UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K



ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                    to


Commission File Number: 001-34154

GRAPHIC



Facet Biotech Corporation(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of incorporation or organization)

26-3070657(I.R.S. Employer Identification No.)1500 Seaport Boulevard
Redwood City, CA 94063(Address of principal executive offices)Registrant's telephone number, including area code (650) 454-1000Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights, no par valueSecurities registered pursuant to Section 12(g) of the Act: None(Title of Class)


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes o    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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of shares of common stock held by non-affiliates of the registrant, based upon the closing sale price of a share of common
stock on June 30, 2009 (the last business day of the registrant's most recently completed second fiscal quarter), as reported on the NASDAQ Global Select Market, was $225,906,370.

As
of February 15, 2010, the registrant had outstanding 25,093,117 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions
of the registrant's proxy statement to be delivered to stockholders with respect to the registrant's 2010 Annual Meeting of Stockholders to be filed by the registrant with the
U.S. Securities and Exchange Commission (hereinafter referred to as the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K. The
registrant intends to file its proxy statement within 120 days after its fiscal year end.



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PART I

Forward-looking Statements

This Annual Report contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are "forward-looking
statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations,
including any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "will," "expects," "plans," "anticipates,"
"estimates," "potential," or "continue" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein
are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or
assumed in the forward- looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties,
including but not limited to the risk factors set forth in Item 1A below, and for the reasons described elsewhere in this Annual Report. All forward-looking statements and reasons why results
may differ included in this Annual Report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might
differ.

As
used in this Annual Report, the terms "we," "us," "our," the "Company" and "Facet Biotech" mean Facet Biotech Corporation and its subsidiaries (unless the context indicates a
different meaning). In addition, these terms refer to the former Biotechnology Business that was integrated and operated by PDL BioPharma, Inc. (PDL) prior to December 2008, which is now
operated by Facet Biotech.

We
own or have rights to numerous trademarks, trade names, copyrights and other intellectual property used in our business, including Facet Biotech and the Facet Biotech logo, each of
which is considered a trademark. All other company names, tradenames and trademarks included in this Annual Report are trademarks, registered trademarks or trade names of their respective owners.

ITEM 1.    BUSINESS

OVERVIEW

We are a biotechnology company dedicated to advancing our pipeline of several clinical-stage products and expanding and deriving value
from our proprietary next-generation protein engineering platform technologies to improve the clinical performance of protein therapeutics.

At
the beginning of 2008, PDL operated three businesses: (1) the biotechnology business (Biotechnology Business), (2) the antibody humanization patents licensing and
royalty business (Royalty Business) and (3) the development, sale and marketing of non-antibody commercial products (Commercial and Cardiovascular Business). During 2008, PDL
decided to spin off its Biotechnology Business (the Spin-off). In July 2008, in preparation for the Spin-off, PDL organized Facet Biotech as a Delaware corporation and a wholly
owned subsidiary of PDL. In connection with the Spin-off, PDL contributed to Facet Biotech the Biotechnology Business pursuant to the terms and conditions of the Separation and
Distribution Agreement between Facet Biotech and PDL. On December 18, 2008, PDL distributed all of our then-outstanding shares of common stock to PDL's stockholders
consummating the Spin-off of Facet Biotech.

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Our
business strategy is focused primarily on advancing our existing pipeline and expanding and deriving value from our next-generation protein engineering platform
technologies.



We
believe we can successfully implement our strategy through our key strengths, including: (1) engineering and optimizing protein therapeutics, (2) using our process
science capabilities to develop highly efficient manufacturing processes and appropriate pharmaceutical dosage forms for our products from clinical through to commercial scale, (3) applying our
research expertise to gain detailed biological, pharmacological and toxicological understanding of product candidates, (4) advancing the development
of validated preclinical therapeutics from the preclinical stage through phase 1 clinical studies and (5) utilizing our cash position to support our business strategy.

OUR PRODUCTS IN DEVELOPMENT

We currently have several investigational compounds in various stages of development for the treatment of cancer and immunologic
diseases, four of which we are developing with our collaboration partners; two with Biogen Idec Inc., one with Bristol-Myers Squibb Company (BMS), and one with Trubion
Pharmaceuticals, Inc. (Trubion). The table below lists the compounds for which we are pursuing development activities either on our own or in collaboration with other companies. None of our
product candidates have been approved by the United States Food and Drug Administration (FDA) or commercialized in the indication in which our trials are focused. Not all clinical trials for each
product candidate are listed below. The development and commercialization of our product

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candidates
are subject to numerous risks and uncertainties, as noted in Item 1A under the heading "Risk Factors."

Product Candidate

Indication/Description

Program Status

CollaboratorDaclizumab

Multiple sclerosis

Phase 2b

Biogen IdecVolociximab (M200)

Non-small cell lung cancer

Phase 1

Biogen IdecElotuzumab (HuLuc63)

Multiple myeloma

Phase 1/2

BMSTRU-016

Chronic lymphocytic leukemia

Phase 1

TrubionPDL192

Solid tumors

Phase 1

PDL241

Immunologic diseases

Preclinical

Other candidates

Oncology

Candidates under evaluation




Daclizumab.Daclizumab is a humanized monoclonal antibody that binds to the alpha chain (CD25) of the interleukin-2 (IL-2)
receptor on activated T cells, which are white blood cells that play a role in inflammatory and immune-mediated processes in the body. Daclizumab has been approved for acute transplant rejection and
was previously commercialized by Hoffmann La-Roche (Roche) under the trademarkZenapax®.In 2009, Roche voluntarily ceased the
commercialization ofZenapaxin the acute transplant rejection market due primarily to commercial reasons and not due to any safety concerns.

We
believe daclizumab has potential use in multiple sclerosis (MS) as well as other indications. We have created a new form of daclizumab based on a proprietary, robust,
high-yield manufacturing process (DAC HYP). We have also developed a stable, higher concentration formulation to allow administration of DAC HYP in clinically practical volumes through
subcutaneous injection to facilitate daclizumab's wider application to immunological disease indications. Currently, we have a worldwide strategic development collaboration for daclizumab with Biogen
Idec in which we share development costs and commercial rights in MS and other indications other than respiratory and transplant indications. We wholly own the rights for daclizumab in respiratory and
transplant indications, which are not subject to our collaboration agreement with Biogen Idec.

See
Our BusinessStrategic Collaborations and Licensing Agreements section for more details on the collaboration agreement with Biogen Idec.

Daclizumab in Multiple Sclerosis:We and our collaboration partner, Biogen Idec, are currently testing daclizumab as a new therapy for
relapsing MS
in the first of two required registration-enabling trials. In 2007, we and Biogen Idec announced that the CHOICE trial, a phase 2, randomized, double-blind, placebo-controlled trial of
daclizumab conducted in 230 patients, met its primary endpoint in relapsing MS patients being treated with interferon beta. These data showed daclizumab administered at 2 mg/kg every two weeks
as a subcutaneous injection added to interferon beta therapy significantly reduced new or enlarged gadolinium-enhancing lesions at week 24 compared to interferon beta therapy alone.

In
the first quarter of 2008, we and Biogen Idec initiated a phase 2b monotherapy trial of daclizumab, the SELECT trial, to advance the overall clinical development program in
relapsing MS. In March 2009, we and Biogen Idec announced our decision to amend the daclizumab SELECT trial in response to the agreement of the FDA and European regulatory agencies to consider an
expanded SELECT study as a registration-enabling study, thus requiring only one additional registration-enabling study to be conducted instead of two. Prior to this agreement, the companies had
expected to conduct two registration-enabling studies in addition to SELECT. Therefore, we amended the SELECT trial to increase the sample size from 300 to 600 subjects and change the primary endpoint
to annualized relapse rate.

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In
July 2009, an interim futility analysis was performed with respect to the SELECT trial to ensure patient safety and to evaluate whether the trial should continue. As described in an
unblinding plan submitted to the FDA, an independent statistician analyzed clinical data from approximately 150 clinical trial patients that had completed at least six months of treatment. An
independent safety monitoring committee reviewed the interim data and recommended to Biogen Idec and to us that the SELECT study be continued with both daclizumab dose arms (150mg and 300mg monthly
doses). In
addition, to determine whether the collaboration should initiate the DECIDE phase 3 trial and to inform the design of this trial, certain prearranged employees of each of the Company and Biogen
Idec (which employees are no longer directly involved in the management of the SELECT study) reviewed summary data tables, which included efficacy and safety data, prepared by the independent
statistician from the interim futility analysis. Based on this review of interim data and data from prior studies, these prearranged personnel recommended on behalf of the Company and Biogen Idec that
the collaboration should initiate the DECIDE phase 3 trial, which is the second and final required registration-enabling study. SELECT remains an ongoing blinded study and we expect the primary
endpoint data readout to occur in the second half of 2011.

In
August 2009, following the SELECT interim futility analysis and summary data review, we submitted a Special Protocol Assessment (SPA) for the DECIDE phase 3 trial to the FDA
and we, together with Biogen Idec, are working with the FDA to finalize the protocol for the DECIDE trial. We expect to complete the SPA process with the FDA and initiate this phase 3 trial
during the first half of 2010. We believe the probability of success of the daclizumab program has increased significantly following the SELECT interim futility analysis and summary data review and,
considering as well the data to date from a number of daclizumab clinical trials, the Company believes the development of daclizumab for use in MS has a strong probability of success.

The
global MS therapeutic market for 2010 is estimated at $10.9 billion, of which approximately $9.7 billion, or 88%, is expected to be comprised of sales of interferons
andCopaxone®. We believe that next-generation molecules which are significantly more efficacious than interferons and Copaxone,
will capture a significant and increasing portion of the MS market. Among these potentially more efficacious next-generation molecules, we believe that safety likely will be a significant
differentiating factor. Based on daclizumab efficacy and safety data to date over a number of clinical trials, we believe that daclizumab, if approved, would achieve a strong position in the global MS
market.

Volociximab (M200).Volociximab is a chimeric monoclonal antibody that inhibits the functional activity of
a5ß1 integrin, a protein found on activated endothelial cells. Blocking the activity of a5ß1
integrin has been found to prevent angiogenesis, which is the formation of new blood vessels that feed tumors and allow them to grow and metastasize. We believe that volociximab may have potential in
treating solid tumors and that its role in angiogenesis may also aid in the treatment of age-related macular degeneration (AMD).

Volociximab in Solid Tumors:We have a worldwide, development collaboration with Biogen Idec for volociximab under which we are
currently
investigating volociximab in a phase 1 trial in patients with non-small cell lung cancer (NSCLC). Data to date in this trial have shown a median progression-free
survival of 6.6 months, which is similar to the efficacy seen from prior studies ofAvastin® in NSCLC. Follow-up remains
ongoing in this trial. In
the past, we have conducted studies of volociximab in ovarian cancer, pancreatic cancer, renal cell carcinoma and melanoma. The data from these trials and associated analyses have contributed to our
understanding of the mechanism and safety profile of volociximab, and we are applying this knowledge to our ongoing program. We plan to continue to evaluate the data from our clinical trials and
determine with Biogen Idec future development plans for this antibody.

Volociximab in Eye Disorders:We and Biogen Idec licensed volociximab for ophthalmic indications to Ophthotech Corporation for various
milestones and
eventual royalties on potential product sales.

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See
Our BusinessStrategic Collaborations and Licensing Agreements section for more details on this out-licensing agreement.

Elotuzumab.Elotuzumab is a humanized monoclonal antibody that binds to CS1, a cell surface glycoprotein that is highly expressed on
myeloma cells
but minimally expressed on normal human cells. We believe elotuzumab may induce anti-tumor effects primarily through antibody-dependent cellular cytotoxicity (ADCC) activity towards
myeloma cells. We believe elotuzumab has significant potential as a targeted therapy for multiple myeloma.

Preclinical
data from our elotuzumab program are suggestive of the antibody's biologic activity. The scientific rationale supporting our development of this antibody includes reduction
of human multiple myeloma tumors in animal models, destruction of multiple myeloma cells obtained directly from patients, and an extensive analysis of the target for elotuzumab, CS1, which is highly
expressed in almost all cases of multiple myeloma independent of stage or prior therapy.

In
August 2008, we entered into a collaboration agreement with BMS for the joint development and commercialization of elotuzumab in multiple myeloma and other potential oncology
indications. See Our BusinessStrategic Collaborations and Licensing Agreements section for more details on the collaboration agreement with BMS.

We
are currently evaluating elotuzumab as a second line treatment in two studies in patients with multiple myeloma: a phase 1/2 trial of elotuzumab in combination with
lenalidomide (Revlimid®) and low-dose dexamethasone and a phase 1 trial of elotuzumab in combination with bortezomib
(Velcade®). At the American Society of Hematology (ASH) annual meeting in December 2009, we presented promising preliminary data from the
phase 1 portion of the trial of elotuzumab in combination with lenalidomide and low-dose dexamethasone. These data showed that of the 28 treated patients in this
portion of the trial, 23 (82%) had an objective response by International Myeloma Working Group (IMWG) criteria. Further, a subset analysis showed that of 22 patients who had not previously received
lenalidomide treatment, 21 patients (95%) achieved an objective response. No dose-limiting toxicities were reported in the study up to 20 mg/kg elotuzumab and a maximum tolerated dose was
not established. Two patients experienced serious adverse events of allergic reactions that were related to the infusion of elotuzumab and were withdrawn from the study. These adverse events resolved
with treatment.

In
January 2010, we announced enrollment of the first patient into the phase 2 portion of the ongoing phase 1/2 study of elotuzumab for the treatment of relapsed multiple
myeloma in combination with lenalidomide and low-dose dexamethasone. As a result, we received a $15 million milestone payment from BMS in the first quarter of 2010. In the
phase 2 portion of the study, up to 60 patients with relapsed multiple myeloma will be randomized to receive elotuzumab at 10 or 20 mg/kg in combination with lenalidomide and
low-dose dexamethasone. The primary endpoint of the study is to evaluate objective response of the combination. Additional endpoints include safety, pharmacokinetics and pharmacodynamics.
We expect to complete enrollment of this study in 2010 and make a determination with BMS in 2011 whether to advance the program into a phase 3 trial.

