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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission file number: 000-24207

ABGENIX, INC.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) if the Act: None

Securities registered pursuant to Section 12(g) of the act: Common Stock, $0.0001 par value;

Preferred Stock Purchase Rights
(Title of Class)

        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 in 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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

        The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2003 was $820,364,407. The number of shares of Common Stock, $0.0001 par value, outstanding on February 27, 2004, was 88,305,099.

        Documents incorporated by reference: Portions of the Proxy Statement for Registrant's Annual Meeting of Shareholders to be held June 7, 2004 (the Proxy Statement), are incorporated herein by reference into Part III.

TABLE OF CONTENTS

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PART I

Item 1. Business.

        The following description of our business should be read in conjunction with the information included elsewhere in this annual report on Form 10-K. The description contains certain forward-looking statements that involve risks and uncertainties. When used in this annual report on Form 10-K, the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and similar expressions as they relate to us are included to identify forward-looking statements. Our actual results could differ materially from the results discussed in the forward-looking statements as a result of certain of the risk factors set forth below and in the documents incorporated herein by reference, and those factors described under "Additional Factors that Might Affect Future Results". In this annual report on Form 10-K, references to "Abgenix," "we," "us" and "our" are to Abgenix, Inc. and its subsidiaries.

Abgenix

        We are a biopharmaceutical company that is focused on the discovery, development and manufacture of human therapeutic antibodies for the treatment of a variety of disease conditions, including cancer, inflammation, metabolic disease, autoimmune diseases, cardiovascular disease and infectious diseases.

        We have proprietary technologies that facilitate rapid generation of highly specific, antibody therapeutic product candidates that contain fully human protein sequences and that bind to disease targets appropriate for antibody therapy. In this annual report on Form 10-K we refer to these candidates as fully human antibody therapeutic product candidates. We developed our XenoMouse® technology, a technology using genetically modified mice, to generate fully human antibodies. We also own a technology that enables the rapid identification of antibodies with desired function and characteristics, referred to as SLAM™ technology. In our XenoMax™ technology, we use SLAM technology to select and isolate antibodies with particular function and characteristics from antibody-producing cells generated by XenoMouse animals. We believe our antibody-generation technologies enhance our capabilities in product development. We intend to use our technologies to build a large and diversified product portfolio that we expect to develop and commercialize largely through joint development and commercialization arrangements with pharmaceutical companies and others. We generally expect to self-fund preclinical and clinical activities to determine preliminary safety and efficacy before entering into joint development and commercialization agreements. In some cases we may conduct product development entirely on our own. To date, we have initiated clinical trials with four fully human antibodies generated from XenoMouse technology. We are co-developing ABX-EGF, or panitumumab, our leading, most advanced proprietary antibody product candidate, under a development and commercialization agreement with Immunex Corporation, a wholly-owned subsidiary of Amgen, Inc. We also have two product candidates in early stage clinical trials. In addition, we have entered into a variety of contractual arrangements with multiple pharmaceutical, biotechnology and genomics companies involving our XenoMouse and XenoMax technologies. Two of our customers, Pfizer, Inc. and Amgen, have initiated clinical trials with fully human antibodies generated from XenoMouse animals.

        We were incorporated on June 24, 1996, and on July 15, 1996, were organized pursuant to a stock purchase and transfer agreement with Cell Genesys, Inc. In 1989, Cell Genesys started our business and operations and conducted our business and operations internally within its organization as a separate company. In 1991, Cell Genesys and JT Immunotech USA Inc., the predecessor company to JT America Inc. and a medical subsidiary of Japan Tobacco, formed Xenotech, an equally owned joint venture, to develop genetically modified strains of XenoMouse mice, and to commercialize products generated from these mice. At the time of our organization, Cell Genesys assigned to us substantially all of its rights in Xenotech. On December 31, 1999, we became the sole owner of Xenotech by buying JT America's interest in Xenotech.

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Overview of Product Development

Preclinical Research

        Our product development activities begin with preclinical research and development. Our preclinical research and development efforts have been focused on:

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the identification of antigens, which are proteins or other molecules that are potential targets for antibody therapy;



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the generation of antibodies that bind to those antigens; and



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laboratory testing or screening of the antibodies we generate to identify those with function and characteristics that make them promising candidates for further development.

        We identify antigens largely through licensing or collaboration agreements with other companies that have ownership interests or intellectual property rights in antigens that are of interest to us, or have particular methods of identifying potential antigens. We also source antigens through information available in the public domain. We conduct our own preclinical antigen validation research and we generate and screen antibodies through use of our XenoMouse and XenoMax technologies. After we have identified antibodies of interest, we conduct in vitro experiments and in vivo experiments using animal models to provide further data about the potential therapeutic value of the antibodies for treatment of a variety of diseases or indications. Our preclinical activities also include improvement of production methods and support of collaborations.

Proprietary Product Development

        We have three proprietary antibody therapeutic product candidates that are currently in clinical trials.

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ABX-EGF (panitumumab).    Our leading proprietary antibody therapeutic product candidate is ABX-EGF, which has received the USAN name panitumumab. Generated using XenoMouse technology, ABX-EGF is a fully human antibody therapeutic product candidate for the treatment of a variety of cancers. We are co-developing this candidate with Immunex under a development and commercialization agreement. The status of clinical trials for ABX-EGF is as follows:



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Various cancers—We initiated a Phase 1 clinical trial for ABX-EGF in cancer in July 1999. In 2003, we expanded enrollment to investigate additional dose levels and enrollment is ongoing.



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Renal cell cancer—We initiated a Phase 2 clinical trial evaluating the effect of ABX-EGF as monotherapy in patients with renal cell cancer in April 2001 and enrollment is ongoing.



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Non-small cell lung cancer—Immunex initiated a Phase 2 clinical trial for ABX-EGF in non-small cell lung cancer in combination with standard chemotherapy, compared to standard chemotherapy alone, in July 2001. We expect to close enrollment shortly. Treatment is ongoing.



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Colorectal cancer—Immunex initiated a Phase 2 clinical trial evaluating the effect of ABX-EGF as monotherapy in patients with metastatic colorectal cancer who have previously failed chemotherapy in December 2001. Enrollment is closed and treatment is ongoing. Immunex initiated a separate Phase 2 clinical trial evaluating the effect of ABX-EGF in combination with standard chemotherapy, as first-line treatment in patients with metastatic colorectal cancer, in January 2002, in which enrollment is ongoing.



In January 2004 Immunex initiated a pivotal study of ABX-EGF as a third-line monotherapy in patients with colorectal cancer. The trial initiation follows the receipt of a

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Special Protocol Assessment letter from the U.S. Food and Drug Administration, or FDA, endorsing the design of the trial to support a regulatory submission for potential accelerated approval. At the same time Immunex initiated a second pivotal study outside the United States in support of a global registration program.

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Prostate cancer—We initiated a Phase 2 clinical trial evaluating the effect of ABX-EGF in patients with hormone resistant prostate cancer in January 2002, in which treatment is ongoing. Based on a preliminary analysis, we have recently closed enrollment in this trial. The preliminary findings do not meet our planned threshold to support pursuing the drug as a monotherapy in this indication.



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ABX-MA1.    Generated using XenoMouse technology, ABX-MA1 is a fully human antibody therapeutic product candidate for the treatment of a variety of cancers. We filed an investigational new drug application, or IND, in December 2001 and initiated a Phase 1 clinical trial evaluating the effect of ABX-MA1 in patients with metastatic melanoma in February 2002. Enrollment is closed and treatment is ongoing.



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ABX-PTH.    Generated using XenoMouse technology, ABX-PTH is a fully human antibody therapeutic product candidate for the treatment of a secondary hyperparathyroidism. We filed an IND in December 2003 and initiated a Phase 1 clinical trial evaluating the effect of ABX-PTH in patients with secondary hyperparathyroidism in February 2004.

        "Phase 1" indicates safety and pharmacokinetics testing in a limited patient population. "Phase 2" indicates safety, dosing and efficacy testing in a limited patient population. "Phase 3" indicates efficacy and safety testing in a larger patient population. A "pivotal study" is designed to indicate efficacy and safety in a larger patient population. Phase 3 studies designed for registration purposes are considered pivotal studies. Phase 2 studies specifically designed for registration purposes can be pivotal studies.

