term investments of $72.3 million.

     We anticipate working on a number of long-term development projects that will involve experimental and unproven technology. The projects may require many years and substantial expenditures to complete and may ultimately be unsuccessful. We will need operating funds to continue our research and development activities and clinical trials, pursue regulatory approvals and build production, sales and marketing capabilities, as necessary.

     Since 1996, we have been successful in completing several rounds of private equity financing. In 2002, the sale of Series E convertible preferred stock generated $20.7 million of cash proceeds. In April and May of 2003, we raised $6.5 million through the sale of additional Series E convertible preferred stock, convertible notes (which converted into Series E convertible preferred stock

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during the quarter ended September 30, 2003) and warrants.

     In November 2003, we completed our initial public offering in which we sold 4,179,860 shares of common stock, for aggregate gross proceeds of $37.6 million. After deducting the underwriters’ commission and offering expenses, we received net proceeds of approximately $33.7 million.

     In June 2004, we completed a follow-on offering in which we sold 7,013,646 shares of common stock at a public offering price of $8.50 per share for aggregate gross proceeds of $59.6 million. After deducting the underwriters’ commission and offering expenses, we received net proceeds of approximately $55.9 million.

     We believe that our current cash resources, together with the interest thereon, will provide us with sufficient financial resources for at least the next 12 months. Even if we achieve positive interim results in our pivotal Phase 3 clinical trial and receive regulatory approval for MyVax, including regulatory approval of a commercial scale manufacturing facility, we will not have product revenue until 2006, at the earliest. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through interest income earned on cash balances. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research and development programs or our commercialization efforts. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants.

Stock-based compensation

     We account for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and comply with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), as amended by Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation, Transition and Disclosure” (“SFAS No. 148”). Under APB 25, unearned stock compensation is based on the difference, if any, on the date of grant, between the deemed fair value of our common stock and the exercise price of stock option grants to employees.

     We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” “(EITF 96-18”). The equity instruments, consisting of stock options, are valued using the Black-Scholes Model. All unvested shares are marked to market until such options vest.

     All stock compensation is amortized and expensed in accordance with Financial Accounting Standards Board Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans: an Interpretation of APB Opinions No. 15 and 25,” (“FIN 28”). We are amortizing stock compensation to expense over the period during which the periods vest, generally four years, using an accelerated vesting model consistent with FIN 28. Amortization of stock-based compensation for employees and non-employees is as follows (in thousands):

     Amortization of stock-based compensation will be reduced in future periods to the extent options are terminated prior to full vesting.

     Prior to the closing of our initial public offering, the fair value of options was computed using the minimum value method. Following the offering, the value of each option and employee purchase right has been estimated at the date of grant, using the Black-Scholes Model, assuming the following weighted average assumptions:

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     Had compensation cost for our stock-based compensation plan been determined based on the fair value at the grant date of the awards consistent with the provisions of SFAS No. 123, as amended by SFAS 148, our net loss would have been increased to the amounts below (in thousands, except per share data):

     The resulting effect on net loss attributable to common stockholders and net loss per share attributable to common stockholders is not likely to be representative of the effects in future periods, due to subsequent periods including additional grants and periods of vesting.

Recent accounting developments

     In April 2004, the Emerging Issues Task Force issued Statement No. 03-06, “Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings per Share,” (“EITF 03-06”). EITF 03-06 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. EITF 03-06 also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004. The adoption of EITF 03-06 did not have a material effect on our results of operations.

Comprehensive loss

     Comprehensive loss is comprised of net loss and changes in unrealized gains/losses on available-for-sale securities. There were no material differences between net loss and comprehensive loss for all periods presented.

NOTE 2. NET LOSS PER SHARE

     Basic net loss per share attributable to common stockholders is calculated based on the weighted-average number of shares of common stock outstanding during the period excluding those shares that are subject to repurchase. Diluted net loss per share attributable to common stockholders should give effect to the dilutive effect of potential issuances of common stock consisting of stock options, warrants, common stock subject to repurchase and convertible preferred stock. However, all dilutive securities have

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been excluded from the diluted net loss per share computations as they have an antidilutive effect due to our net loss.

     A reconciliation of shares used in the calculation is as follows (in thousands, except per share amounts):

     The following outstanding stock options and warrants, common stock subject to repurchase and convertible preferred stock (on an as-if-converted basis) were excluded from the computation of diluted net loss per share attributable to common stockholders as they had an antidilutive effect (in thousands):

NOTE 3. SHORT-TERM INVESTMENTS

     The following is a summary of our available-for-sale securities as of June 30, 2004 (in thousands):

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking statements. These statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “should,” “estimate,” “predict,” “potential,” “continue” or the negative of such terms or other similar expressions, identify forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed under the caption “Risk Factors” below, as well as those discussed elsewhere in this quarterly report on Form 10-Q.

Overview

     We are a biotechnology company focused on the research and development of novel immunotherapies for the treatment of cancer. Immunotherapies are treatments that utilize the immune system to combat diseases. Our lead product candidate, MyVax personalized immunotherapy, is a patient-specific active immunotherapy that is based on the unique genetic makeup of a patient’s tumor and is designed to activate a patient’s immune system to identify and attack cancer cells. MyVax is currently in a pivotal Phase 3 clinical trial and additional Phase 2 clinical trials for the treatment of B-cell non-Hodgkin’s lymphoma (“NHL”).

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