TRU-016.TRU-016, a Small Modular ImmunoPharmaceutical (SMIPTM) protein therapeutic, is a novel
CD37-directed therapy for the treatment of B-cell malignancies, such as chronic lymphocytic leukemia (CLL) and non-Hodgkin's lymphoma (NHL) as well as certain
autoimmune and inflammatory disease indications. TRU-016 appears to be a highly effective drug that acts through a different mechanism of action than CD20-directed therapies:
and antibody dependent cellular cytoxicity (ADCC). As such, TRU-016 may be effective in treating patients who do not respond well or at all to CD20-directed therapies when used
alone or in combination with chemotherapy or CD20-directed therapeutics. TRU-016 may have broad utility in a number of therapeutic areas, including CLL, NHL, MS, rheumatoid
arthritis and lupus.

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Preliminary
data from the ongoing phase 1 trial of TRU-016 as a monotherapy in patients with CLL were first presented at the American Society of Clinical Oncology
(ASCO) annual meeting in June 2009. Additional data from this trial for 33 patients were presented in December 2009 at the ASH meeting. A majority of these patients (20/33) had high-risk
genomic features associated with a poor prognosis and had received multiple prior therapies. Evidence of TRU-016 biological activity was seen beginning with patients dosed at the 0.3 mg/kg
dose level, including in high-risk patients. Clinical activity was seen at the 6 mg/kg and 10 mg/kg dose levels. Partial response was observed in five patients, including one patient with
the 17p deletion cytogenetic abnormality. In addition, reductions in lymphadenopathy as well as reductions in
splenomegaly and peripheral lymphocytosis have been seen. Two patients with leukemia cutis experienced clearing, one complete and one partial. At the 10 mg/kg dose, four of five patients with elevated
peripheral lymphocyte counts were reduced to normal levels. A total of 16 serious adverse events have been reported. The maximum tolerated dose has not yet been reached.

In
August 2009, we entered into a collaboration agreement with Trubion for the global development and commercialization of protein therapeutics directed at the CD37 antigen, including
TRU-016. See Our BusinessStrategic Collaborations and Licensing Agreements section for more details on the collaboration agreement with Trubion.

PDL192.PDL192 is a humanized monoclonal antibody that binds to the TWEAK (tumor necrosis factor-like weak inducer of apoptosis)
receptor
(TweakR), also known as Fn14 or TNFRSF12A, a cell surface glycoprotein with homology to the family of tumor necrosis factor (TNF) receptors. PDL192 appears to have dual mechanisms of action, where
binding to the target results in a biological signal detrimental to the cancer cell. In addition, PDL192 may be able to recruit the immune system to also mediate ADCC activity to help destroy the
tumor. Our scientists have demonstrated that TweakR is over-expressed in a number of solid tumor indications including pancreatic, colon, lung, renal, breast and head and neck cancers. Our
ongoing scientific work will help prioritize those tumors for therapeutic testing. In preclinical studies, PDL192 also has been shown to inhibit tumor growth of various models of human cancer in mice.
Currently, we are investigating PDL192 in a phase 1, dose-escalation, monotherapy trial in solid tumor indications. Although several companies are targeting Fn14 in oncology and
immunology programs, to our knowledge, we are the only company that has advanced a program into the clinic. We own the worldwide rights to PDL192.

In
December 2005, we entered into a worldwide licensing agreement with Human Genome Sciences, Inc. (HGS) under which HGS licensed to us certain patent rights which supports our
development of PDL192. We would be obligated to pay HGS development milestone payments of up to $30 million should PDL192 be developed to commercialization and, should PDL192 ever receive
marketing approval, we would be obligated to pay HGS royalties on potential future sales of covered antibody therapeutics.

PDL241.PDL241 is a novel humanized monoclonal antibody directed against the CS1 antigen that we believe may have potential in
immunologic diseases.
We have completed preclinical toxicology and mechanistic studies for this preclinical candidate. Under the terms of our collaboration agreement with BMS to develop elotuzumab, BMS had an option to
expand our collaboration to include the PDL241 antibody after we completed certain preclinical studies, which we completed in October 2009. In January 2010, we announced that BMS elected not to expand
our existing collaboration to include PDL241. As a result of this decision, we will not receive from BMS the $15 million opt-in payment or any of the milestone payments related to
this compound under our collaboration agreement with BMS. We plan to evaluate opportunities to collaborate with other third parties on the potential development of PDL241.

Preclinical candidates.We continue to evaluate a variety of different business development opportunities, including potential
collaborative or
in-licensing agreements, for oncology candidates in

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preclinical
development. In addition, we expect to continue to develop internal candidates using our next-generation protein engineering platform technologies.

For
a discussion of the risks and uncertainties associated with the timing of completing a product development phase, see our Risk Factors in Item 1A of this Annual Report.

OUR NEXT-GENERATION PROTEIN ENGINEERING PLATFORM TECHNOLOGIES

Our proprietary next-generation protein engineering technologies have the potential to improve the clinical performance of
protein therapeutics as follows:



OUR RESEARCH AND DEVELOPMENT CAPABILITIES

Our main research and development organizations include (1) Research, (2) Product Operations and Quality and
(3) Preclinical Sciences and Clinical Development. We have a broad range of capabilities, with departments that specialize in the major areas of the drug development process.

Research

Our research activities are focused in three areas: (1) progressing candidates with validated targets and biological pathways
from the preclinical stage to the clinic, (2) utilizing translational research to influence and enhance the course of clinical investigation of our therapeutics and (3) refining our
protein engineering technology platform and technologies.

First,
to enhance the probability of success for new therapeutic candidates, we target biological pathways that have a high level of validation, demonstrated by activity in in vitrocellular systems along within vivomodels of both oncologic and immunological diseases. We
also conduct appropriate safety testing prior to the submission of documents for regulatory approval for first-in-man studies. Using this information, we are able to make
informed decisions about the candidates we select to move forward into the clinic.

Second,
our translational research activities help us identify a direction for the clinical testing of our products. We use biological models and systems to better understand the utility
of our therapeutics

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during
clinical development, an example of which is the testing of our therapeutics inin vivomodels of human tumor reduction with current standards of
care. Recent successes of our translational research efforts are elotuzumab (for multiple myeloma) and PDL192 (for solid tumors), both of which are humanized antibodies to novel targets and have
demonstrated efficacy in the correspondingin vivotumor models. Continued translational research on these therapeutics will provide information to help
us determine the efficacy of each product for the treatment of these types of cancer.

Third,
building on our history with humanizing antibodies, we have developed proprietary next-generation protein engineering technologies that can improve certain key
characteristics of protein therapeutics. These technologies offer the ability to efficiently and comprehensively map the entire protein to determine the tolerability to mutation of each amino acid in
order to identify large numbers of novel, higher affinity and neutral point mutations, reduce immunogenicity, improve half-life and engineer cross-reactivity. (See Our
Next-Generation Protein Engineering Platform Technologies section above for further details on our next-generation protein engineering platform).

Product Operations and Quality

Our product operations organization serves as an integrated unit for advancing antibody molecules by developing robust and efficient
processes, stable and user-friendly pharmaceutical dosage forms and comprehensive analytical packages, and by ensuring adequate supplies of antibody product for preclinical and clinical
testing. Our technology platform for the production of antibodies is well-characterized and established to reliably support the movement of antibody molecules through various stages of
clinical development. The quality function ensures that our products for clinical and non-clinical studies are produced, and that our non-clinical and clinical studies are
conducted, in compliance with applicable quality standards and regulations.

Antibodies
for use as human therapeutics are generally manufactured using mammalian cell lines. We produce and characterize such cell lines in our facilities and engage in development
activities intended to improve the productivity and ability of these cell lines to produce monoclonal antibodies with desirable physicochemical and biological characteristics. Our ability to develop
robust and consistent bioprocesses, scale-up and transfer processes to manufacturing plants and establish comparability between materials produced at various scales and production sites is
key for ensuring a consistent supply of study drug for clinical studies.

The
manufacture of pharmaceutical products is an expensive, multi-step, complex process. While we are able to produce antibodies for non-clinical studies in our
Redwood City facility, products used in clinical trials must be manufactured in facilities that meet all applicable regulations including current Good Manufacturing Practices as outlined by the FDA,
the European Medicines Agency (EMEA) and other regulatory authorities. Steps in the manufacturing process, including the manufacture of the active pharmaceutical ingredient, filling, finishing,
labeling and packaging of finished drug products, may be performed by multiple third-parties and require extensive coordination and oversight by us.

In
March 2008, we entered into a clinical supply agreement with Genmab MN, Inc., a wholly owned subsidiary of Genmab A/S (Genmab), under which Genmab manufactured clinical trial
material for certain of our pipeline products for us. In November 2009, Genmab announced its decision, as part of a broader restructuring, to sell its Brooklyn Park manufacturing facility and
immediately operate on a maintenance-only mode with a small staff. As a result of this decision, in January 2010, we and Genmab agreed to terminate the clinical supply agreement effective
November 2010. We currently have sufficient clinical material on hand to satisfy near-term demand for our products and there is currently adequate capacity available in the contract
manufacturing industry for production and fill-finish of antibodies. We therefore do not believe that the termination of the clinical supply agreement with Genmab will have an adverse
impact on our clinical studies with our product candidates.

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We have begun transferring manufacturing technology and know how for elotuzumab to BMS and for daclizumab to Biogen Idec. We previously transferred volociximab manufacturing technology
and know how to Biogen Idec. Our collaboration partner Trubion has responsibility for the manufacture of TRU-016. We anticipate continuing to rely on collaboration partners and contract
manufacturing organizations for production of clinical trial supply materials for the foreseeable future.

Preclinical Sciences and Clinical Development

Our preclinical sciences activities focus on further characterizing our pipeline products, with the goal of maximizing our biological
and pharmacological knowledge of molecules before they enter human testing. We conduct extensivein vivopharmacology studies in animal models to assess
dosing, toxicology pharmacokinetics, and pharmacodynamics to support regulatory filings and provide information for the design of subsequent clinical trials. These researchers also support our ongoing
clinical trials by conducting immunogenicity and biomarker assays, both of which are critical to understanding how our drug candidates function in humans.

Our
clinical development organization relies on a strategic outsourcing approach. We have expertise in the traditional clinical development functions, including clinical operations with
therapeutic area expertise, regulatory affairs, drug safety, biometry, quality and compliance, all of which are supported by our program management group. We outsource the majority of the tactical
work to contract research organizations, and our in-house personnel provide strategic and operational oversight of the programs to ensure that our clinical trials are appropriately
conducted and managed.

Together,
our preclinical and clinical capabilities focus on supporting our current pipeline programs and demonstrating their advantages in medical care. These capabilities enable us to
conduct clinical research activities for our earlier stage programs and, in cases where the program is part of a strategic
collaboration, provide strategic input and scientific knowledge consistent with the joint development activities. Our clinical experts also provide input to our research and discovery operations to
inform their activities to generate new therapeutics and identify the promising ones for further research and development activity.

STRATEGIC COLLABORATIONS AND LICENSING AGREEMENTS

A major component of our business is the pursuit and maintenance of strategic collaborations and licensing activities, which we believe
can help us execute our strategy and increase the potential success of the Company.

Strategic Development Collaborations

Strategic development collaborations generally represent relationships in which we and another party share in the effort, costs and
success of a development program. The terms of such agreements generally provide for license fees, research and development funding, milestone payments related to research results and subsequent
product development activities and, if successful, milestones, royalties and/or a split of the profits related to the sales of the product. Strategic collaborations can help to increase the potential
value of our drug development programs and our Company in a number of ways, including: (1) allowing us to retain economic participation in programs while providing financial resources to the
development effort, (2) supporting the development of additional pipeline products, (3) bringing new capabilities and therapeutic area knowledge that can enhance or complement our own
research and development capabilities, (4) helping to accelerate our development timelines and (5) mitigating the overall risk of our strategy.

Our
collaboration agreement with Biogen Idec provides for the joint development and commercialization of daclizumab in MS and indications other than transplant and respiratory diseases,
and for shared development and commercialization of volociximab (M200) in all indications. This

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agreement
requires each party to undertake extensive efforts in support of the collaboration and requires the performance of both parties to be successful. Under the collaboration agreement, in the
U.S., Canada and the European Union, we and Biogen Idec equally share the costs of all development activities and, if any of the products are commercialized, all operating profits. Each party will
have co-promotion rights in the U.S., Canada and the European Union, based upon sales capabilities of each party at the time. Outside the U.S., Canada and the European Union, Biogen Idec
will fund all incremental development and commercialization costs and pay a royalty to us, which would
be based on percentages of net sales of collaboration products ranging from the low-teens to approximately the high-teens. We are eligible to receive development, regulatory
and sales based milestones based on the further successful development of these antibodies. If the products under our collaboration with Biogen Idec are successfully developed in multiple indications
and all milestones are achieved, the agreement with Biogen Idec provides for development, regulatory and sales-based milestone payments totaling up to $660 million. Of this amount, the
agreement provides for $260 million in development and regulatory milestone payments related to IL-2R products (including daclizumab) and $300 million in development and
regulatory milestone payments and $100 million in sales-based milestone payments related to a5b1 integrin products
(including volociximab). We have previously received $10 million of these milestone payments under the collaboration with Biogen Idec. Upon the initiation of the DECIDE phase 3 study of
daclizumab, which both Biogen Idec and we have announced we expect will occur in the first half of 2010, we will receive from Biogen Idec a $30 million milestone payment. At certain
pre-determined points in the development plans, Biogen Idec and we each have the right to terminate our collaboration agreement, on an indication-by-indication
basis, with respect to any products we are jointly developing, except that we may not elect to terminate the development of the daclizumab product in any indication. The term of the Biogen Idec
agreement shall, unless earlier terminated, expire on the date on which neither party has nor will have any additional payment obligations to the other party under the terms of the agreement.

Our
collaboration agreement with BMS provides for the joint development and commercialization of elotuzumab in multiple myeloma and other potential oncology indications. Under the terms
of the agreement, we share worldwide development costs with BMS funding 80 percent of the costs. The companies would share profits on any U.S. sales, with us receiving 30 percent of the
profits and, outside the United States, we would receive royalties, which would be based on percentages of net sales of collaboration products ranging from the low- to
mid-teens. In addition, we are eligible to receive development and commercialization milestones based on the further successful development of elotuzumab. Under the terms of the
collaboration, BMS made an upfront cash payment of $30 million for the development and marketing rights to elotuzumab and for an option to expand the collaboration to include PDL241, another
anti-CS1 antibody, upon completion of certain preclinical studies. If elotuzumab is successfully developed in multiple myeloma and other potential oncology indications, the agreement
provides for $480 million in development and regulatory milestones and $200 million in sales-based milestones. In February 2010, we received $15 million of these milestone
payments under the collaboration with BMS as a result of the initiation of a phase 2 study of elotuzumab in multiple myeloma. With four months notice, BMS may terminate our collaboration
agreement with respect to any product that is jointly developed under the collaboration on a region by region basis. The BMS agreement shall remain in effect until the earlier of the agreement being
terminated pursuant to the terms of the agreement, or by mutual written agreement or until the expiration of all payment obligations under the agreement. Following our completion of certain
preclinical studies for PDL241, BMS notified us that it elected not to expand our existing collaboration to include PDL241. As a result of this decision, we will not receive from BMS the
$15 million opt-in payment or any of the milestone payments related to this compound under our collaboration agreement with BMS.