        We have entered into a broad collaboration with AstraZeneca UK Limited for the development of antibody therapeutics for the treatment of oncology pursuant to which we have an opportunity to co-develop products with AstraZeneca, as well as provide preclinical and clinical research support for the development of product candidates by AstraZeneca. In addition, we have entered into co-development agreements for the joint development of antibody product candidates with a variety of companies including Chugai Biopharmaceuticals, Inc. and Sosei Co., Ltd. We intend to enter into additional joint development agreements for other product candidates. We will expend significant capital to conduct clinical trials or share in the costs of conducting clinical trials for our proprietary product candidates. We expect that this will substantially increase our operating expenses over the next few years in comparison to prior periods.

Customer Product Development

        We license our XenoMouse technology to pharmaceutical and biotechnology companies interested in developing antibody-based products. In addition to our proprietary antibody therapeutic product candidates in clinical trials, there are four customer-developed antibodies generated with XenoMouse technology in clinical trials or the subject of an IND as follows:

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Pfizer—We generated two XenoMouse-derived fully human antibody therapeutic product candidates that Pfizer has advanced into clinical trials. In addition, Pfizer filed an IND to initiate clinical testing of a third XenoMouse-derived fully human antibody therapeutic product candidate in January 2004.



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Amgen—We generated a XenoMouse-derived fully human antibody therapeutic product candidate that binds to an undisclosed antigen that Amgen has advanced into clinical trials.

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Overview of Production Services

        Our antibody production activities, also referred to as production services, include closely integrated process sciences and manufacturing capabilities for the manufacture of therapeutic product candidates. We use this capability for the manufacture of our own proprietary products candidates and also offer these services to our collaborators and others. We believe the close integration between process sciences and manufacturing enables us to streamline the production process. Within our pilot plant, our process sciences services include cell line development, optimization and production scale up. The resulting process can be transitioned to our manufacturing facility, portions of which are now operational. This facility is designed to manufacture product candidates for clinical trials and to support the early commercial launch of a limited number of products in compliance with applicable FDA good manufacturing practices. The facility has been approved by the State of California for the manufacture of product for use in human clinical trials.

Abgenix Strategy

        Our objective is to be a leader in the discovery, development and manufacture of antibody-based biopharmaceutical products and to bring to market a diversified portfolio of antibody-based therapeutics. Key elements of our strategy to accomplish this objective include the following:

        Developing a diversified portfolio of proprietary product candidates through collaborations.    Our strategy is to build our product portfolio and generate revenues by entering collaborations such as the co-development agreement we have with Amgen and Immunex for ABX-EGF. These proprietary product collaborations involve antibodies that bind to antigens to which we obtain rights from our collaborators or from publicly available sources. We are targeting serious medical conditions, including cancer, inflammation, metabolic diseases, autoimmune disease, cardiovascular disease, growth factor modulation, neurological diseases and infectious diseases. We intend to enter additional joint development and commercialization agreements after generating antibodies and performing limited preclinical and clinical development. In some limited circumstances, we may develop the product through later stage clinical trials and license the product candidate to pharmaceutical or biotechnology companies for marketing. By entering into co-development and marketing arrangements, we can pursue multiple product candidates in the development stage, enabling us to spread our risk of product development, make cost-effective use of available human and capital resources and generate licensing and milestone revenues in the short term. We have also entered into a collaboration and license agreement with AstraZeneca for the discovery, development and commercialization of fully human monoclonal antibodies to treat cancer. This alliance involves the discovery and development of up to 36 therapeutic antibodies to treat cancer targets, to be commercialized by AstraZeneca, and potentially the co-development and commercialization of up to 18 therapeutic antibodies on an equal cost and profit sharing basis.

        Enhancing our product portfolio by applying our technology to antigens we source.    Another aspect of our strategy is to develop antibody therapeutic product candidates by using our XenoMouse and XenoMax technologies to generate antibodies to targets made available to us under antigen sourcing contracts. This strategy includes sourcing antigens by entering into contractual agreements with leading academic researchers and companies involved in the identification and development of novel antigens, such as those we have entered with several genomics and biopharmaceutical companies. We may also gain access to novel antigens through co-development relationships. Using this strategy, we believe we can create a package that includes antigen rights, human antibodies, and preclinical and clinical data for use by us in self-funded product development efforts or for marketing to potential collaborators for the joint development of proprietary product candidates.

        Leveraging XenoMouse and XenoMax technologies through licensing and other contracts.    We plan to continue to make our platform technologies available to others and generate revenues by entering into

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contracts with pharmaceutical and biotechnology companies interested in using our XenoMouse and XenoMax technologies to develop antibody-based products. We have established agreements with numerous customers covering a broad range of antigens. To date, many of these parties have entered into new or expanded agreements with us that allow them to specify additional antigens for antibody development. These agreements typically provide for immunizations of XenoMouse animals with one or more antigens provided by the customer. Customers generally have an option for a period of time to acquire product licenses for any antibody product they wish to develop and commercialize. We expect to enter into additional XenoMouse and XenoMax agreements over time. During the initial, three-year phase of our collaboration with AstraZeneca, our out-licensing agreements will generally be limited to antigens outside the cancer field. We plan to continue to enhance our platform technologies through in-licensing, acquisitions and internal development.

        Production Services.    Our new manufacturing facility and our existing pilot plant provide integrated process sciences and manufacturing capabilities for the development and manufacture of our proprietary product candidates. We are using some available capacity to manufacture a proprietary product, ABX-EGF, which we are co-developing with Immunex. We intend to use other available capacity to manufacture other proprietary products that may be the subject of future co-development agreements. We also offer our production services to existing customers and to others to further enable their own development efforts and to absorb plant capacity not used or reserved for our proprietary product candidates.

Background

The Normal Antibody Response

        The human immune system protects the body against a variety of infections and other illnesses. Specialized cells, which include B-cells and T-cells, work in concert with the other components of the immune system to recognize, neutralize and eliminate from the body numerous foreign substances, infectious organisms and malignant cells. In particular, B-cells generally produce protein molecules, known as antibodies, which are capable of recognizing substances potentially harmful to the human body. Such substances are called antigens. Upon being bound by an antibody, antigens can be neutralized or blocked from interacting with and causing damage to the body. In order to effectively neutralize or eliminate an antigen without harming normal cells, the immune system must be able to generate antibodies that bind tightly (i.e., with high affinity) to one specific antigen (i.e., with specificity).

        All antibodies have a common core structure composed of four subunits, two identical light (L) chains and two identical heavy (H) chains, named according to their relative size. The heavy and light chains are assembled within the B-cell to form an antibody molecule that consists of a constant

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region and a variable region. As shown in the diagram below, one can represent an antibody molecule schematically in the form of a "Y" structure.

        The base of the "Y," together with the part of each arm immediately next to the base, is called the constant region because its structure tends to be very similar across all antibodies. In contrast, the variable regions are at the end of the two arms and are unique to each antibody with respect to their three-dimensional structures and protein sequences. Because variable regions define the specific binding sites for a variety of antigens, there is a need for significant structural diversity in this portion of the antibody molecule. The immune system achieves such diversity primarily through a unique mode of assembly involving a complex series of recombination steps for various gene segments of the variable region, including the V, D and J segments (see the diagram below).

        The human body is repeatedly exposed to a variety of different antigens. Accordingly, the immune system must be able to generate a diverse repertoire of antibodies that are capable of recognizing these multiple antigen structures with a high degree of specificity. The immune system has evolved a two-step mechanism in order to accomplish this objective. The first step, immune surveillance, is achieved through the generation of diverse circulating B-cells, each of which assembles different antibody gene segments in a semi-random fashion to produce and display on its surface a specific antibody. As a result, the body generates a large number of distinct, albeit lower affinity, circulating antibodies so as to

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recognize essentially any foreign antigen that enters the body. While capable of recognizing the antigens as foreign, these lower affinity antibodies are generally incapable of effectively neutralizing them.