In
August 2009, we and Trubion entered into a collaboration agreement for the global development and commercialization of TRU-016, a product candidate in phase 1
clinical trials for CLL. Under the terms of the collaboration agreement, we paid Trubion an upfront license fee of $20 million

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and
we may be obligated to pay Trubion up to $176.5 million in additional contingent payments if certain development, regulatory and sales milestones are achieved for each product under the
collaboration agreement, the significant majority of which are for achievement of later-stage development, regulatory and sales-based milestones. We and Trubion will share equally the costs of all
development, commercialization and promotional activities and all global operating profits. In addition, we purchased 2,243,649 shares of newly issued shares of Trubion common stock for
$10.0 million. Both we and Trubion have the right to opt out of all rights and obligations to co-develop and co-commercialize any collaboration product at certain
specified milestone points or upon the occurrence of certain events. In addition, we have the right to terminate the collaboration agreement for any reason upon written notice to Trubion, provided
that if we give notice on or before February 27, 2011, we are required to pay a termination fee of $10.0 million.

Out-Licensing Agreements

In addition to development collaborations, we have a number of agreements under which we have out-licensed rights to
antibody therapeutics or technology expertise. We generally out-license rights to product candidates when we believe the program is not a strategic fit for our portfolio development
strategy.

We
currently have a number of license agreements in place with parties who are pursuing the development of product candidates that were generated by our internal research and discovery
efforts or were licensed to us. These agreements demonstrate our history of development of programs that are of interest to others in the industry and our ability to out-license programs
that are determined not to be a strategic fit for us.



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In
addition to the agreements listed above, we have entered into a number of humanization agreements, pursuant to which we have humanized antibodies for a fee and licensed rights to
certain know how. We may enter into other similar humanization or protein engineering agreements in the future. (See Our Next-Generation Protein Engineering Platform Technologies section
above for further details on our next-generation protein engineering platform capabilities.)

In
2008, PDL entered into an asset purchase agreement with EKR Therapeutics, Inc. (EKR), governing PDL's sale to EKR of certain of PDL's commercial
and cardiovascular assets, including a currently marketed antihypertensive product,Cardene® (nicardipine hydrochloride), and the
development product, ularitide. In connection with the Spin-off, PDL assigned its rights and obligations under the asset purchase agreement to us, including the right to receive royalties
on sales of pre-mixed bag formulations of the Cardene product (Cardene Pre-Mixed Bag) and other contingent consideration from EKR. In October 2009, we and EKR amended the
provisions governing EKR's obligation to pay us royalties on sales of pre-mixed bag formulations of the Cardene product. The amendment increased, retroactively effective to July 1,
2009, the royalty rate on net sales of the Cardene Pre-Mixed Bag product from a flat rate of 10% to the tiered royalty structure set forth below:

Net Sales per 12-month Period
(July 1 through the following June 30)

Royalty Rate$0$40,000,000

12%$40,000,001$80,000,000

14%>$80,000,001

17%


EKR
is obligated to pay us 20% of all consideration and contingent payments, whether in cash or in kind, received by EKR under out-licenses and distribution agreements
covering the Cardene Pre-Mixed Bag product. The amendment also extended the royalty term for royalties on net sales of the Cardene Pre-Mixed Bag product from
December 31, 2014 to December 31, 2017. If a third party launches a generic version of the Cardene Pre-Mixed Bag product, the applicable royalty rate on net sales of the
Cardene Pre-Mixed Bag product would be reduced by 50%. The amended royalty structure was effective for EKR's Cardene Pre-Mixed Bag product sales beginning July 1, 2009,
which impacted our revenues beginning in the fourth quarter of 2009. In consideration for these amended royalty terms, a $2.0 million fee and other changes, we eliminated EKR's potential
obligation to pay us two $30 million milestone payments, which would have been payable if and when EKR achieved certain sales thresholds of the Cardene Pre-Mixed Bag product. As
disclosed in our previous filings with the Securities and Exchange Commission (SEC), based on our expectation that the Cardene Pre-Mixed Bag product would face significant competition from
generic versions of the intravenous version of nicardipine hydrochloride upon the expiration of the patents covering the Cardene® IV product in November 2009, we did not expect that EKR
would meet the Cardene Pre-Mixed Bag sales thresholds that would trigger either of the $30 million milestone payments. Following the expiration of the patents covering the Cardene® IV product
in November 2009, five generic injection versions of nicardipine

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hydrochloride
were launched. We believe these generic forms of nicardipine hydrochloride are competing with the Cardene Pre-Mixed Bag product and will adversely impact the potential for
growth of Cardene Pre-Mixed Bag product sales. To date, sales of the Cardene Pre-Mixed Bag product have not reached either of the sales thresholds that would have triggered
milestone payments under the original terms of the agreement with EKR and we continue to believe that sales of the Cardene Pre-Mixed Bag product will not achieve these sales threshold
levels.

In
addition to our historical out-licensing activity described above, we intend to evaluate opportunities to develop and out-license new, proprietary antibody
technologies, which we believe may provide advantages to pharmaceutical and biotechnology companies involved in the development of protein therapeutics. (See Our Next-Generation Protein
Engineering Platform Technologies section above for further details on our next-generation protein engineering platform.)

MAJOR CUSTOMERS

We define our customers as our collaboration partners and our licensees from whom we have received and may receive reimbursement for
research and development services, license fees, royalties and milestone payments. Note 20, "Revenues by Geographic Area and Significant Customers," in the Notes to Consolidated Financial
Statements of Part II, Item 8 of this Annual Report lists our major customers who each provided over 10% of our total operating revenues in each of the last three years. Also discussed
in the note are net revenues by country in 2009, 2008, and 2007.

OUR PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS

We expend a significant amount of our resources on research and development efforts to discover and develop innovative therapies for
severe or life-threatening illnesses and to develop proprietary development technologies. Obtaining, maintaining and protecting the intellectual property rights, including patent rights,
developed through our research and development efforts, is essential for our business to succeed. To that end, we actively seek to implement patent strategies to maximize the effectiveness of our
intellectual property positions. We have numerous issued U.S and foreign patents and have a variety of patent applications pending in the U.S. and various foreign countries covering, among other
things, compositions of matter, drug formulations, methods of use and action, manufacturing and methodologies.

While
we file and prosecute patent applications to protect our inventions, our pending patent applications may not result in the issuance of patents or the scope of claims in our issued
patents may not provide competitive advantages. Also, our patent protection may not prevent others from developing competitive products using related or other technology.

In
addition to seeking the protection of patents and licenses, we rely upon trade secrets, know-how and continuing technological innovation, which we seek to protect, in
part, by confidentiality agreements with employees, consultants, suppliers and licensees. If these agreements are
not honored, we might not have adequate remedies for any breach. Additionally, our trade secrets might otherwise become known or patented by our competitors.

A
number of companies, universities and research institutions have filed patent applications or received patents claiming compositions of matter, drug formulations, methods of use and
action, manufacturing and methodologies, which could relate to our programs. Some of these applications or patents may be competitive with our applications or contain material that could prevent the
issuance of patents to us or result in a significant reduction in the scope of claims in our issued patents. Additionally, other companies, universities and research institutions may obtain patents
that could limit our ability to use, import, manufacture, market or sell our products, commonly referred to as our "freedom to operate," or impair our competitive position. As a result, we might be
required to obtain licenses from others before we could continue using, importing, manufacturing, marketing, or selling

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our
products. We may not be able to obtain required licenses on terms acceptable to us, if at all. If we do not obtain required licenses, we may encounter significant delays in product development
while we redesign potentially infringing products or methods or may not be able to market our products at all.

The
scope, enforceability and effective term of issued patents can be highly uncertain and often involve complex legal and factual questions. No consistent policy has emerged regarding
the breadth of claims in biotechnology patents, so that even issued patents may later be modified or revoked by relevant patent authorities or courts. Moreover, the issuance of a patent in one country
does not assure the issuance of a patent with similar claim scope in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of
patent protection in any country. We cannot assure you that the patents we obtain or the unpatented proprietary technology we hold will afford us significant commercial protection or competitive
advantage. Additional information regarding risks associated with our patents and other proprietary rights that affect our business is contained under the headings "We must protect our patents and
other intellectual property rights to succeed" and "We may need to obtain patent licenses from others in order to manufacture or sell our potential products and we may not be able to obtain these
licenses on terms acceptable to us or at all" in Item 1A under the heading "Risk Factors."

In
connection with the Spin-off, PDL assigned to us (1) the patents and other intellectual property related to the Biotechnology Business; (2) the strategic
collaboration, licensing and other agreements, described in the section above entitled "Strategic Collaborations and Licensing Agreements," related to the research, development, commercialization and
optimization of human therapeutics, including the human therapeutics under development by PDL, and (3) other agreements pursuant to which third parties have licensed intellectual property
rights to PDL. In addition, we obtained certain rights to the Queen et al. patents and related intellectual property under a non-exclusive cross license agreement we entered into with PDL
in connection with the Spin-off.

GOVERNMENT REGULATION

The manufacturing, testing, labeling, approval and storage of our products are subject to rigorous regulation by numerous governmental
authorities in the United States and other countries at the federal, state and local level, including the FDA. Conduct of non-clinical and clinical studies in support of our products are
similarly subject to U.S. and international quality standards and guidelines, and are also subject to inspection from regulatory authorities at their discretion. The process of obtaining approval for
initiating approval with a new pharmaceutical product and ultimately getting marketing approval requires expenditure of substantial resources and usually takes several years. Companies in the
pharmaceutical and biotechnology industries, including us, have suffered significant setbacks in various stages of clinical trials, even in advanced clinical trials after promising results had been
obtained in earlier trials.

The
process for obtaining FDA approval of drug candidates customarily begins with the filing with the FDA of an Investigational New Drug Application (IND) for the use of a drug candidate
to treat a particular indication. If the IND is accepted by the FDA, we would then start human clinical trials to determine, among other things, the proper dose, safety and efficacy of the drug
candidate in the stated indication. The clinical trial process is customarily divided into three phasesphase 1, phase 2 and phase 3. Each successive phase is
generally larger and more time-consuming and expensive than the preceding phase. Throughout each phase we are subject to extensive regulation and oversight by the FDA. Even after a drug is
approved and being marketed for commercial use, the FDA may require that we conduct additional trials, including "phase 4" trials, to further study safety or efficacy.

As
part of the regulatory approval process, we must demonstrate to the FDA the ability to manufacture a pharmaceutical product before we receive marketing approval. The manufacturing and
quality control procedures we and our manufacturing partners must undertake must conform to

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rigorous
standards in order to receive FDA approval and the validation of these procedures is a costly endeavor. Pharmaceutical manufacturers are subject to inspections by the FDA and local
authorities as well as inspections by authorities of other countries. To supply pharmaceutical products for use in the United States, foreign manufacturers must comply with these
FDA-approved guidelines. These foreign manufacturers are also subject to periodic inspection by the FDA or by corresponding regulatory agencies in these countries under reciprocal
agreements with the FDA. Moreover, state, local and other authorities may also regulate pharmaceutical product manufacturing facilities. Before we are able to manufacture commercial products, we or
our contract manufacturer, as the case may be, must meet FDA guidelines.

For
the development of pharmaceutical products outside the United States, we and our collaborators are subject to foreign regulatory requirements and, if the particular product is
manufactured in the
United States, FDA and other U.S. export provisions. Requirements relating to manufacturing, conduct of clinical trials and product licensing vary widely in different countries. We or our licensees
may encounter difficulties or unanticipated costs or price controls in our respective efforts to secure necessary governmental approvals. This could delay or prevent us or our licensees from marketing
potential pharmaceutical products. In addition, our promotional materials and activities must also comply with FDA regulations and other guidelines.

Both
before and after marketing approval is obtained, a pharmaceutical product, its manufacturer and the holder of the Biologics License Application (BLA) or New Drug Application (NDA)
for the pharmaceutical product are subject to comprehensive regulatory oversight. The FDA may deny approval to a BLA or NDA if applicable regulatory criteria are not satisfied. Moreover, even if
regulatory approval is granted, such approval may be subject to limitations on the indicated uses for which we may market the pharmaceutical product. Further, marketing approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems with the pharmaceutical product occur following approval. In addition, under a BLA or NDA, the manufacturer of the product
continues to be subject to facility inspections and the applicant must assume responsibility for compliance with applicable pharmaceutical product and establishment standards. Violations of regulatory
requirements at any stage may result in various adverse consequences, which may include, among other adverse actions, withdrawal of the previously approved pharmaceutical product or marketing
approvals or the imposition of criminal penalties against the manufacturer or BLA or NDA holder.

Additional
information regarding the regulatory matters that affect our business is contained in Item 1A under the heading "Risk Factors."

COMPETITION

Numerous other parties have developed and are developing mouse, chimeric, human and humanized antibodies or other compounds for
treating cancers and immunologic diseases that could compete with our development products. In addition, a number of academic and commercial organizations are actively pursuing similar technologies,
and several companies have developed or may develop technologies that may compete with our protein engineering platform technologies. Competitors may succeed in more rapidly developing and marketing
technologies and products that are more effective than our products or that would render our products or technology obsolete or noncompetitive. Our collaborators may also independently develop
products that are competitive with products that we have licensed to them. Any product that we or our collaborators succeed in developing and for which regulatory approval is obtained must then
compete for market acceptance and market share. The relative speed with which we and our collaborators can develop products, complete clinical testing and approval processes, and supply commercial
quantities of the products to the market compared to competitive companies will affect market success. In addition, the amount of

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marketing,
sales and other commercial resources, and the effectiveness of these resources used with respect to a product will affect its success.

Other
competitive factors affecting our business generally include:



EMPLOYEES

As of December 31, 2009, we had 189 full-time employees. Of the total, 132 were engaged in research and development
and 57 were engaged in general and administrative functions. During 2008 and 2009, we undertook various restructuring efforts and have recognized restructuring charges related to the termination of
employees affected by these restructuring efforts. See Note 7 to the Consolidated Financial Statements found elsewhere in this Annual Report for further information related to the nature of our
workforce reductions and the related restructuring charges.

Our
scientific staff members have diversified experience and expertise in molecular and cell biology, biochemistry, immunology, oncology, protein chemistry, computational chemistry,
computer modeling, process engineering and pharmaceutical, analytical, pharmacological, toxicological and other sciences. Our success will depend in large part on our ability to attract and retain
skilled and experienced employees. None of our employees is covered by a collective bargaining agreement. We consider our relations with our employees to be good.

ENVIRONMENTAL COMPLIANCE

We seek to comply with environmental statutes and the regulations of federal, state and local governmental agencies. We have put into
place processes and procedures and maintain records in order to monitor environmental compliance. We may invest additional resources, if required, to comply with applicable regulations, and the cost
of such compliance may increase significantly.

AVAILABLE INFORMATION

For a report of our fiscal year 2009 operating results, total assets, the amount we spent on research and development activities, and
our revenues from external customers, including a geographic breakdown of such revenues, see the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

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We file electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The public may read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site iswww.sec.gov.

We
make available free of charge on or through our website atwww.facetbiotech.comour annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, as well as amendments to these reports and statements, as soon as practicable
after we have electronically filed such material with, or furnished it to, the SEC. You may also obtain copies of these filings free of charge by contacting our Corporate and Investor Relations
Department by calling (650) 454-1000.

ITEM 1A.    RISK FACTORS

This Annual Report includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are "forward looking
statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations,
any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions
underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "believes," "may," "will," "expects," "plans," "anticipates,"
"estimates," "potential," or "continue" or the
negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward- looking statements contained in this Annual Report are reasonable, there can be no
assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking
statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including the risk factors set forth
below, and for the reasons described elsewhere in this Annual Report. All forward-looking statements and reasons why results may differ included in this Annual Report are made as of the date hereof,
and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

We were subject to a takeover bid that was disruptive to our business and may continue to distract our management and employees and create uncertainty that may adversely
affect our business and results.

On September 21, 2009, Biogen Idec, through a wholly owned subsidiary, launched an unsolicited tender offer to acquire the
outstanding shares of common stock of the Company, subject to a number of terms and conditions contained in the tender offer documents Biogen Idec filed with the SEC. Our Board of Directors
unanimously recommended that the Company's stockholders reject Biogen Idec's tender offer, including Biogen Idec's revised offer to purchase all of our outstanding shares of common stock for $17.50
per share, and not tender their shares pursuant to Biogen Idec's tender offer. Biogen Idec's unsolicited tender offer expired without being consummated by Biogen Idec on December 16, 2009. As a
result of the tender offer, several parties expressed an interest in the Company and we requested that our financial advisor, Centerview Partners, solicit additional third parties that may have an
interest in a transaction that our Board would find in our stockholders' best interests. In addition, we continue to offer Biogen Idec the opportunity to engage in due diligence discussions to
determine

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whether
Biogen Idec would materially increase its prior offer to purchase all of our outstanding shares of common stock.

The
review and consideration of Biogen Idec's unsolicited offer were a significant distraction for our management and employees and required, and the solicitation of additional third
parties may continue to require, the expenditure of significant time and resources by us. Moreover, the unsolicited nature of Biogen Idec's offer and our solicitation of additional third parties has
created uncertainty for our employees and this uncertainty may adversely affect our ability to retain key employees and to attract new employees. Biogen Idec's unsolicited offer created and our
solicitation of additional third parties may continue to create uncertainty for current and potential collaboration partners, licensees and other business partners, which may cause them to terminate,
or not to renew or enter into, arrangements with us. These consequences, alone or in combination, may harm our business and may have a material adverse effect on our results of operations. We believe
that the future trading price of our common stock is likely to be volatile and could be subject to wide price fluctuations based on many factors, including uncertainty associated with the outcome of
our solicitation of additional third parties and any subsequent offer by Biogen Idec.

Unless our clinical studies demonstrate the safety and efficacy of our product candidates, we will not be able to commercialize our product candidates.

To obtain regulatory approval to market and sell any of our existing or future product candidates, we must satisfy the FDA and other
regulatory authorities abroad, through extensive preclinical and clinical studies, that our product candidates have an acceptable safety profile and are efficacious. We may not conduct the types of
testing eventually required by regulatory authorities to demonstrate an adequate safety profile for the particular indication, or the tests may indicate that the safety profile of our product
candidates is unacceptably inferior to therapeutics with comparable efficacy or otherwise unsuitable for use in humans in light of the expected therapeutic benefit of the product candidate. Clinical
trials and preclinical testing are expensive, can take many years and have an uncertain outcome. In addition, initial testing in preclinical studies or in phase 1 or phase 2 clinical
trials may indicate that the safety profile of a product candidate is adequate for approval, but does not ensure that safety issues may not arise in later trials, or that the overall safety profile
for a product candidate will be sufficient for regulatory approval in any particular product indication. We may experience numerous unforeseen events during, or as a result of, the preclinical testing
or clinical studies or clinical development, which could delay or prevent our ability to develop or commercialize our product candidates, including:



Even
if we are able to demonstrate efficacy of any product candidate, any adverse safety events would increase our costs and could delay or prevent our ability to continue the
development of or commercialize our product candidates, which would adversely impact our business, financial condition and results of operations. We are aware that our drug candidates can cause
various adverse side effects in humans, some of which are predictable and some of which are unpredictable. We proceed to evaluate the safety and efficacy of these drug candidates based on data we
accumulate from preclinical assessments and ongoing clinical studies. We believe that our drug candidates have an acceptable safety profile for the potential indications in which we are currently
conducting clinical trials. Data from ongoing or future clinical trials may indicate that a drug candidate causes unanticipated or more significant adverse side effects either used alone or when used
in combination with other drugs, in

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particular
patient populations or at increased dosages or frequency of administration. This may lead us to conclude that the drug candidate does not have an acceptable safety profile for a particular
patient population or use.

The clinical development of drug products is inherently uncertain and expensive and subject to extensive government regulation.

Our future success depends almost entirely upon the success of our clinical development efforts. Clinical development, however, is a
lengthy, time-consuming and expensive process and subject to significant risks of failure. In addition, we must expend significant amounts to comply with extensive government regulation of
the clinical development process.

Before
obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe
and effective for their intended use in humans. We have incurred and will continue to incur substantial expense for, and we have devoted and expect to continue to devote a significant amount of time
to, preclinical testing and clinical trials. Despite the time and expense incurred, our clinical trials may not adequately demonstrate the safety and effectiveness of our product candidates.

Completion
of clinical development generally takes several years or more. The length of time necessary to complete clinical trials and submit an application for marketing and
manufacturing approvals varies significantly according to the type, complexity and intended use of the product candidate and is difficult to predict. Further, we, the FDA, the European Medicines
Agency (EMEA), investigational review boards or data safety monitoring boards may decide to temporarily suspend or permanently terminate ongoing trials. Failure to comply with extensive regulations
may result in unanticipated delay, suspension or cancellation of a trial or the FDA's or EMEA's refusal to accept test results. As a result of these factors, we cannot predict the actual expenses that
we will incur with respect to preclinical or clinical trials for any of our potential products, and we expect that our expense levels will fluctuate
unexpectedly in the future. Despite the time and expense incurred, we cannot guarantee that we will successfully develop commercially viable products that will achieve FDA or EMEA approval or market
acceptance, and failure to do so would materially harm our business, financial condition and results of operations.

Early
clinical trials such as phase 1 and 2 trials generally are designed to gather information to determine whether further trials are appropriate and, if so, how such trials
should be designed. As a result, data gathered in these trials may indicate that the endpoints selected for these trials are not the most relevant for purposes of assessing the product or the design
of future trials. Moreover, success or failure in meeting such early clinical trial endpoints is not dispositive of whether further trials are appropriate and, if so, how such trials should be
designed. We may decide, or the FDA or other regulatory agencies may require us, to make changes in our plans and protocols. Such changes may relate, for example, to changes in the standard of care
for a particular disease indication, comparability of efficacy and toxicity of potential drug product where a change in the manufacturing process or manufacturing site is proposed, or competitive
developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the
expected time line for concluding clinical trials.

Larger
or later stage clinical trials may not produce the same results as earlier trials. Many companies in the pharmaceutical and biotechnology industries, including us, have suffered
significant setbacks in clinical trials, including advanced clinical trials, even after promising results had been obtained in earlier trials. For example, in August 2007, PDL announced that it would
terminate the phase 3 program of its visilizumab antibody in intravenous steroid-refractory ulcerative colitis because data from treated patients showed insufficient efficacy and an
inferior safety profile in the visilizumab arm compared to IV steroids alone.

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Even
when a drug candidate shows evidence of efficacy in a clinical trial, it may be impossible to further develop or receive regulatory approval for the drug if it causes an
unacceptable incidence or severity of side effects, or further development may be slowed by the need to find dosing regimens that do not cause such side effects.

In
addition, we may not be able to successfully commence and complete all of our planned clinical trials without significant additional resources and expertise because we have a number
of potential products in clinical development. The approval process takes many years, requires the expenditure of substantial resources, and may involve post-marketing surveillance and
requirements for post-marketing studies. The approval of a product candidate may depend on the acceptability to the FDA or other regulatory agencies of data from our clinical trials.
Regulatory
requirements are subject to frequent change. Delays in obtaining regulatory approvals may:



In
addition, we may encounter regulatory delays or failures of our clinical trials as a result of many factors, all of which may increase the costs and expense associated with the trial,
including:



Regulatory
review of our clinical trial protocols may cause us in some cases to delay or abandon our planned clinical trials. Our potential inability to commence or continue clinical
trials, to complete the clinical trials on a timely basis or to demonstrate the safety and efficacy of our potential products, further adds to the uncertainty of regulatory approval for our potential
products.

We may be unable to enroll a sufficient number of patients in a timely manner in order to complete our clinical trials.

The rate of completion of clinical trials is significantly dependent upon the rate of patient enrollment. Patient enrollment is a
function of many factors, including:



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We
may have difficulty obtaining sufficient patient enrollment or clinician support to conduct our clinical trials as planned, and we may need to expend substantial additional funds to
obtain access to resources or delay or modify our plans significantly. These considerations may result in our being unable to successfully achieve our projected development timelines, or potentially
even lead us to consider the termination of ongoing clinical trials or development of a product for a particular indication.

If our collaborations are not successful or are terminated by our collaborators, we may not effectively develop and market some of our product candidates.

We have agreements with biotechnology and other companies to develop, manufacture and market certain of our potential products. In some
cases, we rely on our collaborators to manufacture such products and essential components for those products, design and conduct clinical trials, compile and analyze the data received from these
trials, obtain regulatory approvals and, if approved, market these licensed products. As a result, we may have limited or no control over the manufacturing, development and marketing of these
potential products and little or no opportunity to review the clinical data prior to or following public announcement. In addition, the design of the clinical studies may not be sufficient or
appropriate for regulatory review and approval and we may have to conduct further studies in order to facilitate approval.

In
September 2005 we entered into collaboration agreements with Biogen Idec for the joint development of daclizumab in certain indications, including MS, and volociximab (M200) in all
indications; in August 2008 with BMS for the co-development of elotuzumab in multiple myeloma and other potential oncology indications; and in August 2009 with Trubion for the
co-development of TRU-016, a product candidate in phase 1 clinical trials for chronic lymphocytic leukemia. These agreements are particularly important to us. The
collaboration agreements provide significant combined resources for the development, manufacture and potential commercialization of covered products. We and our collaborators each assume certain
responsibilities and share expenses. Because of the broad scope of the collaborations, we are particularly dependent upon the performance by Biogen Idec, BMS and Trubion of their respective
obligations under the agreements. The failure of our collaborators to perform their obligations, our failure to perform our obligations, our failure to effectively manage the relationships, or a
material contractual dispute between us and either of our collaborators could have a material adverse effect on our prospects or financial results. Moreover, our financial results depend in
substantial part upon our efforts and related expenses for these programs. Our revenues and expenses recognized under each collaboration will vary depending on the work performed by us and our
collaborators in any particular reporting period.

We
rely on other collaborators, such as contract manufacturers, clinical research organizations, medical institutions and clinical investigators, including physician sponsors, to conduct
nearly all of our clinical trials, including recruiting and enrolling patients in the trials. If these parties do not successfully carry out their contractual duties or meet expected deadlines, we may
be delayed or may not obtain regulatory approval for or commercialize our product candidates. If any of the third parties upon whom we rely to conduct our clinical trials do not comply with applicable
laws, successfully carry out their obligations or meet expected deadlines, our clinical trials may be extended, delayed or terminated.

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If
the quality or accuracy of the clinical data obtained by third party contractors is compromised due to their failure to adhere to applicable laws, our clinical protocols or for other
reasons, we may not obtain regulatory approval for or successfully commercialize any of our product candidates. If our relationships with any of these organizations or individuals terminates, we
believe that we would be able to enter into arrangements with alternative third parties. However, replacing any of these third parties could delay our clinical trials and could jeopardize our ability
to obtain regulatory approvals and commercialize our product candidates on a timely basis, if at all.

Our
collaborators can terminate our collaborative agreements under certain conditions, and in some cases on short notice. A collaborator may terminate its agreement with us or separately
pursue alternative products, therapeutic approaches or technologies as a means of developing treatments for the diseases targeted by us, or our collaborative effort. Even if a collaborator continues
to contribute to the arrangement, it may nevertheless decide not to actively pursue the development or commercialization of any resulting products. In these circumstances, our ability to pursue
potential products could be severely limited.

In
2004 and 2005, we entered into two collaboration arrangements with Roche for the joint development and commercialization of daclizumab for the treatment of asthma and other
respiratory diseases and transplant indications. In 2006, Roche notified us of its election to discontinue its involvement in both of these collaboration arrangements. As a result of the termination
of this relationship, we suspended the active clinical development of daclizumab in these indications and, consequently, the development expenses related to the development of daclizumab in these
indications were reduced from historical and forecasted levels. Under the terms of the agreement governing this collaboration with Roche, the costs of clinical studies and other development costs were
shared by Roche through the effective termination dates, so our financial condition was not materially affected as a result of the termination of these collaborations.