        This limitation of the immune surveillance process is generally overcome by the normal immune system in a second step called "affinity maturation." Triggered by the initial binding to a specific antigen, the immune system then primes the small fraction of B-cells that recognize this antigen to progressively generate antibodies with higher and higher affinity through a process of repeated mutation and selection. As a result, the reactive antibodies develop increasingly higher specificity and affinity with the latter being potentially a hundred to a thousand times higher than those generated in the immune surveillance process. These more specific, higher affinity antibodies have a greater likelihood of effectively neutralizing or eliminating the antigen while minimizing the potential of damaging healthy cells.

Antibodies as Products

        Recent advances in the technologies for creating and producing antibody products, coupled with a better understanding of how antibodies and the immune system function in key disease states, have led to renewed interest in the commercial development of antibodies as therapeutic products. According to a survey by the Pharmaceutical Research and Manufacturers of America, antibodies accounted for over 20% of all biopharmaceutical products in clinical development in February 2000. We are currently aware of seventeen antibody therapeutic products approved for marketing in the United States. These products are Orthoclone, ReoPro, Rituxan, Zenapax, Herceptin, Synagis, Remicade, Simulect, Mylotarg, Campath, Zevalin, Humira, Raptiva, Erbitux, Bexxar, Xolair and Avastin. These products are currently being marketed for a wide range of medical disorders such as autoimmune disease, cardiovascular disease, cancer and infectious diseases.

        We believe that, as products, antibodies have several potential clinical and commercial advantages over traditional therapies. These advantages may include the following:

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faster product development;



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fewer unwanted side effects as a result of high specificity for the disease target;



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greater patient compliance and higher efficacy as a result of favorable pharmacokinetics;



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ability to deliver various payloads, including drugs, radiation and toxins, to specific disease sites; and



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ability to elicit a desired immune response.

Limitations of Current Approaches to Development of Antibody Therapeutic Products

        Despite the early recognition of antibodies as promising therapeutic agents, a number of commercial and technical limitations have thus far hampered most approaches to developing antibodies as products. Researchers aimed their initial efforts at the development of hybridoma cells from mice. Such hybridoma cells are immortalized mouse antibody-secreting B-cells. Researchers derive these hybridoma cells from normal mouse B-cells that have been fused with a perpetually-growing cell so that they are capable of reproducing over an indefinite period of time. They are then cloned to produce a homogeneous population of identical cells that produce antibodies called monoclonal antibodies that are identical in their structure and functional characteristics.

        While mouse monoclonal antibodies can be generated to bind to a number of antigens, they contain mouse protein sequences and tend to be recognized as foreign by the human immune system. As a result, the human body quickly eliminates them and they have to be administered frequently. When patients are repeatedly treated with mouse antibodies, they will begin to produce antibodies that effectively neutralize the mouse antibody, a reaction referred to as a Human Anti-Mouse Antibody, or

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HAMA, response. In many cases, the HAMA response prevents the mouse antibodies from having the desired therapeutic effect and may cause the patient to have an allergic reaction. The potential use of mouse antibodies is thus best suited to situations where the patient's immune system is compromised or where only short-term therapy is required. In such settings, the patient is often incapable of producing antibodies that neutralize the mouse antibodies or has insufficient time to do so.

        Recognizing the limitations of mouse monoclonal antibodies, researchers have developed a number of approaches to make them appear more human-like to a patient's immune system. For example, improved forms of mouse antibodies, referred to as "chimeric" and "humanized" antibodies, are genetically engineered and assembled from portions of mouse and human antibody gene fragments. While these chimeric and humanized antibodies are more human-like, they still retain a varying amount of the mouse antibody protein sequence, and accordingly may continue to trigger the HAMA response.

        Additionally, the humanization process can be expensive and time consuming, requiring at least two months and sometimes over a year of secondary manipulation after the initial generation of the mouse antibody. Once the humanization process is complete, the remodeled antibody gene must then be expressed in a recombinant cell line appropriate for antibody manufacturing, adding additional time before the production of preclinical and clinical material can be initiated. In addition, the combination of mouse and human antibody gene fragments can result in a final antibody product that is sufficiently different in structure from the original mouse antibody that a decrease in specificity or a loss of affinity results.

Human Antibodies

        The HAMA response can potentially be avoided through the generation of antibody therapeutic products with fully human protein sequences. Such fully human antibodies may increase the market acceptance and expand the use of antibody therapeutics. Researchers have developed several antibody technologies to produce antibodies with 100% human protein sequences (see the diagram above). One approach to generating human antibodies, called "phage display" technology, involves the cloning of human antibody genes into bacteriophages, viruses that infect bacteria, in order to display antibody fragments on the surfaces of bacteriophage particles. This approach attempts to mimic in vitro the immune surveillance and affinity maturation processes that occur in the body. Because phage display technology cannot take advantage of the naturally occurring in vivo affinity maturation process, the antibody fragments initially isolated by this approach are typically of moderate affinity. In addition, further genetic engineering is required to convert the antibody fragments into fully assembled antibodies and significant manipulation, taking from several months to a year, may be required to increase their affinities to a level appropriate for human therapy. Before preclinical or clinical material

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can be produced, the gene encoding the antibody derived from phage display technology must, as with a humanized antibody, be introduced into a recombinant cell line.

        Two additional approaches involving the isolation of human immune cells have been developed to generate human antibodies. One such approach is the utilization of immunodeficient mice that lack both B- and T-cells. Researchers transplant human B-cells and other immune tissue into these mice which are then subsequently immunized with target antigens to stimulate the production of human antibodies. However, this process is generally limited to generating antibodies only to nonhuman antigens or antigens to which the human B-cell donor had previously responded. Accordingly, this approach may not be suitable for targeting many key diseases such as cancer, and inflammatory and autoimmune disorders for which appropriate therapy might require antibodies to human antigens. The other approach involves collecting human B cells that have been producing desired antibodies from patients exposed to a specific virus or pathogen. As with the previous approach, this process may not be suitable for targeting diseases where antibodies to human antigens are required, and therefore is generally limited to infectious disease targets which will be recognized as foreign by the human immune system.

The Abgenix Solution—XenoMouse and XenoMax Technologies

        Our approach to generating human antibodies with fully human protein sequences is to use genetically engineered strains of mice in which mouse antibody gene expression is suppressed and functionally replaced with human antibody gene expression, while leaving intact the rest of the mouse immune system. Rather than engineering each antibody product candidate, these transgenic mice capitalize on the natural power of the mouse immune system in surveillance and affinity maturation to produce a broad repertoire of high affinity antibodies. By introducing human antibody genes into the mouse genome, transgenic mice with such traits can be bred indefinitely. Importantly, these transgenic mice are capable of generating human antibodies to human antigens because the only human products expressed in the mice (and therefore recognized as "self") are the antibodies themselves. The mouse thus recognizes any other human tissue or protein as a foreign antigen and the mouse will mount an immune response. Abnormal production of certain human proteins, such as cytokines and growth factors or their receptors, has been implicated in various human diseases. Neutralization or elimination of these abnormally produced or regulated human proteins with the use of human antibodies could ameliorate or suppress the target disease. Therefore, the ability of these transgenic mice to generate human antibodies against human antigens could offer an advantage to drug developers compared with some of the other approaches described previously. A challenge with this approach, however, has been to introduce enough of the human antibody genes in appropriate configuration into the mouse genome to ensure that these mice are capable of recognizing the broad diversity of antigens relevant for human therapies.

        To make our transgenic mice a robust tool capable of consistently generating high affinity antibodies that can recognize a broad range of antigens, we equipped the XenoMouse with approximately 80% of the human heavy chain antibody genes and a significant amount of the human light chain genes. We believe that the complex assembly of these genes together with their semi-random pairing allows XenoMouse animals to recognize a diverse repertoire of antigen structures. XenoMouse technology further capitalizes on the natural in vivo affinity maturation process to generate high affinity, fully human antibodies. In addition, we have developed multiple strains of XenoMouse animals, each of which is capable of producing a different class of antibody to perform different therapeutic functions. We believe that our various XenoMouse strains will provide maximum flexibility for drug developers in generating antibodies of the specific type best suited for a given disease indication.