Continued
funding and participation by collaborators will depend on the continued timely achievement of our research and development objectives, the retention of key personnel performing
work under those agreements and on each collaborator's own financial, competitive, marketing and strategic capabilities and priorities. These considerations include:



Our
ability to enter into new relationships and the willingness of our existing collaborators to continue development of our potential products depends upon, among other things, our
patent position with respect to such products. If we are unable to successfully maintain our patents we may be unable to collect royalties on existing licensed products or enter into additional
agreements.

In
addition, our collaborators may independently develop products that are competitive with products that we have licensed to them. This could reduce our revenues or the likelihood of
achieving revenues under our agreements with these collaborators.

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If our research and development efforts are not successful, we may not be able to effectively develop new products.

We are engaged in research activities intended to, among other things, progress therapeutic candidates into clinical development. In
the near-term, we will focus on obtaining new product candidates through various means, including in-licensing them from or entering in to strategic collaborations with
institutions or other biotechnology or pharmaceutical companies. Acquiring rights to products in this manner poses risks, including that we may not be unable to successfully integrate the research,
development and commercialization capabilities necessary to bring these products to market. In addition, we may not be able to identify or acquire suitable products to in-license.

Our
antibody product candidates are in various stages of development and many are in an early development stage. If we are unsuccessful in our research efforts to identify and obtain
rights to new
validated targets and develop product candidates that lead to the required regulatory approvals and the successful commercialization of products, our ability to develop new products could be harmed.

We must protect our patent and other intellectual property rights to succeed.

Our success is dependent in significant part on our ability to develop and protect patent and other intellectual property rights and
operate without infringing the intellectual property rights of others.

Our
pending patent applications may not result in the issuance of valid patents or the claims and claim scope of our issued patents may not provide competitive advantages. Also, our
patent protection may not prevent others from developing competitive products using related or other technology that does not infringe our patent rights. A number of companies, universities and
research institutions have filed patent applications or received patents in the areas of antibodies and other fields relating to our programs. Some of these applications or patents may be competitive
with our applications or have claims that could prevent the issuance of patents to us or result in a significant reduction in the claim scope of our issued patents. In addition, patent applications
are confidential for a period of time after filing. We therefore may not know that a competitor has filed a patent application covering subject matter similar to subject matter in one of our patent
applications or that we were the first to invent the innovation we seek to patent. This may lead to disputes including interference or opposition proceedings or litigation to determine rights to
patentable subject matter. These disputes are often expensive and may result in our being unable to patent an innovation.

The
scope, enforceability and effective term of patents can be highly uncertain and often involve complex legal and factual questions and proceedings. No consistent policy has emerged
regarding the breadth of claims in biotechnology patents, so that even issued patents may later be modified or revoked by the relevant patent authorities or courts. These proceedings could be
expensive, last several years and either prevent issuance of additional patents to us or result in a significant reduction in the scope or invalidation of our patents. Any limitation in claim scope
could reduce our ability to negotiate future collaborative research and development agreements based on these patents. Moreover, the issuance of a patent in one country does not assure the issuance of
a patent with similar claim scope in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of patent protection in any country.

In
addition to seeking the protection of patents and licenses, we also rely upon trade secrets, know-how and continuing technological innovation that we seek to protect, in
part, by confidentiality agreements with employees, consultants, suppliers and licensees. If these agreements are not honored, we might not have adequate remedies for any breach. Additionally, our
trade secrets might otherwise become known or patented by our competitors.

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We may need to obtain patent licenses from others in order to manufacture or sell our potential products and we may not be able to obtain these licenses on terms acceptable
to us or at all.

Other companies, universities and research institutions may obtain patents that could limit our ability to use, import, manufacture,
market or sell our products or impair our competitive position. As a result, we may need to obtain licenses from others before we could continue using, importing, manufacturing, marketing, or selling
our products. We may not be able to obtain required licenses on terms acceptable to us, if at all. If we do not obtain required licenses, we may encounter significant delays in product development
while we redesign potentially infringing products or methods or we may not be able to market our products at all.

We
do not have a license to an issued U.S. patent assigned to Stanford University and Columbia University, which may cover a process used to produce our potential products. We have been
advised that an exclusive license has been previously granted to a third party, Centocor, under this patent. If our processes were found to be covered by either of these patents, we might need to
obtain licenses or to significantly alter our processes or products. We might not be able to successfully alter our processes or products to avoid conflicts with these patents or to obtain licenses on
acceptable terms or at all.

We
do not have licenses to issued U.S. patents which may cover one of our development-stage products. If we successfully develop this product, we might need to obtain licenses to these
patents to commercialize the product. If we need to obtain licenses to these patents, we may not be able to do so on acceptable terms or at all.

The failure to gain market acceptance of our product candidates among the medical community would adversely affect any product revenue we may receive in the future.

Even if approved, our product candidates may not gain market acceptance among physicians, patients, third-party payers and the medical
community. We may not achieve market acceptance even if clinical trials demonstrate safety and efficacy and we obtain the necessary regulatory and reimbursement approvals. The degree of market
acceptance of any product candidates that we develop will depend on a number of factors, including:



Physicians
will not recommend our products until clinical data or other factors demonstrate the safety and efficacy of our product as compared to conventional drug and other treatments.
Even if we establish the clinical safety and efficacy of our product candidates, physicians may elect not to use our product for any number of other reasons, including whether the mode of
administration of our products is effective for certain indications. Antibody products, including our product candidates as they would be used for certain disease indications, are typically
administered by infusion or injection, which requires substantial cost and inconvenience to patients. Our product candidates, if successfully developed, may compete with a number of drugs and
therapies that may be administered more easily.
The failure of our product candidates to achieve significant market acceptance would materially harm our business, financial condition and results of operations.

We face significant competition.

We face significant competition from entities who have substantially greater resources than we have, more experience in the
commercialization and marketing of pharmaceuticals, superior product

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development
capabilities and superior personnel resources. Potential competitors in the United States and other countries include major pharmaceutical, biotechnology and chemical companies,
specialized pharmaceutical companies and universities and other research institutions. These entities have developed and are developing human or humanized antibodies or other compounds for treating
cancers or immunologic diseases that may compete with our products in development and technologies that may compete with our development products or antibody technologies. These competitors may
succeed in more rapidly developing and marketing technologies and products that are more effective than our product candidates or technologies or that would render any future commercialized products
or technology obsolete or noncompetitive. Our product candidates and any future commercialized products may also face significant competition from both brand-name and generic manufacturers
that could adversely affect any future sales of our products.

If
daclizumab were to be approved for the treatment of relapsing multiple sclerosis, it would face competition from currently approved and marketed products, including
interferon-beta agents, such as Biogen Idec'sAvonex®, Bayer HealthCare Pharmaceuticals' Betaseron®, Novartis Pharmaceutical Corporation's
(Novartis)Extavia® and EMD
Serono Inc.'sRebif®, a non-interferon immune modifier, Teva Pharmaceutical Industries Ltd.'s Copaxone®, and a monoclonal antibody,
Biogen Idec and Elan Pharmaceuticals, Inc.'s Tysabri®. Further competition could arise from drugs currently in development, including Merck Serono S.A.'s Movectro (oral
cladribine), Novartis fingolimod and other monoclonal antibodies in development, such as Genzyme Corporation'sCampath®, Genmab A/S and
GlaxoSmithKline'sArzerra®, and Genentech, Inc. (Genentech) and Roche's ocrelizumab.

If
elotuzumab were to be approved for the treatment of multiple myeloma, it could face competition from currently approved and marketed products, including Celgene Corporation's Revlimid® andThalomid® and Millennium Pharmaceuticals, Inc.'s Velcade®. Further competition could arise from drugs currently in development, including
Centocor, Inc.'s CNTO-328,
Novartis' Panobinostat, Merck & Co., Inc.'s Vorinostat, Onyx Pharmaceuticals Inc.'s carfilzomib, Genentech and Seattle Genetics, Inc.'s dacetuzumab, Novartis and
Xoma Ltd.'s lucatumumab, and Pfizer Inc.'s (Pfizer) CP-751871.

If
volociximab (M200) were to be approved for the treatment of non-small cell lung cancer or ovarian cancer, it would face competition from a number of other
anti-angiogenic agents in pre-clinical and clinical development, including antibody candidates such as Pfizer's CP-751,871, ImClone Systems Incorporated's (ImClone) Erbitux® and Novartis's ASA404,
each of which are in more advanced stages of development than is volociximab. In addition, many other VEGF
or VEGFR targeted agents are in advanced stage of development and many other anti-angiogenesis agents are in earlier stage of development, which could compete with volociximab should it be
approved for marketing.

If
PDL192 were to be approved for the treatment of solid tumors, it would face competition from many agents that are used for solid tumors, such as ImClone's Erbitux®,
Genentech'sAvastin®, and other monoclonal antibodies and targeted agents in development which potentially modulate the TWEAK pathway,
including Biogen Idec's anti-Tweak monoclonal antibody, BIIB023.

If
TRU-016 were to be approved for the treatment of chronic lymphocytic leukemia, it would face competition from certain products that are used for such indication, such as
Genentech's and Biogen Idec'sRituxan®, Genzyme Corporation's alemtuzumab and Genmab A/S and GlaxoSmithKline's Arzerra®. In
addition, TRU-016 may face competition in the future from Celgene's Revlimid® or other drugs presently in development, if these agents are approved in the future for this
indication.

Any
product that we or our collaborators succeed in developing and for which regulatory approval is obtained must then compete for market acceptance and market share. The relative speed
with which we and our collaborators can develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market compared to competitive
companies

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will
affect market success. In addition, the amount of marketing, sales and other commercial resources and the effectiveness of these resources used with respect to a product will affect its marketing
success.

The
biotechnology and pharmaceutical industries are highly competitive. None of our current product candidates is approved for marketing and we do not expect any of our candidates to
receive marketing approval in the next several years, if at all. The competitive environment for any of our product candidates which may be approved for marketing at the time of commercialization is
highly speculative and uncertain, but we anticipate that such products would face substantial competition from marketed products and from product candidates in development, if approved.

Changes in the U.S. and international health care industry, including regarding reimbursement rates, could adversely affect the commercial value of our development product
candidates.

The U.S. and international health care industry is subject to changing political, economic and regulatory influences that may
significantly affect the purchasing practices and pricing of pharmaceuticals. The FDA and other health care policies may change, and additional government regulations may be enacted, which could
prevent or delay regulatory approval of our product candidates. Cost containment measures, whether instituted by health care providers or imposed by government health administration regulators or new
regulations, could result in greater selectivity in the purchase of drugs. As a result, third-party payers may challenge the price and cost effectiveness of our products. In addition, in many major
markets outside the United States, pricing approval is required before sales may commence. As a result, significant uncertainty exists as to the reimbursement status of approved health care products.

We
may not be able to obtain or maintain our desired price for any products we develop. Any product we introduce may not be considered cost effective relative to alternative therapies.
As a result, adequate third-party reimbursement may not be available to enable us to obtain or maintain prices sufficient to realize an appropriate return on our investment in product development,
should any of our development products be approved for marketing. Also, the trend towards managed health care in the United States and the concurrent growth of organizations such as health maintenance
organizations, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices, reduced reimbursement levels and diminished markets for
our development products. These factors will also affect the products that are marketed by our collaborators and licensees. We cannot predict the likelihood, nature or extent of adverse government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to maintain regulatory compliance, we might not be permitted to
market our future products and our business could suffer.

We may be unable to obtain or maintain regulatory approval for our products.

Even if the FDA grants us marketing approval for a product, the FDA may impose post-marketing requirements, such
as:



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The
discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, may result in restrictions of the products,
including withdrawal from manufacture. Additionally, certain material changes affecting an approved product such as manufacturing changes or additional labeling claims are subject to further FDA
review and approval. The FDA may revisit and change its prior determination with regard to the safety or efficacy of our products and withdraw any required approvals after we obtain them. Even prior
to any formal regulatory action requiring labeling changes or affecting manufacturing, we could voluntarily decide to cease the distribution and sale or recall any of our future products if concerns
about their safety and efficacy develop.

As
part of the regulatory approval process, we or our contractors must demonstrate the ability to manufacture the pharmaceutical product to be approved. Accordingly, the manufacturing
process and quality control procedures are required to comply with the applicable FDA Current Good Manufacturing Practice (cGMP) regulations and other regulatory requirements. Good manufacturing
practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation.

Manufacturing
facilities must pass an inspection by the FDA before initiating commercial manufacturing of any product. Pharmaceutical product manufacturing establishments are also
subject to inspections by state and local authorities as well as inspections by authorities of other countries. To supply pharmaceutical products for use in the United States, foreign manufacturing
establishments must comply with these FDA approved guidelines. These foreign manufacturing establishments are subject to periodic inspection by the FDA or by corresponding regulatory agencies in these
countries under reciprocal agreements with the FDA. The FDA enforces post-marketing regulatory requirements, such as cGMP requirements, through periodic unannounced inspections. Failure to
pass an inspection could disrupt, delay or shut down our manufacturing operations. Although we do not
have currently marketed products, the foregoing considerations would be important to our future selection of contract manufacturers.

Our
collaborators, licensees and we also are subject to foreign regulatory requirements regarding the manufacture, development, marketing and sale of pharmaceutical products and, if the
particular product is manufactured in the United States, FDA and other U.S. export provisions. These requirements vary widely in different countries. Difficulties or unanticipated costs or price
controls may be encountered by us or our licensees or marketing collaborators in our respective efforts to secure necessary governmental approvals. This could delay or prevent us, our licensees or our
marketing collaborators from marketing potential pharmaceutical products.

Further,
regulatory approvals may be withdrawn if we do not comply with regulatory standards or if problems with our products occur. In addition, under a Biologics License Application
(BLA), the manufacturer continues to be subject to facility inspection and the applicant must assume responsibility for compliance with applicable pharmaceutical product and establishment standards.
If we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we may be subject to sanctions, including:



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We rely on sole source, third parties to manufacture our products.

We do not have the capability to manufacture any of our development-stage products. We rely upon third parties, including our
collaborators, for our manufacturing requirements. We are in the process of transferring the manufacture of several of our product candidates to other third parties. If we experience difficulties in
the transition process, or if we experience supply problems with our manufacturing partners, there may not be sufficient supplies of our development-stage products for us to meet clinical trial
demand, in which case our operations and results could suffer. In addition, routine failures in the manufacturing process may lead to increased expenses and result in unforeseen delays in the progress
of our clinical studies.