        Antibodies derived from XenoMouse animals originate solely from the human immunoglobulin genes that have been introduced into the animal. Consequently, antibodies generated using XenoMouse

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technology are fully human and are, therefore, expected to be less likely to be recognized as foreign and to elicit an antibody response to the therapeutic antibody than antibodies containing mouse proteins. However, an antibody response to a particular fully human antibody sequence could still occur, resulting in formation of a human anti-human antibody (HAHA) response, which neutralizes the effect of the antibody and may result in an allergic reaction.

        We obtain the antibodies generated by XenoMouse animals by extracting the antibody-producing B cells. We can transform these B-cells into hybridomas to generate the quantities of antibodies needed for standard methods of assaying and selecting antibodies for further development. Hybridoma technology captures only about 1% of the antibodies originally generated by the mouse. Alternatively, we can submit the B-cells to our proprietary Selected Lymphocyte Antibody Method (SLAM) technology, which we acquired through our November 2000 acquisition of Abgenix Biopharma Inc. SLAM technology cultures the B-cells directly and rapidly assays them over a period of several days using a microplate-based, high throughput system. Using SLAM, we can typically increase the number of different antigen-reactive monoclonal antibodies identified in a single experiment by 100 to 1000-fold compared to hybridoma technology.

        We use the term XenoMax technology to refer to the use of XenoMouse technology together with SLAM technology. Our XenoMax technology enhances the speed and capability of generating fully human, high affinity antibodies. XenoMax technology allows researchers to rapidly scan the majority of the immune repertoire of an immunized XenoMouse animal, and to identify B-cells that produce antibodies with the desired functional properties and optimal affinities. Using rapid microplate-based assays to measure and rank antibodies according to design goals (e.g., potency, affinity, specificity), XenoMax technology can identify individual B-cells producing extremely high-quality antibodies. It can also recover the antibody encoding genes. Within three to five weeks after immunizing XenoMouse animals, XenoMax technology can produce a ranked set of recombinant antibody candidates resulting from the harvested B-cells. We believe XenoMax technology can speed product development timelines by allowing researchers to move directly into preclinical assessment of panels of suitable recombinant candidate antibody products, each ready for manufacturing scale-up. XenoMax technology samples up to 2 million B-cells per immunized XenoMouse animal, dramatically increasing the number of antibodies from which to choose optimal therapeutic product candidates. In contrast to phage display technology, antibodies derived from XenoMax technology retain their native pairing of heavy and light chains, and do not require in vitro affinity and/or potency maturation.

        Other approaches to generating fully human antibodies from mice that we understand are being pursued by competitors include: (i) transgenic mice containing heavy human chain and human light chain genes on a "minilocus" (which are mice that possess a relatively small number of representative human heavy and light chain genes in their genome), (ii) "transchromosomic" mice that contain large numbers of human heavy chain and light chain genes on one or more separate, or extra, chromosomes, and (iii) "UltiMab™" mice that are generated as a result of breeding "minilocus" containing mice with "transchromosomic" mice. "Transchromosomic" mice were developed by Kirin Brewing Co., Ltd. It is our understanding that "UltiMab" mice were developed by a collaboration between Medarex, Inc. and Kirin Brewing Co. and are currently used by Medarex, Kirin, GenPharm International, Inc. and GenMab A/S. Also, Xenerex Biosciences, a subsidiary of Avanir Pharmaceuticals, and XLT Biopharmaceuticals Ltd. use technologies in which human B cells and T cells are implanted in mice with compromised immune systems.

        In addition to the generation of human antibodies from mice, we understand that competitors such as Cambridge Antibody Technology Group plc, MorphoSys AG and Dyax Corporation utilize phage display technology for the generation of human antibodies from phage display libraries derived from human samples. BioSite Incorporated, through a collaboration with Medarex, generates human antibody phage display libraries from immunized "UltiMab" mice. It is our understanding that these libraries are not used for deriving therapeutic antibody products.

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Our Technology Advantages

        We believe that our technologies offer the following advantages:

        Producing antibodies with fully human protein sequences.    Our XenoMouse technology, unlike chimeric and humanization technologies, allows the generation of antibodies with 100% human protein sequences. We believe that antibodies created using XenoMouse technology are less likely to cause a HAHA response than antibodies created with other technologies even when administered repeatedly to patients without compromised immune systems. More than 700 patients have been tested with our antibody product candidates and we have observed HAHA responses in two patients, each of whom was tested in our phase 1 clinical trial of ABX-MA1. Given this data, we expect antibodies produced using XenoMouse technology to offer a better safety profile and to be eliminated less quickly from the human body, reducing the frequency of dosing.

        Generating a diverse antibody response to essentially any disease target appropriate for antibody therapy.    Because we have introduced a substantial majority of human antibody genes into XenoMouse animals, we believe that the technology has the potential to generate high affinity antibodies that recognize a broad range of structures. In addition, through immune surveillance, we expect XenoMouse technology to be capable of generating antibodies to almost any medically relevant antigen, human or otherwise. For a given antigen, having multiple antibodies to choose from could be important in selecting the optimal antibody product.

        Generating high affinity antibodies that do not require further engineering.    XenoMouse technology uses the natural in vivo affinity maturation process to generate antibody product candidates, usually in two to four months. These antibody product candidates may have affinities as much as a hundred to a thousand times higher than those seen in phage display. In contrast to antibodies generated using humanization and phage display technology, we and our customers can produce XenoMouse antibodies without the need for any subsequent engineering, a process that at times has proven to be challenging and time consuming. By avoiding the need to further engineer antibodies, we reduce the risk that an antibody's structure and therefore functionality will be altered between the initial antibody selected and the final antibody placed into production.

        Enabling more efficient product development.    XenoMouse technology can potentially produce multiple product candidates more quickly than humanization and phage display technology and we and our customers can conduct preclinical testing on several antibodies in parallel to identify the optimal product candidate that will be tested in clinical trials.

        Providing flexibility in choosing manufacturing processes.    Once we have identified an antibody with the desired characteristics, we can produce preclinical material either directly from hybridomas or from recombinant cell lines. Humanized and phage display antibodies, having been engineered, cannot be produced in hybridomas. In addition to potential timesaving, production in hybridomas avoids the need to license certain third party intellectual property rights covering certain processes for production of antibodies in recombinant cell lines.

        Enhancing the speed and capability of generating fully human, high affinity antibodies.    Our XenoMax technology allows researchers to rapidly scan the majority of the immune repertoire of an immunized XenoMouse animal to identify B-cells that produce antibodies with the desired functional properties and optimal affinities. We believe XenoMax technology can speed product development timelines by allowing researchers to move directly into preclinical assessment of panels of suitable recombinant candidate antibody products, each ready for manufacturing scale-up.

        Providing an integrated production platform.    Our integrated production platform has been designed to minimize the risks associated with process, scale and site changes. We believe that our platform, which integrates a comprehensive range of process sciences services, including cell line, cell culture,

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purification, formulation and assay development, and our manufacturing facility can enable us to rapidly advance product candidates from cell line generation to production. This integrated approach may reduce the variability and risk associated with technology transfer and improve production quality and efficiency.

Proprietary Product Development Programs

        We are currently developing antibody therapeutics for a variety of indications. The table below sets forth the current development status of our proprietary product candidates:

(1)

Clinical trial managed by Immunex.

        "Phase 1" indicates safety and pharmacokinetics testing in a limited patient population. "Phase 2" indicates safety, dosing and efficacy testing in a limited patient population. "Phase 3" indicates efficacy and safety in a larger patient population. A "pivotal study" is designed to indicate efficacy and safety in a larger patient population. Phase 3 studies designed for registration purposes are considered pivotal studies. Phase 2 studies specifically designed for registration purposes can be pivotal studies.

ABX-EGF

        Tumor cells that overexpress the epidermal growth factor receptor, or EGFr, on their surface often depend on EGFr's activation for growth. EGFr is expressed in a variety of cancers including lung, breast, ovarian, bladder, prostate, colorectal, kidney and head and neck. The activation of EGFr is triggered by the binding to EGFr by epidermal growth factor, or EGF, or Transforming Growth Factor alpha, or TGFa, both of which are expressed by the tumor or by neighboring cells. We believe that blocking the ability of EGF and TGFa to bind with EGFr may offer a treatment for certain cancers. ABX-EGF, a fully human monoclonal antibody generated using XenoMouse technology, binds to EGFr with high affinity and has been shown to inhibit tumor cell proliferation in vivo and cause eradication of EGF dependent human tumors established in mouse models. Published studies have shown that ABX-EGF can inhibit growth of EGF-dependent human tumors cells in mouse models. ABX-EGF has also demonstrated the ability to reverse cancer cell growth and cause eradication of established tumors in mice even when administered after significant tumor growth has occurred. Furthermore, in these models where tumors were eradicated, researchers did not observe any relapse of the tumor after discontinuation of the antibody treatment. Of the more than 500 patients treated with ABX-EGF in clinical trials, two have experienced infusion related reactions, in each case controllable by premedication.