Our
products must be manufactured in facilities that comply with FDA and other regulations, and the process for qualifying and obtaining approval for a manufacturing facility is
time-consuming. The manufacturing facilities on which we rely will be subject to ongoing, periodic unannounced inspection by the FDA and state agencies to ensure compliance with good
manufacturing practices and other requirements. We make all reasonable efforts to periodically audit these facilities to evaluate the GMP compliance status of our manufacturing partners. However,
any actions taken by Regulatory Agencies with our manufacturing partners due to non-compliance (such as warning letters, temporary or permanent closures, whether or not related to the
manufacturing or testing of our products) could lead to unforeseen delays in the progress of our clinical studies.

If
our relationship with any of our collaborators were to terminate unexpectedly or on short notice, our ability to meet clinical trial demand for our development-stage products could be
adversely affected while we qualify a new manufacturer for that product and our operations and future results could suffer. In addition, we would need to expend a significant amount of time and incur
significant costs to qualify a new manufacturer and transfer technology to the new manufacturer, which would also adversely affect our results of operations.

Product
supply interruptions, whether as a result of regulatory action or the termination of a relationship with a manufacturer, could significantly delay clinical development of our
potential products, reduce third-party or clinical researcher interest and support of proposed clinical trials, and possibly delay commercialization and sales of these products.

Our
ability to file for, and to obtain, regulatory approvals for our products, as well as the timing of such filings, will depend on the abilities of the contract manufacturers we
engage. We or our contract manufacturers may encounter problems with the following:



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Manufacturing changes may result in delays in obtaining regulatory approval or marketing for our products.

When we make changes in the manufacturing process, we may be required to demonstrate to the FDA and corresponding foreign authorities
that the changes have not caused the resulting drug material to differ significantly from the drug material previously produced (i.e., we must demonstrate comparability of the drug material produced
using the original and changed manufacturing processes). Further, any significant manufacturing changes for the production of our product candidates could result in delays in development or regulatory
approval or in the reduction or interruption of commercial sales of our product candidates. Our or our contract manufacturers' inability to maintain manufacturing operations in compliance with
applicable regulations within our
planned time and cost parameters could materially harm our business, financial condition and results of operations.

We
have made manufacturing changes and will make additional manufacturing changes for the production of our products currently in clinical development, including as we scale up
manufacturing processes and develop appropriate pharmaceutical dosage forms for our products from clinical through to commercial scale and seek to increase manufacturing yields. These manufacturing
changes or an inability to timely demonstrate comparability between materials manufactured before and after making manufacturing changes could result in delays in development or regulatory approvals
or in reduction or interruption of commercial sales and could impair our competitive position.

For
example, we are in the process of transferring manufacturing technology and know how for elotuzumab and daclizumab from Genmab's Brooklyn Park, Minnesota, manufacturing facility, at
which we formerly manufactured elotuzumab and daclizumab drug substance, to BMS and Biogen Idec, respectively. The successful transfer of manufacturing technology to a new manufacturing facility is a
resource intensive and complex process and generally requires changes in the manufacturing process to adapt to the particular plant and equipment at the new manufacturing facility. Once we transfer
elotuzumab and daclizumab manufacturing technology to BMS and Biogen Idec, we and our collaboration partners will need to demonstrate the comparability of drug substance manufactured at the new
facility to the drug substance that had formerly been manufactured at Genmab's Brooklyn Park, Minnesota, manufacturing facility. Changes in the manufacturing process required to adapt to the
particular plant and equipment at the new manufacturing facility may introduce variances or irregularities that may adversely impact the comparability of drug substances produced at the new facility.
If drug substance manufactured by BMS or Biogen Idec at their facilities is not comparable to the drug substance manufactured at Genmab's Brooklyn Park, Minnesota, manufacturing facility, we and our
collaboration partners may need to dedicate additional time and resources and incur additional expenses to resolve the causes of the incomparability. Also, because we expect to initiate the DECIDE
phase 3 clinical trial of daclizumab in the second quarter of 2010 and we expect to make a decision about whether to move the elotuzumab program to phase 3 in the first half of 2011, we
expect that some proportion of the patients dosed in these phase 3 trials would receive drug product made from drug substance produced at Genmab's Brooklyn Park, Minnesota, manufacturing
facility with the remainder of patients receiving drug product made from drug substance manufactured at Biogen Idec's or BMS's manufacturing facilities. The FDA or other regulatory authorities could
require as a condition to registration that additional patients be exposed to drug product made from drug substance manufactured at the new facility if too great a proportion of patients in these
phase 3 trials receive drug product made from drug substance produced at Genmab's Brooklyn Park, Minnesota, manufacturing facility or otherwise require additional studies to address any
concerns FDA or other regulatory authorities may have, which could delay the registration of daclizumab or elotuzumab.

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We must comply with extensive government regulations and laws.

We and our collaboration partners are subject to extensive regulation by federal government, state governments, and the foreign
countries in which we conduct our business.

In
particular, we are subject to extensive and rigorous government regulation as a developer of drug products. For example, the FDA regulates, among other things, the development,
testing, research, manufacture, record-keeping, labeling, storage, approval, quality control, adverse event reporting, advertising, promotions, sale and distribution of biotechnology products. Our
product candidates are subject to extensive regulation by foreign governments. The regulatory review and approval process, which includes preclinical studies and clinical trials of each product
candidate, is lengthy, expensive and uncertain.

We
must rely on our contract manufacturers and third-party suppliers for regulatory compliance and adhering to the FDA's cGMP requirements. If these manufacturers or suppliers fail to
comply with applicable regulations, including FDA pre-or post-approval inspections and cGMP requirements, then the FDA could sanction us. These sanctions could include fines,
injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delay, suspension or withdrawal of approvals, license revocation, product seizures or
recalls, operational restrictions or criminal prosecutions, any of which could significantly and adversely affect our business.

If
our operations are found to violate any applicable law or other governmental regulations, we may be subject to civil and criminal penalties, damages and fines. Similarly, if the
hospitals, physicians or other providers or entities with which we do business are found non-compliant with applicable laws, they may be subject to sanctions, which could also have a
negative impact on us. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts,
and their provisions are open to a variety of interpretations, and additional legal or regulatory change. Any action against us for violation of these laws, even if we successfully defend against it,
could cause us to incur significant legal expenses, divert our management's attention from the operation of our business and damage our reputation.

We
expend a significant amount on compliance efforts and such expenses are unpredictable and may adversely affect our results. Changing laws, regulations and standards may also create
uncertainty and increase insurance costs. We are committed to compliance and maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably
necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities.

We may incur significant costs in order to comply with environmental regulations or to defend claims arising from accidents involving the use of hazardous materials.

We are subject to federal, state and local laws and regulations governing the use, discharge, handling and disposal of materials and
wastes used in our operations. As a result, we may be required to incur significant costs to comply with these laws and regulations. We cannot eliminate the risk of accidental contamination or injury
from these materials. In the event of such an accident, we could be held liable for any resulting damages and incur liabilities, which exceed our resources. In addition, we cannot predict the extent
of the adverse effect on our business or the financial and other costs that might result from any new government requirements arising out of future legislative, administrative or judicial actions.

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We may be subject to product liability claims, and our insurance coverage may not be adequate to cover these claims.

We face an inherent business risk of exposure to product liability claims in the event that the use of products during research and
development efforts or after commercialization results in adverse effects. This risk exists even with respect to any products that receive regulatory approval for commercial sale. While we maintain
liability insurance for our products, it may not be sufficient to satisfy any or all liabilities that may arise. Also, adequate insurance coverage may not be available in the future at acceptable
cost, if at all.

We
maintain product liability insurance for claims arising from the use of our product candidates in clinical trials prior to FDA approval at levels that we believe are appropriate for
similarly situated companies in the biotechnology industry. However, we may not be able to maintain our existing insurance coverage or obtain additional coverage on commercially reasonable terms for
the use of our other product candidates and products in the future. Also, our insurance coverage and resources may not be sufficient to satisfy liability resulting from product liability claims, which
could materially harm our business, financial condition or results of operations. While we believe our product liability insurance is reasonable, we cannot assure you that this coverage will be
adequate to protect us in the event of a claim.

We may be required to satisfy certain indemnification obligations to PDL or may not be able to collect on indemnification rights from PDL.

Under the terms of the Separation and Distribution Agreement, we agreed to indemnify PDL from and after the Spin-off with
respect to indebtedness, liabilities and obligations, other than PDL's convertible notes, that PDL will retain that do not relate to
PDL's Royalty Business. Our ability to satisfy these indemnities, if called upon to do so, will depend upon the nature of any claim for indemnity and upon our future financial strength.

In
April 2009, we became aware of assertions from one of PDL's former commercial product distributors that it believes it should be reimbursed for certain amounts relating
to sales rebates on the sale of the Busulfex® commercial product in Italy during the 2006 and 2007 fiscal periods. We believe these assertions are invalid and without merit. Under the
terms of the indemnification provisions contained in the Separation and Distribution Agreement, we could be responsible for any amounts ultimately deemed due and payable to this distributor by PDL
should these assertions be deemed valid. As any potential liability related to these assertions is not probable at this time, we have not recorded any liability relating to this matter on our balance
sheet as of December 31, 2009.

We
are not aware of any other potential material indemnification obligations at this time, but any such indemnification obligations that may arise could be significant. We cannot
determine whether we will have to indemnify PDL for any substantial obligations in the future.

We must attract and retain highly skilled employees in order to succeed.

To be successful, we must attract and retain qualified clinical, scientific and management personnel and we face significant
competition for experienced personnel. If we do not succeed in attracting and retaining qualified personnel, particularly at the management level, our business could be impaired. In connection with
prior strategic reviews and asset sale processes, PDL and we eliminated a significant number of employment positions over the course of several restructurings and reductions in force. The
Spin-off represented a further change and our employees may have concerns about our prospects as a stand-alone company, including our ability to maintain our independence. These prior
restructurings and reductions in force and the Spin-off have created uncertainty for our employees and our employees may seek other employment, which could materially adversely affect our
business.

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On
September 21, 2009, Biogen Idec, through a wholly owned subsidiary, launched an unsolicited tender offer to acquire the outstanding shares of common stock of the Company,
subject to a number of terms and conditions contained in the tender offer documents Biogen Idec filed with the SEC. Our Board of Directors unanimously recommended that the Company's stockholders
reject Biogen Idec's tender offer and not tender their shares pursuant to Biogen Idec's tender offer. Biogen Idec's unsolicited tender offer expired without being consummated by Biogen Idec on
December 16, 2009. As a result of the
tender offer, several parties expressed an interest in the Company and we requested that our financial advisor, Centerview Partners, solicit additional third parties that may have an interest in a
transaction that our Board would find in our stockholders' best interests. In addition, we continue to offer Biogen Idec the opportunity to engage in due diligence discussions to determine whether
Biogen Idec would materially increase its prior offer to purchase all of our outstanding shares of common stock.

Biogen
Idec's unsolicited offer has created additional uncertainty for our employees and this uncertainty may adversely affect our ability to retain key employees and to attract new
employees. We have put in place severance and compensation incentives in response to Biogen Idec's unsolicited offer in an effort to mitigate the number of voluntary terminations; however, these
programs may not provide effective incentive to employees to stay with us. The uncertainly created by past events, including Biogen Idec's unsolicited tender offer, may also make the recruitment of
key personnel more difficult, which would adversely affect our operations, particularly if we lose and need to replace key executives.

We
are particularly dependent on our executive officers, and we generally do not have employment agreements with specified terms with our executives. We are currently engaged in a search
for a new chief medical officer. The failure to timely recruit a new chief medical officer could adversely impact the effectiveness of our research and development efforts. Also, we rely on our
research, development and product operations staff, all of whom are valuable but the loss of any one of whom would not have a material adverse effect on the Company.

We anticipate that we will incur losses for the foreseeable future. We may never achieve or sustain profitability.

Our business has experienced significant net losses and we expect to continue to incur additional net losses over the next several
years as we continue our research and development activities and incur significant preclinical and clinical development costs. During the five years in the period ended December 31, 2009, we
recognized a cumulative loss of $883.7 million. Since we or our collaborators or licensees may not successfully develop additional products, obtain required regulatory approvals, manufacture
products at an acceptable cost or with appropriate quality, or successfully market such products with desired margins, our expenses may continue to exceed any revenues we may receive. Our commitment
of resources to the continued development of our products will require significant additional funds for development. Our operating expenses also may increase if:



33

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In
the absence of substantial licensing, milestone and other revenues from third-party collaborators, royalties on sales of products licensed under our intellectual property rights,
future revenues from our products in development or other sources of revenues, we will continue to incur operating losses and will likely require additional capital to fully execute our business
strategy. The likelihood of reaching, and time required to reach, sustained profitability are highly uncertain.

If additional capital is not available, we may have to curtail or cease operations.

Although we expect that we will have sufficient cash to fund our operations and working capital requirements to approximately the end
of 2012 based on current operating plans, we may need to raise additional capital in the future to:



Our
future capital needs depend on many factors, including:



We
may seek to raise necessary funds through public or private equity offerings, debt financings or additional collaborations and licensing arrangements. We may not be able to obtain
additional financing on terms favorable to us, if at all. General market conditions may make it very difficult for us to seek financing from the capital markets. We may be required to relinquish
rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us, in order to raise additional funds through collaborations or licensing arrangements. If
adequate funds are not available, we may have to delay, reduce or eliminate one or more of our research or development programs and reduce overall overhead expenses. These actions may reduce the
market price of our common stock.

We may obtain future financing through the issuance of debt or equity, which may have an adverse effect on our stockholders or may otherwise adversely affect our business.

If we raise funds through the issuance of debt or equity, any debt securities or preferred stock issued will have rights, preferences
and privileges senior to those of holders of our common stock in the event of liquidation. In such event, there is a possibility that once all senior claims are settled, there may be no assets
remaining to pay out to the holders of common stock. In addition, if we raise funds through the issuance of additional equity, whether through private placements or public offerings, such an issuance
would dilute ownership of current stockholders in us.

The
terms of debt securities may also impose restrictions on our operations, which may include limiting our ability to incur additional indebtedness, to pay dividends on or repurchase
our capital

34

---



stock,
or to make certain acquisitions or investments. In addition, we may be subject to covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy such covenants
may be affected by events outside of our control.

We have limited history operating as an independent company upon which you can evaluate us.

We have a limited operating history as a stand-alone entity. While our Biotechnology Business had constituted a substantial part of the
historic operations of PDL, we had not operated as a stand-alone company without the Royalty Business prior to the Spin-off. As an independent company, our ability to satisfy our
obligations and achieve profitability will be solely dependent upon the future performance of our Biotechnology Business, and we are not able to rely upon the capital resources and cash flows of the
Royalty Business, which remained with PDL.

We
may not be able to successfully implement the changes necessary to operate independently, and we may incur additional costs operating independently, which would have a negative effect
on our business, results of operations and financial condition.

Our historical financial information is not necessarily indicative of our future financial position, future results of operations or future cash flows and may not reflect
what our financial position, results of operations or cash flows would have been as a stand-alone company during the periods presented.

Our historical financial information included in this Annual Report for periods prior to 2009 does not necessarily reflect what our
results of operations or cash flows would have been as a stand-alone company during the periods presented and is not necessarily indicative of our future results of operations or future cash flows.
This is primarily a result of the following factors:



Our operating expenses and results and any future revenue likely will fluctuate in future periods.

Our revenues and expenses may be unpredictable and may fluctuate from quarter to quarter due to, among other things, the timing and the
unpredictable nature of clinical trial, manufacturing and related expenses, including payments owed by us and to us under collaborative agreements for reimbursement of expenses, and future milestone
revenues or expenses under collaborative agreements. In addition, the recognition of clinical trial and other expenses that we otherwise would recognize over a period of time under applicable
accounting principles may be accelerated in certain circumstances. In such a case, it may cause our expenses during that period to be higher than they otherwise would have been had the circumstances
not occurred. For example, if we terminate a clinical trial for which we paid non-refundable upfront fees to a clinical research organization and in which we did not accrue all

35

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of
the patient costs, the recognition of the expense associated with those fees that we were recognizing as we accrued patient costs would be accelerated and recognized in the period in which the
termination occurred.

In
addition, we may recognize restructuring charges or asset impairment charges in future periods that could materially impact our total operating expenses. For example, in 2009, we
recognized restructuring charges of $24.3 million related to one of the two buildings that we currently lease in Redwood City, California. Since we are required to review and update our
restructuring estimates each quarter, in future periods we could recognize unfavorable changes in estimates related to our current lease-related restructuring liability that could be material. In
addition, as disclosed in our Critical Accounting Policies within Management's Discussion and Analysis of Financial Condition and Results of Operations, we could recognize substantial asset impairment
charges if we were to sublease both of our currently leased buildings in Redwood City for rates that are not significantly in excess of our costs.

The market price for our shares may fluctuate widely.

Market prices for securities of biotechnology companies have been highly volatile, and we expect such volatility to continue for the
foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2009 to February 7, 2010, our common stock closed as
high as $18.05 per share and as low as $6.06 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating
performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:



If
any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our
business, the price of the

36

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common
stock would likely drop significantly. A significant drop in the price of a company's common stock often leads to the filing of securities class action litigation against the Company. This type
of litigation against us could result in substantial costs and a diversion of management's attention and resources.

Your percentage ownership in Facet Biotech may be diluted in the future.

Your percentage ownership in Facet Biotech may be diluted in the future because of equity awards that we expect will be granted to our
directors, officers and employees as well as other equity instruments that may be issues in the future such as debt and equity financing. Under the Facet Biotech 2008 Equity Incentive Plan (the 2008
Equity Incentive Plan), which provides for the grant of equity- based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights and other equity-based
awards, to our directors, officers and other employees, advisors and consultants, we have reserved a total of 3.5 million shares of our common stock for issuance. As of December 31,
2009, 3.0 million shares were subject to issuance under outstanding stock option and restricted stock awards, and we expect to continue to grant additional equity-based awards to our employees
and directors in the future.

Our stockholder rights plan and provisions in our certificate of incorporation and bylaws and of Delaware law may prevent or delay an acquisition of our company or limit the
price investors might be willing to pay for our common stock.

Our stockholder rights plan, certificate of incorporation and bylaws and Delaware law contain provisions that could make it more
difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. The stockholder rights plan, provisions of our certificate of incorporation and bylaws and Delaware
law are intended to encourage prospective acquirors to negotiate with us and allow our Board of Directors the opportunity to consider alternative proposals in the interest of maximizing stockholder
value. However, the stockholder rights plan and such provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. The provisions in
our certificate of incorporation and bylaws include, among others:



In
addition, certain provisions of the Delaware General Corporation Law (DGCL), including Section 203 of the DGCL, may have the effect of delaying or preventing changes in the
control or management of the Company. Section 203 of the DGCL provides, with certain exceptions, for waiting periods applicable to business combinations with stockholders owning at least 15%
and less than 85% of the voting stock (exclusive of stock held by directors, officers and employee plans) of a company.

The
above factors may have the effect of deterring hostile takeovers or otherwise delaying or preventing changes in the control or management of the Company, including in transactions in
which our stockholders might otherwise receive a premium over the fair market value of our common stock. We can give no assurance as to the ultimate outcome of any litigation that may be brought
seeking to invalidate or enjoin our takeover defenses or provisions of Delaware law.

37

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ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

The following table identifies the location and general character of each of our principal facilities as of December 31, 2009:

Location

Principal Uses

Approximate Floor
Area (Sq. Ft.)

Owned/Lease
Expiration dateRedwood City, California

Laboratory and General Office Space


450,000

December 2021


Our
corporate headquarters are located in Redwood City, California.

In
connection with our restructuring efforts, we vacated approximately 85%, or approximately 240,000 square feet, of one of our two leased buildings in Redwood City (the Administration
Building) and consolidated our operations into the other building (the Lab Building) during the second quarter of 2009. We consolidated our operations into the Lab Building to both reduce our future
operating expenses and expedite potential future subleases of the vacated space.

We
own substantially all of the equipment used in our facilities. (See Note 12 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for
additional information.)

ITEM 3.    LEGAL PROCEEDINGS

From time to time, we are party to a variety of legal proceedings that arise in the normal course of our business. While the results of
these legal proceedings cannot be predicted with certainty, management believes that the final outcome of currently pending proceedings will not have, individually or in the aggregate, a material
adverse effect on our financial position, results of operations or cash flows.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

38

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock started trading on the Nasdaq Global Select Market under the symbol "FACT" on December 18, 2008. The following
table presents the high and low per share bid prices of Facet Biotech common stock on Nasdaq for the periods indicated:

High

Low2008Fourth Quarter

$
16.50

$
9.062009First Quarter

$
10.34

$
5.86Second Quarter

$
11.15

$
7.99Third Quarter

$
17.30

$
7.38Fourth Quarter

$
18.35

$
15.24


As
of February 15, 2010, we had approximately 156 common stockholders of record. Most of our outstanding shares of common stock are held of record by one stockholder,
Cede & Co., a nominee for Depository Trust Company. Many brokers, banks and other institutions hold shares as nominees for beneficial owners, which deposit these shares in participant
accounts at the Depository Trust Company. The actual number of beneficial owners of our stock is likely significantly greater than the number of stockholders of record, however, we are unable to
reasonably estimate the total number of beneficial holders.

We
have not paid dividends on our common stock. We currently intend to retain all potential future income for use in the operation of our business and, therefore, we have no plans to pay
cash dividends at this time.

39

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COMPARISON OF STOCKHOLDER RETURNS

This graph covers the 12-month period from December 31, 2008 through December 31, 2009. The line graph below
compares the cumulative total stockholder return on our common stock for the quarters between December 31, 2008 and December 31, 2009 with the cumulative total return of (1) the
Nasdaq Biotechnology Index and (2) the Nasdaq Composite Index over the same period. This graph assumes that $100.00 was invested on December 31, 2008, in our common stock at the closing
sale price for our common stock on December 31, 2008 and at the closing sales price for each index on that date and that all dividends were reinvested. No cash dividends have been declared on
our common stock. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns and are not intended to be a forecast.

GRAPHIC

12/31/2008

3/31/2009

6/31/2009

9/30/2009

12/31/2009Facet Biotech Corporation


100


99.06


96.87


180.29


183.00Nasdaq Biotechnology Index


100


93.59


102.75


115.09


115.63Nasdaq Composite Index


100


96.93


116.36


134.58


143.89


The
information under this heading "Comparison of Stockholder Returns" shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such information be
incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate
it by reference in such filing.

40

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EQUITY COMPENSATION PLAN INFORMATION

We have two equity compensation plansour 2008 Equity Incentive Plan and our 2008 Employee Stock Purchase
Planthat provide for the issuance of common stock-based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards,
to our directors, officers and other employees, advisors and consultants.

The
following table sets forth information regarding outstanding options and shares reserved for future issuance under the foregoing plans as of December 31, 2009:

Plan category

Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a)

Weighted-average exercise
price of outstanding options,
warrants and rights

Number of securities
remaining available for future
issuance under equity
compensation plans (excludes
securities reflect in column (a))Equity compensation plans approved by security holders


2,987,753

$
7.98


1,638,277
(1)Equity compensation plans not approved by security holders




$



Total


2,987,753

$
7.98


1,638,277


(1)Includes
511,186 shares of common stock available for future issuance under our 2008 Employee Stock Purchase Plan.


41

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ITEM 6.    SELECTED FINANCIAL DATA

The following table sets forth certain summary historical financial information as of and for each of the years in the
five-year period ended December 31, 2009, which have been derived from our (1) audited consolidated financial statements as of December 31, 2009 and 2008 and for the
years ended December 31, 2009, 2008 and 2007, which are included in this Annual Report, (2) audited combined financial statements as of December 31, 2007 and for the year ended
December 31, 2006, which are not included in this Annual Report, and (3) unaudited combined financial statements as of December 31, 2006 and 2005 and for the year ended
December 31, 2005, which are not included in this Annual Report. In our opinion, the summary historical financial information derived from our unaudited combined financial statements is
presented on a basis consistent with the information in our audited consolidated financial statements. The summary historical financial information may not be indicative of the results of operations
or financial position that we would have obtained if we had been an independent company during the periods presented or of our future performance as an independent company. See Item 1A under
the heading "Risk Factors."

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

Years Ended December 31,(In thousands, except per share data)

2009

2008

2007

2006

2005Revenues:Collaboration

$
34,424

$
15,002

$
24,632

$
48,548

$
19,433Other


11,677


3,261


2,060


2,869


10,424Total revenues


46,101


18,263


26,692


51,417


29,857Costs and expenses:Research and development


122,166


151,276


195,130


200,720


155,816General and administrative


38,087


46,339


45,045


36,590


25,833Restructuring charges(1)


28,338


10,470


6,668





Asset impairment charges(2)


1,066


19,902


5,513


900


15,769Gain on sale of assets(3)





(49,671
)







Total costs and expenses


189,657


178,316


252,356


238,210


197,418Loss from operations


(143,556
)

(160,053
)

(225,664
)

(186,793
)

(167,561
)Interest and other income, net


3,544


29


(871
)

737


1,982Interest expense


(1,668
)

(1,708
)

(639
)

(552
)

(595
)Loss before income taxes


(141,680
)

(161,732
)

(227,174
)

(186,608
)

(166,174
)Income taxes


(10
)

81


123


81


47Net loss

$
(141,670
)
$
(161,813
)
$
(227,297
)
$
(186,689
)
$
(166,221
)Net loss per basic and diluted share(4)

$
(5.90
)
$
(6.77
)
$
(9.51
)
$
(7.81
)
$
(6.95
)Shares used to compute net loss per basic and diluted share


24,023


23,901


23,901


23,901


23,901


(1)See
Note 7 to the Consolidated Financial Statements for details related to our restructuring charges.(2)See
Note 8 to the Consolidated Financial Statements for details related to our asset impairment charges.(3)The
gain on sale of assets of $49.7 million relates to the sale of our manufacturing and related administrative facilities in Brooklyn Park,
Minnesota, and assets related thereto, to Genmab A/S.


42

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and
the assumption of certain of our lease obligations related to our facilities in Plymouth, Minnesota (together, the Manufacturing Assets) during March 2008. See Note 6 to the Consolidated
Financial Statements for further information. (4)For
the years ended December 31, 2008, 2007, 2006 and 2005, the computation of net loss per basic and diluted share and the shares used to compute
the per-share amounts are presented based on 23.9 million shares that were issued in connection with the Spin-off on December 18, 2008. There were no Facet
Biotech common shares issued between the Spin-off and December 31, 2008.


CONSOLIDATED BALANCE SHEET DATA:

December 31,(In thousands)

2009

2008

2007

2006

2005Cash, cash equivalents, marketable securities and restricted cash

$
307,222

$
403,418

$
28,274

$
18,269

$
Working capital (deficit)

$
281,789

$
395,256

$
(18,996
)
$
(51,412
)
$
16,683Total assets

$
423,624

$
538,021

$
369,066

$
327,267

$
328,423Long-term obligations, less current portion

$
45,572

$
33,306

$
31,349

$
33,425

$
7,296Total stockholders' equity/parent company equity

$
306,523

$
435,633

$
262,680

$
204,196

$
228,089


43

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are "forward looking
statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations,
any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions
underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "believes," "may," "will," "expects," "plans," "anticipates,"
"estimates," "potential," or "continue" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this
report are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those
projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and
uncertainties, including the risk factors described in Item 1A under the heading "Risk Factors" and for the reasons described elsewhere in this Annual Report. All forward-looking statements and
reasons why results may differ included in this Annual Report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might
differ.

Overview

We are a biotechnology company dedicated to advancing our pipeline of several clinical-stage products and expanding and deriving value
from our proprietary next-generation protein engineering platform technologies to improve the clinical performance of protein therapeutics.

Our
business strategy focuses primarily on the following areas:



44

---





We
believe we can successfully implement our strategy through our key strengths, including: (1) engineering and optimizing protein therapeutics, (2) using our process
science capabilities to develop highly efficient manufacturing processes and appropriate pharmaceutical dosage forms for our products from clinical through to commercial scale, (3) applying our
research expertise to gain detailed biological, pharmacological and toxicological understanding of product candidates, (4) advancing the development of validated preclinical therapeutics from
the preclinical stage through phase 1 clinical studies and (5) utilizing our cash position to support our business strategy.

We
were organized as a Delaware corporation in July 2008 by PDL BioPharma, Inc. (PDL) as a wholly owned subsidiary of PDL. PDL organized the Company in preparation for the
spin-off of the Company, which was effected on December 18, 2008 (the Spin-off). In connection with the Spin-off, PDL contributed to us PDL's
biotechnology assets and operations (the Biotechnology Business) and PDL distributed to its stockholders all of the outstanding shares of our common stock. Following the Spin-off, we
became an independent, publicly traded company owning and operating what previously had been PDL's Biotechnology Business.