        Clinical Status.    In July 1999, we initiated a Phase 1 dose-escalating human clinical trial examining the safety, pharmacokinetics and biological activity of multiple doses of ABX-EGF as monotherapy in patients with a variety of advanced cancers. We first reported data on this ongoing study in November 2001 and presented updated information at the annual meeting of the American Society for

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Clinical Oncology in May 2002. Forty-six patients had been recruited to this study at that time. ABX-EGF appeared to be well tolerated at weekly doses ranging up to 3.5 mg/kg. We did not observe any allergic reactions, clinically significant infusion-related reactions or human anti-human antibody formation. At doses greater than or equal to 2.0 mg/kg, typical EGF receptor mediated skin rashes were seen in 100% of patients. Six patients who had received ABX-EGF (doses of 0.1 or 0.75, 2.5 or 3.5 mg/kg) achieved a partial response, minor response or disease stabilization.

        On the basis of preliminary results from the ongoing Phase 1 clinical study, we and Immunex initiated five Phase 2 studies in April, July and December 2001 and January 2002. The first Phase 2 study is evaluating the effect of ABX-EGF monotherapy in patients with renal cell cancer. An interim analysis of this study was reported at the annual meeting of the American Society of Clinical Oncology in May 2002. A total of 88 patients with metastatic renal cell cancer had been treated in this ABX-EGF monotherapy study at the time. ABX-EGF was given weekly in doses of 1.0, 1.5, 2.0, and 2.5 mg/kg to cohorts of approximately 20 patients each. ABX-EGF was administered for eight weeks or until patients demonstrated progressive disease. Eighty-nine percent of patients included in this study had received prior systemic therapy and the majority of patients had received more than one prior systemic regimen. ABX-EGF was generally well tolerated. No allergic reactions, clinically significant infusion-related reactions, or human anti-human antibody formation were observed. A dose-related typical EGFr mediated skin rash was observed with an incidence of 100% at a dose level of 2.5 mg/kg. Single agent biological activity was seen in this heavily pre-treated patient population with 3 partial responses, 2 minor responses and 50% stable disease reported.

        Another Phase 2 study is evaluating the effect of ABX-EGF monotherapy in patients with metastatic colorectal cancer who have previously failed chemotherapy. An interim analysis of this study was reported at the annual meeting of the American Society of Oncology in May 2003. Forty-four patients were included in this analysis. Forty patients were efficacy evaluable, which was prospectively defined as having received at least 5 of 8 planned weekly doses of ABX-EGF during the first 8 weeks of treatment. ABX-EGF was given weekly at 2.5 mg/kg. Four of 40 (10%) efficacy evaluable patients achieved a partial response at week 8, which was confirmed 4 weeks later. Fifty-five percent of patients had stable disease at week 8. On the basis of this efficacy result, Abgenix and Immunex designed a pivotal trial program for ABX-EGF in third line monotherapy treatment of colorectal cancer. In January 2004, Immunex received approval of the design and initiation of a pivotal study for possible accelerated approval by the FDA under a "Special Protocol Assessment". Immunex also initiated a second pivotal study outside the United States in support of a global registration program for ABX-EGF in the treatment of patients with late stage colorectal cancer.

        We are also conducting a Phase 2 study in patients with non small cell lung cancer receiving either standard chemotherapy with carboplatin and paclitaxel alone or in combination with ABX-EGF. A separate Phase 2 study is evaluating the effect of ABX-EGF in combination with standard chemotherapy, as first-line treatment in patients with metastatic colorectal cancer. Another Phase 2 study is evaluating the effect of ABX-EGF monotherapy in patients with hormone resistant prostate cancer. Based on a preliminary analysis, we have recently closed enrollment in this trial. The preliminary findings do not meet our planned threshold to support pursuing this product candidate as a monotherapy in this indication.

ABX-MA1

        Melanoma is the most serious cancer of the skin. Currently, it is the seventh most common cancer in the United States. The projected 2003 incidence rate in the U.S. is 54,200 and the projected mortality rate is 7,600. Melanoma can spread in the body through the blood and lymphatic system. Organ involvement by metastasis, most commonly to the lungs and liver, is the leading cause of death from the disease. Melanomas that have not spread beyond the site at which they developed are curable by surgical excision. Melanoma that has spread to distant sites is infrequently curable with surgery,

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although long-term survival is occasionally achieved by resection of metastases. Radiation therapy may provide symptomatic relief for metastases to brain, bones and viscera. Although advanced melanoma is relatively resistant to standard chemotherapy, some biologic therapies, such as interferon alfa and interleukin-2 have been reported to produce a low percentage of objective responses.

        ABX-MA1 targets a protein called MUC18, a cell surface adhesion molecule that is highly expressed on metastatic melanoma cells but not on normal skin cells. MUC18 has been demonstrated to play a critical role in melanoma growth and metastasis by regulating the adhesion and interaction between melanoma cells and surrounding skin cells and new blood vessel cells. In preclinical studies, binding of the MUC18 antigen by ABX-MA1 inhibited primary melanoma tumor growth and the formation of tumor metastases. MUC18 is also expressed on sarcomas, including smooth muscle and blood vessel-derived sarcomas, prostate cancer and renal cell cancers.

        Clinical Status.    In December 2001, we filed an IND and in February 2002 we initiated a Phase 1 clinical trial of ABX-MA1 for the treatment of patients with metastatic melanoma. Enrollment is closed and treatment is ongoing.

ABX-PTH

        Secondary Hyperparathyroidism (SHPT) is a chronic disorder that is frequently observed in patients with chronic renal disease. As renal function declines, abnormal calcium and phosphorus metabolism and impaired vitamin D synthesis combine to increase serum parathyroid hormone (PTH). Typically, the condition begins to manifest before dialysis and worsens while on hemodialysis often resulting in enlarged parathyroid glands that are refractory to treatment. SHPT can lead to significant morbidity including bone disease, soft tissue calcification and increased cardiovascular disease.

        According to the US Renal Data System, in 2001, there were over 300,000 hemodialysis patients in the US, a significant proportion of whom suffer from SHPT. Currently available therapies including calcium supplements, nonabsorbable phosphate binders and vitamin D, have limited efficacy, poor compliance or significant toxicities.

        ABX-PTH, which targets and neutralizes the action of parathyroid hormone in preclinical studies, is being developed for the treatment of secondary hyperparathyroidism (SHPT). This fully human antibody has a novel mechanism of action that, in preclinical studies, neutralizes PTH by directly lowering serum levels of free PTH without increasing serum calcium or phosphate, as some current therapies do. We believe that ABX-PTH could provide a significant therapeutic advance for the SHPT population by directly reducing bioactive PTH levels, rather than relying on the indirect mechanisms provided by current therapies.

        Clinical Status.    In December 2003, we filed an IND and in February 2004 we initiated a Phase 1 clinical trial of ABX-PTH for the treatment of patients with SHPT.

Summary of Contractual Arrangements

Overview

        We have entered into a variety of contractual arrangements covering numerous antigens with more than thirty customers to use our XenoMouse and XenoMax technologies to generate and/or develop the resulting fully human antibodies. Pursuant to our XenoMouse contracts, we and our customers intend to generate antibodies for development as product candidates for the treatment of cancer, inflammation, autoimmune diseases, cardiovascular disease, growth factor modulation, neurological diseases, metabolic diseases and infectious diseases. We have also entered into contracts with two customers to provide process sciences and manufacturing services. We expect that substantially all of our revenues for the foreseeable future will result from payments under these and other contracts. We have also licensed technology from third parties for use in conjunction with our proprietary

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technologies. The terms of our current contractual arrangements vary, but can generally be categorized as follows:

•

Proprietary Product Development—In 2000, we entered into a joint development and commercialization agreement with Immunex for the co-development of ABX-EGF, a fully human antibody we created. We amended this agreement in October 2003. Under the amended agreement, Immunex has decision-making authority for development and commercialization activities. As under the original agreement, we are obligated to pay 50% of the development and commercialization costs and are entitled to receive 50% of any profits from sales of ABX-EGF. Under the amended agreement, Immunex is required to make available up to $60.0 million in advances that we may use to fund a portion of our share of development and commercialization costs for ABX-EGF after we have contributed $20.0 million toward development costs in 2004. As of February 29, 2004, we have not received any advances from Immunex. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales; however, we are not obligated to repay any portion of the advances if ABX-EGF does not reach commercialization. Under a separate agreement with Immunex, we will manufacture clinical supplies for the collaboration and, for the first five years after commercial launch, commercial supplies with Immunex's support and assistance. The costs of manufacturing clinical and commercial supplies will also be shared. We have entered into co-development and commercialization arrangements for the development of proprietary products that are in various early stages with other collaborators, including Microscience Limited, Sosei, Dendreon Corporation, U3 Pharma AG and Chugai. Development activities under these agreements are in various early stages.



•

Oncology Alliance—We entered into a collaboration and license agreement with AstraZeneca in October 2003 for the discovery, development and commercialization of fully human monoclonal antibodies to treat cancer. This alliance involves the joint discovery and development of therapeutic antibodies for up to 36 cancer targets to be commercialized exclusively worldwide by AstraZeneca. We will conduct early stage preclinical research on behalf of AstraZeneca with respect to some or all of these targets. For any resulting products, we may receive milestone payments at various stages of development and royalties on future product sales. Under the agreement, we also may conduct early clinical trials, process development and clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales, for which the agreement provides that AstraZeneca will compensate us at competitive market rates. The collaboration also gives us the right to select and develop an additional pool of antibodies against up to 18 targets, which the companies may elect to further develop on an equal cost and profit sharing basis. During the three-year period of selection of targets for development we will work exclusively with AstraZeneca to generate and develop antibodies for therapeutic use directed against antigens in the field of oncology, subject to various exceptions, including among others for antigens that are or become subject to existing collaborations, antigens that we and AstraZeneca decide not to pursue in the collaboration, and certain process development and manufacturing services. In connection with this collaboration, AstraZeneca made a $100.0 million investment in Abgenix securities. Upon the achievement of certain milestones, we may also require AstraZeneca to invest up to an additional $60.0 million in our convertible preferred stock.



•

Antigen Sourcing Contracts—We have entered into several target sourcing contracts with genomics and biopharmaceutical companies that may enable us to generate a pipeline of proprietary fully human antibody therapeutic product candidates. Typically, pursuant to these contracts we generate fully human antibodies to the antigens provided or identified by our collaborators. The contracts typically contain provisions that allow either us or our collaborator to evaluate and select particular antibodies from the pool of generated antibodies for further development and commercialization. The party selecting an antibody for further development or

17

commercialization will generally pay to the other party license fees, milestone payments and royalty payments on any eventual product sales, in exchange for rights to develop and commercialize the product. In connection with these arrangements, we may also agree to make equity investments in collaborators for strategic reasons. For example, we have made equity investments in CuraGen Corporation and MDS Proteomics Inc. in connection with our collaborations with these parties.

•

Technology Out-Licensing—We have licensed our XenoMouse technology to third parties for the purpose of generating antibody product candidates to one or more specific antigens provided by the customer. Pursuant to these contracts, we and our customers intend to generate antibody product candidates for the treatment of cancer, inflammation, autoimmune diseases, cardiovascular disease, growth factor modulation, neurological diseases and infectious diseases. In some cases in which we license XenoMouse technology, we provide our mice to the customer, which then carries out immunizations with its specific antigens. In other cases, we immunize the mice with the customer's antigens for additional compensation. We may also use our XenoMax technology on the customer's behalf. The customer generally has an option for a period of time to acquire a product license for any antibody identified using XenoMouse technology that the customer wishes to develop and commercialize. The financial terms of these agreements may include license fees, option fees and milestone payments paid to us by the customers. Based on our agreements, these payments and fees would average from approximately $7.0 million to $10.0 million per antigen if our customer takes the antibody into development and ultimately to commercialization. Additionally, our license agreements entitle us to receive royalties on any future product sales by the customer. We also have the right of first offer with regard to production services for antibodies developed pursuant to certain of these agreements. We may also agree to make equity investments in some of our customers, or they may agree to make equity investments in us, in connection with these licensing arrangements. As of February 29, 2004, we had entered into one agreement in which we licensed our SLAM technology to one party on a non-exclusive basis for the purpose of generating and using antibodies other than antibodies derived from XenoMouse technology or other technology that involves the use of non-human animals, and on a co-exclusive basis for the purpose of antigen discovery. We currently do not intend to license our SLAM technology for use by any other parties. We have also entered into an agreement in which we exclusively licensed to one party rights under patent applications and patents held by us to develop and commercialize therapeutic antibodies to parathyroid hormone-related protein.



•

Production Services Contracts—We have entered into contracts with two customers under which we are currently providing process sciences and manufacturing services. One of these contracts is related to an antibody product candidate that we developed with the customer pursuant to an existing antigen sourcing contract. The other relates to an antibody the customer developed under a XenoMouse license agreement. Under these production services contracts we will deliver a variety of process development, cell banking and manufacturing services for selected antibody product candidates. The agreements provide for the customer to pay us certain fees for production services. Under one of these agreements we will be entitled to royalties on the sale of products subject to the agreement. We also have the right of first offer with regard to production services for additional antibodies developed by one of these customers. We intend to enter into agreements to provide process sciences and manufacturing services to other existing and new customers to absorb production services capacity we are not using for our proprietary product candidates.



•

Technology In-Licensing—We also license technology from other parties that we use in conjunction with our proprietary technology to develop, manufacture and commercialize therapeutic antibody candidates. The other party may also agree to produce antibody therapeutic candidates for us using its own technology. For example, we have entered into license and

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options agreements with ImmunoGen, Inc. pursuant to which we may develop and commercialize products based upon certain proprietary immunotoxins. These agreements often obligate us to pay license fees, and milestone payments and royalty fees to the counterparty upon the occurrence of specified conditions, including upon our sale of products derived from use of the licensed technology. We may also agree to make an equity investment in the other party for strategic reasons in connection with these arrangements. For example, we purchased shares of common stock of ImmunoGen in connection with our agreement with that company.

Summary of Payment Terms of Contractual Arrangements

        We derive our contract payments from our proprietary product development agreements, our technology out-licensing contracts, our target sourcing contracts and our production services contract. Under these agreements, contract payments generally consist of license, option, milestone, service and royalty payments. To date, we have received license, option, milestone and production service payments from various parties but have yet to receive royalty payments. Contract payments are recognized as revenue in accordance with applicable revenue recognition policies under which the recognition of certain payments as revenue may not occur immediately upon receipt. These policies are further described in Note 1 to the financial statements.

License, Option and Milestone Payments

        Pursuant to our technology out-licensing contracts and our target sourcing contracts, in 2003 we recognized individual license, option and milestone payments ranging from approximately $3,000 to $3.1 million and representing between approximately 0.02% and 18.25% of our recognized contract revenues for 2003, respectively.

        Under our co-development agreement with Immunex, we recognized revenues of $3.1 million in 2003, which represented approximately 18% of our contract revenues for that year. We do not expect to record revenue from Immunex in 2004 because we expect Immunex's expenses under the co-development agreement to exceed ours. Under our proprietary co-development agreement with SangStat Medical Corporation for the development of ABX-CBL, an in-licensed mouse antibody, we recognized revenues of $723,000 in 2003, which represented approximately 4% of our contract revenues for that year. We do not expect to record any revenues from SangStat in 2004 as a result of our decision to discontinue the development of ABX-CBL.

        Under our oncology alliance with AstraZeneca, we are entitled to milestone payments if AstraZeneca successfully develops products derived from our technology. The amount of each milestone payment depends on the nature of the milestone event and may be subject to reduction if AstraZeneca terminates our participation in the program to develop such product following certain changes in control of Abgenix or if we materially breach the collaboration agreement. To date, we have not received any milestone payments under the collaboration agreement. We also may conduct early clinical trials, process development and clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales, for which we will be reimbursed at competitive market rates.

        We expect to receive future license, option and milestone payments from our customers and collaborators; however, the amount and timing of these payments, if any, is uncertain because they depend to a large extent on the success of the research and development efforts of these parties.

Production Services Payments

        To date we have entered into two production services contracts. Pursuant to these agreements, we will be paid for the production services we provide pursuant to schedules set forth in the applicable contract.

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Royalty Payments

        While most of our proprietary product development, technology out-licensing and target sourcing contracts and our oncology alliance entitle us, under certain circumstances, to royalty payments, we have not received any royalty payments to date and do not anticipate receiving any such payments for a least a few years. We have entered into a production services contract that entitles us, under certain circumstances, to royalty payments. We will not be entitled to royalty payments unless our customers or collaborators are successful in developing and commercializing products derived from our technology. The royalty rate applicable to a product under our oncology alliance may be subject to reduction if AstraZeneca terminates our participation in the program to develop such product following certain changes in control of Abgenix or if we materially breach the collaboration agreement. The likelihood that we or our collaborators will be successful is dependent on the outcome of research and development efforts and regulatory decisions with respect to our product candidates, and is therefore uncertain and speculative.

Summary of Expense Terms of Contractual Arrangements

        We have incurred expenses, including license, option or milestone payments, under our in-license agreements and we may incur future expenses of this sort under our target sourcing contracts. We may also incur future expenses in the form of royalty fees under one or more of these agreements. In addition, we will incur expenses under joint development agreements that are shared with our co-developers and we will incur expenses under our collaboration with AstraZeneca, which provides for us to pay the cost of early stage preclinical research.

License, Option and Milestone Payments

        Under our in-licensing agreements and target sourcing contracts, in 2003, we made individual license, option or milestone payments ranging from approximately $8,000 to $600,000 and representing approximately 0.01% and 0.60% of our research and development expenses for 2003, respectively.

Royalty Payments

        While most of our technology in-licensing and proprietary product development contracts include provisions for the payment of royalties by us under certain circumstances, we have not made any royalty payments to date and believe we are at least a few years away from selling any products that would require us to make any royalty payments. Whether we will ever be obligated to make royalty payments to third parties is subject to the future success of our research and development efforts, as well as the favorable decisions of regulators and, accordingly, is inherently uncertain.

Circumstances that Trigger Milestone Payments under Contractual Arrangements

Oncology Alliance

        Under our oncology alliance with AstraZeneca, milestone payments may become payable to us with respect to products developed and commercialized by AstraZeneca in the following circumstances:

•

AstraZeneca delivers to us notice of its intent to continue development of such product after completion of the first Phase 2 clinical trial for the product;



•

Commencement of the first Phase 3 clinical trial for a product candidate;



•

Acceptance of a biologics license application, or BLA, in Canada, France, Germany, Italy, Japan, the United Kingdom or the United States; and



•

The receipt of all applicable regulatory approvals for sale of the product in the first of Canada, France, Germany, Italy, Japan, the United Kingdom or the United States.

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        Under our oncology alliance with AstraZeneca, milestone payments may become payable by us with respect to products candidates that were discontinued by AstraZeneca and that we developed and commercialized in the following circumstances:

•

We deliver to AstraZeneca notice of our intent to proceed with further development and commercialization;



•

Commencement of the first Phase 3 clinical trial for a product candidate; and



•

The receipt of all applicable regulatory approvals for sale of the product in the first of Canada, France, Germany, Italy, Japan, the United Kingdom or United States.

Target Sourcing Contracts

        Under our target sourcing contracts, milestone payments with respect to therapeutic products may become payable, to us or by us, in the following circumstances:

•

Filing of the first IND for a new product;



•

Commencement of Phase 1, Phase 2 or Phase 3 clinical trials;



•

Submission of the first BLA for a new product; and



•

Receipt of marketing approval for a new product.

        Under these contracts, milestone payments with respect to diagnostic products may become payable, to us or by us, in the following circumstances:

•

Submission of the first application for pre-marketing approval for a new product; and



•

Receipt of the first marketing approval for a product.

Proprietary Product Development Agreements

        Our proprietary co-development agreement with Immunex provides for no milestone or royalty payments by either party, unless one party elects not to develop or commercialize ABX-EGF.

Technology Out-Licensing Agreements

        Under our technology out-licensing agreements, milestone payments may become payable to us in the following circumstances:

•

Submission of an IND for a new product;



•

Enrollment of first patient in Phase 2 or Phase 3 clinical trials;



•

Submission of first BLA or new drug application, NDA, for a new product; and



•

Receipt of first required approval to sell products in a particular country or region.

Technology In-Licensing

        Under our technology in-licensing agreements, milestone payments may become payable by us in the following circumstances:

•

Submission of an IND for a new product or initiation of Phase 1 clinical trials



•

Initiation of Phase 2 or Phase 3 clinical trials; and



•

Receipt of first required approval to sell products in a particular country or region.

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Termination Provisions of Contractual Arrangements

General

        Our agreements generally do not have definite termination dates; rather, these agreements typically terminate upon the expiration of the underlying royalty obligations. Whether these royalty obligations will be triggered and, if so, when, is dependent on the successful development and commercialization of products from the subject technology.

Oncology Alliance

        Our oncology alliance with AstraZeneca does not have a definite termination date; rather it terminates upon the expiration of the underlying royalty obligations. Whether these royalty obligations will be triggered and, if so, when, is dependent on the successful development and commercialization of products under the oncology alliance. Each party has the right to terminate all or part of the oncology alliance upon the other party's uncured material breach or bankruptcy. AstraZeneca has the right to terminate all or part of the oncology alliance upon our change in control or acquisition or, with respect to a product, if the product is unsafe. Upon our change in control or acquisition or in the case of a material breach by us of the oncology alliance with respect to a particular product, AstraZeneca has the right to terminate our participation in the program to develop such product.

Target Sourcing Contracts

        Our target sourcing contracts generally terminate upon the expiration of all royalty obligations, if any, due under the relevant contract.

Co-Development Arrangements

        Under our agreement with Immunex for the co-development of ABX-EGF, each party has the right to terminate the agreement with certain prior notice. If one party chooses to terminate the agreement, the other party would have the right to continue developing the antibody at its own expense and would owe the terminating party royalty payments based on the sales of the underlying product. In addition, either party may terminate the agreement upon a material breach by the other party that has not been cured.

Production Services Agreements

        To date we have entered into two production services contracts. Pursuant to one of these agreements, either party can terminate for material breach or insolvency, or if the production services become impossible for scientific or technical reasons. Pursuant to the other, our customer can terminate for convenience, either party can terminate for material breach or in the event of certain technical difficulties and we can terminate if certain previously unknown health, safety or legal issues arise.

Out-Licensing Agreements

        Under our out-licensing agreements, the licensee typically can terminate the agreement at any time and we generally can terminate upon a breach by the licensee. Absent early termination, our out-licensing agreements typically continue in effect until the expiration of the licensee's payment obligations.

In-Licensing Agreements

        In some cases, we can terminate in-licensing agreements after a certain period of time. Other in-licensing agreements do not provide for early termination by us (except in the case of the other

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party's breach), but provide that the agreement terminates upon the expiration of all of our royalty payment obligations.

Xenotech and Japan Tobacco

        In June 1991, in connection with the formation of Xenotech, both Cell Genesys and Japan Tobacco contributed cash, and Cell Genesys contributed the exclusive right to certain of its technology for the research and development of genetically modified strains of mice that can produce fully human antibodies. Cell Genesys assigned its rights in Xenotech to us in connection with our formation as an independent company in 1996. Through 1998, we made capital contributions to Xenotech, and provided research and development to Xenotech related to the development of XenoMouse technology in exchange for cash payments.

        Under several agreements with Japan Tobacco that became effective December 31, 1999, we acquired Japan Tobacco's fifty percent interest in the Xenotech joint venture and became the sole owner of Xenotech and the XenoMouse technology. Under these agreements, Japan Tobacco acquired a license to use certain existing XenoMouse technology and future XenoMouse technology that we develop and a license to certain new technology related to the generation of mouse models of certain human diseases, in exchange for cash payments and future royalty obligations.

Gene Therapy Rights Agreement with Cell Genesys

        In connection with the formation of Abgenix by Cell Genesys, Abgenix entered into the Gene Therapy Rights Agreement, or GTRA, which provides Cell Genesys with certain rights to commercialize products based on antibodies generated with XenoMouse technology in the field of gene therapy. Under the GTRA, Cell Genesys has certain rights to direct us to make antibodies to two antigens per year and has an option for a license to commercialize antibodies binding to such antigens in the field of gene therapy. The GTRA obligates Cell Genesys to make certain payments to us for these rights, including reimbursement of license fees and royalties on future product sales. The GTRA also prohibits us from granting any third-party licenses for antibody products based on antigens where the primary field of use is gene therapy. In the case of third-party licenses granted by us where gene therapy is a secondary field, the GTRA obligates us to share with Cell Genesys a portion of the cash milestone payments and royalties resulting from any products in the field of gene therapy.

Intellectual Property

        We rely on patents and trade secrets to protect our intellectual property rights. We own eleven issued patents in the United States, one granted patent in Europe, three granted patents in Japan and numerous granted patents in other foreign countries. In addition we have 80 pending patent applications in the United States and 262 pending patent applications abroad relating to XenoMouse technology. Our wholly-owned subsidiary, Xenotech, owns two issued U.S. patents and several granted patents in other foreign countries and has two pending U.S. patents applications and several foreign patent applications related to methods of treatment of bone disease in cancer patients. Our wholly owned subsidiary Abgenix Biopharma, owns one issued U.S. patent and has two pending patents in Canada relating to the SLAM technology. Our wholly owned subsidiary IntraImmune Therapies, Inc. has two pending applications in the United States and ten pending applications in other foreign countries related to intrabody technology, which may give antibodies access to intracellular targets. In addition, we have eleven issued U.S. patents, several granted patents in other foreign countries, five pending patent applications in the United States and eighteen pending patent applications abroad that we jointly own with Japan Tobacco relating to antibody technology or genetic manipulation. While we rely on U.S. and foreign patent laws to protect our proprietary technology, any patents, if issued, may provide us with little protection, especially in foreign countries.

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        We also attempt to protect our technologies by maintaining trade secrets and proprietary know-how. However, the agreements we enter into for these purposes may not be enforced or our counter parties may breach them. In addition, these agreements may not prevent third parties from discovering our trade secrets or know-how or independently developing the same or similar technologies.

        Scientists have conducted research for many years in the antibody and transgenic animal fields. This has resulted in a substantial number of issued patents and an even larger number of pending patent applications. Patent applications in the United States are, in most cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Our technologies may unintentionally infringe the patents or violate other proprietary rights of third parties. Such infringement or violation may prevent us and our contract parties from pursuing product development or commercialization. Such a result would materially harm our business, financial condition and results of operations.

        GlaxoSmithKline plc, or Glaxo, has a family of patents relating to certain methods for generating monoclonal antibodies that Glaxo is asserting against Genentech, Inc. in litigation that was commenced in 1999. On May 4, 2001, Genentech announced that a jury had determined that Genentech had not infringed Glaxo's patents and that all of the patent claims asserted against Genentech are invalid. We understand that Glaxo has filed a notice of appeal with the Court of Appeals for the Federal Circuit. If any of the claims of these patents are finally determined in the litigation to be valid, and if we were to use manufacturing processes covered by the patents to make our products, we may then need to obtain a license should one be available. Our failure to obtain a license at all or on commercially reasonable terms could impede commercialization of one or more of our products in any territories in which these claims were in force.

        Genentech, Johnson & Johnson, Glaxo and Transkaryotic Therapies, Inc. and the Trustees of the Columbia University in the City of New York each owns or controls a U.S. patent that relates to recombinant cell lines or methods of generating recombinant cell lines for the production of antibodies. If we were to use a production system covered by any of these patents, we may then need to obtain a license should one be available. Under these circumstances, our failure to obtain a license at all or on commercially reasonable terms could impede commercialization of one or more of our products in any territories in which these patent claims were in force.

        Genentech owns a U.S. patent that issued in June 1998 relating to inhibiting the growth of tumor cells that involves an anti-EGF receptor antibody in combination with a cytotoxic factor. ImClone Systems, Inc. owns or is licensed under a U.S. patent that issued in April 2001, relating to inhibiting the growth of tumor cells that involves an anti-EGF receptor antibody in combination with an anti-neoplastic agent. A corresponding European patent was published for grant in March 2002 and Abgenix and others are opposing that patent in the European Patent Office. A corresponding patent was also issued in Canada. However, we do not believe that the Genentech patent or any of the ImClone patents would be successfully asserted against any of our current or planned activities relating to ABX-EGF or future commercial sales of ABX-EGF. If a court determines that the claims of either the Genentech patent or the ImClone patents cover our activities with ABX-EGF and are valid, such a decision may require us to obtain a license to Genentech's patent or ImClone's patents, as the case may be, to label and sell ABX-EGF for certain combination therapies. Our failure to obtain a license at all or on commercially reasonable terms could impede our commercialization of ABX-EGF.

        In 2000, the Japanese Patent Office granted a patent to Kirin Beer Kabushiki Kaisha, one of our competitors, relating to non-human transgenic mammals. In October 2003, the United States Patent and Trademark Office issued a corresponding patent to Kirin. Kirin has filed corresponding patent

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applications in Europe and Australia. Our licensee, Japan Tobacco, has filed opposition proceedings against the Kirin patent. We cannot predict the outcome of those opposition proceedings, which may take years to be resolved.

        Extensive litigation regarding patents and other intellectual property rights has been common in the biotechnology and biopharmaceutical industries. The defense and prosecution of intellectual property suits, United States Patent and Trademark Office interference proceedings and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to:

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enforce patents that we own or license;



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protect trade secrets or know-how that we own or license; or



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determine the enforceability, scope and validity of the proprietary rights of others.

        If we become involved in any litigation, interference or other administrative proceedings, we will incur substantial expense and the efforts of our technical and management personnel will be significantly diverted. An adverse determination may subject us to loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties. An adverse determination in a judicial or administrative proceeding or our failure to obtain necessary licenses could restrict or prevent us from manufacturing and selling our products, if any. Costs associated with such arrangements may be substantial and may include ongoing royalties. Furthermore, we may not be able to obtain the necessary licenses on satisfactory terms, if at all. These outcomes will materially harm our business, financial condition and results of operations.

Patent Cross-License and Settlement Agreement with GenPharm

        In March 1997, we along with Cell Genesys, Xenotech and Japan Tobacco, signed a comprehensive patent cross-license with GenPharm. Under the cross-license, we have licensed on a non-exclusive basis certain patents, patent applications, third-party licenses and inventions pertaining to the development and use of certain transgenic rodents, including mice that produce fully human antibodies. We use our XenoMouse technology to generate fully human antibody products and have not licensed the use of, and do not use, any transgenic rodents developed or used by GenPharm. All of our financial obligations in connection with the cross-license were recognized in 1997.

Government Regulation

        Our product candidates under development are subject to extensive and rigorous domestic government regulation and will be subject to further regulation if approved for commercial sale. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. If we market our products abroad, they will also be subject to extensive regulation by foreign governments. Non-compliance with applicable requirements can result in fines, warning letters, recall or seizure of products, clinical study holds, total or partial suspension of production, refusal of the government to grant approvals, withdrawal of approval, and civil and criminal penalties.

        We believe our antibody therapeutic products will be classified by the FDA as "biologic products" as opposed to "drug products." The steps ordinarily required before a biological product may be marketed in the United States include:

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preclinical testing;



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the submission to the FDA of an IND which must become effective before clinical trials may commence;

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adequate and well-controlled clinical trials to establish the safety and efficacy of the biologic;



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the submission to the FDA of a BLA for the approval to market the product; and



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FDA approval of the application, including inspection and licensing of the manufacturing facility for the sale of product and approval of all product labeling.

        Preclinical testing includes laboratory evaluation of product chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of each product. Laboratories that cond