Prior
to the Spin-off, we had not operated as a separate, stand-alone entity. In addition, there have been a number of events over the past several years that have had a
significant impact on our operations. As a result of these factors, our historical financial results are not likely to be indicative of our future financial performance. Events that have had a
significant impact on our operations include:



45

---





In
addition, on September 21, 2009, Biogen Idec, through a wholly owned subsidiary, launched an unsolicited tender offer to acquire the outstanding shares of common stock of the
Company, subject to a number of terms and conditions contained in the tender offer documents Biogen Idec filed with the Securities and Exchange Commission (SEC). Our Board of Directors unanimously
recommended that the Company's stockholders reject Biogen Idec's tender offer, including Biogen Idec's revised offer to purchase all of our outstanding shares of common stock for $17.50 per share, and
not tender their shares pursuant to Biogen Idec's tender offer. Biogen Idec's unsolicited tender offer expired without being consummated by Biogen Idec on December 16, 2009.

Summary Financial Results

In 2009, we recognized total revenues of $46.1 million, which were comprised primarily of revenues related to our collaborations
with BMS and Biogen Idec and, to a lesser extent, royalties and other revenues from EKR Therapeutics, Inc. (EKR) related to sales of the pre-mixed bag formulation of Cardene®. Our total costs
and expenses in 2009 were $189.7 million, consisting primarily of $122.2 million in research and
development (R&D) expenses, $38.1 million in general and administrative (G&A) expenses and $28.3 million in restructuring charges. Although our employee-related and our
facilities-related restructuring activities undertaken in the first half of 2009 reduced the forward-looking run-rate of employee-related and facilities expenses in both R&D and G&A, these
decreases in expenses were partially offset by certain costs incurred in the second half of 2009. Such costs included the $20.0 million upfront payment related to our Trubion collaboration paid
in the third quarter of 2009, classified as R&D expenses, and $4.7 million in G&A expenses incurred during the second half of the year related to responding to Biogen Idec's tender offer. Our
net loss for 2009 was $141.7 million, or $5.90 per basic and diluted share. See "Results of Operations" for further details on our financial results for the period.

At
December 31, 2009, we had cash, cash equivalents, marketable securities and restricted cash of $307.2 million, compared to $403.4 million at December 31,
2008, representing net cash utilization of $96.2 million during the year.

Economic and Industry-Wide Factors

Various economic and industry-wide factors are relevant to us and could affect our business, including the factors set
forth below.



46

---





See
also Item 1A under the heading "Risk Factors" for additional information on these economic and industry-wide and other factors and the impact they could have on
our business and results of operations.

Basis of Presentation

The consolidated financial statements have been prepared using PDL's historical cost basis of the assets and liabilities
of the various activities that comprise the Biotechnology Business as a component of PDL and reflect the results of operations, financial condition and cash flows of the Biotechnology Business as a
component of PDL through the effective date of the Spin-off of Facet Biotech on December 18, 2008. The statements of operations through December 18, 2008 include expense
allocations for general corporate overhead functions historically shared with PDL, including finance, legal, human resources, investor relations and other administrative functions, which include the
costs of salaries, benefits, stock-based compensation and other related costs, as well as consulting and other professional services. Where appropriate, these allocations were made on a specific
identification basis. Otherwise, the expenses related to services provided to the Biotechnology Business by PDL were allocated to Facet Biotech based on the relative percentages, as compared to
PDL's other businesses, of headcount or another appropriate methodology depending on the nature of each item of cost to be allocated.

47

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The
costs historically allocated to us by PDL for the services it has shared with us may not be indicative of the costs we have incurred or will incur following the Spin-off.
Certain anticipated incremental costs and other adjustments that give effect to the Spin-off are not reflected in our historical consolidated financial statements prior to the
Spin-off on December 18, 2008.

Critical Accounting Policies and the Use of Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially
from those estimates. The items in our consolidated financial statements requiring significant estimates and judgments are as follows:



In connection with our 2009 restructuring activities, we vacated and ceased use of approximately 85% of the Administration Building and
consolidated our operations into the Lab Building during the second quarter of 2009. In connection with vacating this space within the Administration Building, we recognized lease-related
restructuring charges of $17.0 million in the second quarter of 2009. These charges were comprised of our initial estimate of $23.0 million for the Lease Restructuring Liability, which
represented the present value of the estimated facility costs for which we would obtain no future economic benefit offset by estimated future sublease income, partially offset by a $6.0 million
credit for a then- existing deferred rent liability associated with the vacated area of the Administration Building.

During
the third and fourth quarters of 2009, based on updated assumptions resulting from continued discussions with potential subtenants, we recognized additional lease-related
restructuring charges of $7.3 million, which, net of payments, increased the Lease Restructuring Liability to $25.6 million as of December 31, 2009. The total estimated
obligations under the lease for the Administration Building, as of December 31, 2009, are summarized below (these amounts exclude obligations related to the Lab Building):

Payments Due by Period(in thousands)

Less Than
1 Year

1-3 Years

4-5 Years

More than
5 Years

TotalLease payments(1)

$
3,226

$
12,120

$
14,478

$
48,942

$
78,766Other lease related obligations(2)


3,616


10,773


6,155


19,638


40,182


(1)Lease
payments represent actual and estimated contractual rental payments under our lease for the Administration Building. These lease obligations reflect
our estimates of future lease payments, which are subject to potential escalations based on market conditions after the year 2014 and, therefore, could be lower or higher than amounts included in the
table.(2)Other
lease-related obligations reflect estimated amounts that we are contractually required to pay over the term of the Administration Building lease,
including insurance, property taxes and common area maintenance fees. Such amounts are estimated based on historical costs that we have incurred since the inception of the lease and future
expectations.


We
derived our estimates for the $25.6 million Lease Restructuring Liability primarily based on discussions with our brokers and our own view of market conditions based in part on
discussions with potential subtenants. These estimates require significant assumptions regarding the time required to contract with subtenants, the amount of idle space we would be able to sublease
and potential future sublease rates. The present value factor, which also affects the level of accretion expense that we will recognize as additional restructuring charges over the term of the lease,
is based on our estimate of

48

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Facet
Biotech's credit-risk adjusted borrowing rate at the time the initial Lease Restructuring Liability was calculated (in the second quarter of 2009).

We
have established a number of potential scenarios with differing assumptions and have calculated the present value of and applied probability weighting to each scenario based on
management's best judgment. Changes in the assumptions underlying these scenarios, as well as the relative likelihood applied to each scenario, could have a material impact on our restructuring charge
and Lease Restructuring Liability. For example, using a set of assumptions of contracting the entire property with a single subtenant within one year for 100% of our lease costs would result in a
favorable adjustment of approximately $12.3 million to our Lease Restructuring Liability. However, a scenario in which we would contract with several subtenants over a period of five years at
lease rates approximating 75% of our costs, and assuming an average vacancy rate of approximately 45% over the remaining term of our lease, would result in an unfavorable adjustment of
$5.0 million to our Lease Restructuring Liability.

We
are required to continue to update our estimate of the Lease Restructuring Liability in future periods as conditions warrant, and we expect to further revise our estimate in future
periods as we continue our discussions with potential subtenants.

In
addition, in connection with our sublease efforts for the Administration Building, we are also pursuing sublease arrangements under which we could potentially contract with subtenants
for both the Administration Building and the Lab Building (which we currently occupy). If we sublease these facilities for rates that are not significantly in excess of our costs, we would not likely
recover the carrying value of certain assets associated with these facilities, which was approximately $57.0 million as of December 31, 2009. As such, we could potentially recognize a
substantial asset impairment charge, as much as the carrying value of such assets, if we were to sublease both of these buildings.



We have entered and may enter into collaboration and licensing arrangements that contain multiple elements, such as upfront license
fees, reimbursement of R&D expenses, milestones related to the achievement of particular stages in product development and royalties. Under these types of arrangements, we may receive nonrefundable
upfront fees, time-based licensing fees and reimbursement for all or a portion of certain predefined R&D or post-commercialization expenses, and our licensees may make
milestone payments to us when they or we achieve certain levels of development with respect to the licensed technology. Generally, when there is more than one deliverable under the agreement, we
account for the revenue as a single unit of accounting for revenue recognition purposes. For a combined unit of accounting, we recognize the upfront fees and certain milestones that are not deemed to
be "at risk" over the estimated period over which we have obligations under the arrangement. Under our collaboration agreements with Biogen Idec and BMS, we have performance obligations through the
development term of the potential products. Development terms are inherently uncertain and we expect to revise our estimate of the development term in future periods.

With
respect to the reimbursement of development costs, each quarter, we and our collaborators reconcile what each party has incurred in terms of development costs, and we record either
a net receivable or a net payable in our consolidated financial statements. For each quarterly period, if we have a net receivable from a collaborator, we recognize revenues by such amount, and if we
have a net payable to our collaborator, we recognize additional R&D expenses by such amount. Therefore, our revenues and R&D expenses may fluctuate depending on which party in the collaboration is
incurring the majority of the development costs in any particular quarterly period.

We
recognize "at risk" milestone payments upon achievement of the underlying milestone event and when they are due and payable under the arrangement. Milestones are deemed to be "at
risk"

49

---



when,
at the onset of an arrangement, management believes that they will require a reasonable amount of effort to be achieved and are not simply reached by the lapse of time or perfunctory effort.

The
Financial Accounting Standards Board issued revenue recognition guidance that is effective for us in 2011, with early adoption permitted, which will change the manner in which
companies determine the units of accounting under multiple-element revenue agreements. We have not yet determined the impact of the new standard on our results of operations.



We base our cost accruals for clinical trials on estimates of the services received and efforts expended pursuant to contracts with
numerous clinical trial centers and clinical research organizations (CROs). In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing
development of potential drugs. The financial terms of these agreements vary from contract to contract, are subject to negotiation and may result in uneven payment flows. Payments under the contracts
depend on factors such as the achievement of certain events, the successful accrual of patients or the completion of portions of the clinical trial or similar conditions. The objective of our accrual
policy is to match the recording of expenses in our consolidated financial statements to the actual services received and efforts expended. As such, we recognize direct expenses related to each
patient enrolled in a clinical trial on an estimated cost-per-patient basis as services are performed. In addition to considering information from our clinical operations group
regarding the status of our clinical trials, we rely on information from CROs, such as estimated costs per patient, to calculate our accrual for direct clinical expenses at the end of each reporting
period. For indirect expenses, which relate to site and other administrative costs to manage our clinical trials, we rely on information provided by the CRO, including costs incurred by the CRO as of
a particular reporting date, to calculate our indirect clinical expenses. In the event of early termination of a clinical trial, we would recognize expenses in an amount based on our estimate of the
remaining non-cancelable obligations associated with the winding down of the clinical trial, which we would confirm directly with the CRO.

If
our CROs were to either under or over report the costs that they have incurred or if there were a change in the estimated per patient costs, it could have an impact on our clinical
trial expenses during the period in which they report a change in estimated costs to us. Adjustments to our clinical trial accruals primarily relate to indirect costs, for which we place significant
reliance on our CROs for accurate information at the end of each reporting period. Based upon the magnitude of our historical adjustments, we believe that it is reasonably possible that a change in
estimate related to our clinical accruals could be approximately 1% of our annual R&D expenses.

50

---



Results of Operations

Revenues

Revenues consist of (1) license and milestone revenues from collaborations, (2) reimbursement of R&D expenses under
collaborations and (3) other revenues. Other revenues include license, maintenance and milestone revenues from the out-licensing of our technologies, humanization revenues and
royalties.

Years Ended December 31,

Annual
Percent Change(In thousands)

2009

2008

2007

2009/2008

2008/2007License and milestone revenues from collaborations

$
12,020

$
8,952

$
19,217


34
%

(53
)%Reimbursement of R&D expenses from collaborations


22,404


6,050


5,415


270
%

12
%Other


11,677


3,261


2,060


258
%

58
%Total revenues

$
46,101

$
18,263

$
26,692


152
%

(32
)%


The
$27.8 million increase in total revenues for the year ended December 31, 2009 from the same period in 2008 was driven primarily by an additional
(1) $19.8 million of revenues related to our collaboration with BMS, which was executed in the third quarter of 2008, of which $17.2 million related to R&D reimbursement revenues
and $2.6 million related to license revenues, and (2) $9.2 million of royalties and other revenues received under our agreement with EKR. These increases in revenues were
partially offset by a $1.5 million decrease in milestone payments from our licensees which is reflected in other revenues.

Revenues
decreased 32% for the year ended December 31, 2008 as compared to the same period in 2007 due to (1) the recognition of $7.2 million in 2007 related to our
agreement with Roche to co-develop daclizumab for transplant maintenance, which was terminated effective April 2007, (2) the recognition of a $5.0 million "at risk milestone"
in 2007 that was earned from Biogen Idec upon the datalock of the phase 2 trial of the daclizumab product in multiple sclerosis and (3) a decrease of $4.0 million in revenue
recognized under our collaboration agreement with Biogen Idec due to higher reimbursable R&D expenses incurred by Biogen Idec in 2008 as compared to 2007. Such decreases from amounts recognized in
2007 were partially offset by $6.5 million in revenues recognized in 2008 under our collaboration with BMS, which was executed in the third quarter of 2008, and a $2.0 million increase
in milestone payments and maintenance fees that we recognized in 2008 as compared to 2007.

Future
revenues will vary from period to period and will depend substantially on (1) whether we are successful in our existing collaborations and receive milestone payments
thereunder, (2) the potential milestone payments we receive related to our out-licensing agreements, (3) whether and to what extent expected development timelines change,
which would impact the rate at which we recognize revenue related to certain previously received collaboration payments, (4) the level of royalties we receive under the asset purchase agreement
with EKR, which was assigned to us by PDL in connection with the Spin-off, and (5) whether we enter into new collaboration agreements or out-license agreements. Our
future collaboration revenues also will vary depending on which party in any collaboration is incurring the majority of development costs in any period (see our policy for revenues recognized under
our collaboration agreements in Note 1 to the Consolidated Financial Statements). Upon the initiation of the DECIDE phase 3 study of daclizumab, which both Biogen Idec and we have
announced we expect will occur in the first half of 2010, we will receive from Biogen Idec a $30 million milestone payment..

In
October 2009, we and EKR amended the provisions governing EKR's obligation to pay us royalties on sales of pre-mixed bag formulations of the Cardene® product (Cardene Pre-Mixed Bag).

51

---



The
amendment increased, retroactively effective to July 1, 2009, the royalty rate on net sales of the Cardene Pre-Mixed Bag product from a flat rate of 10% to the tiered royalty
structure set forth below:

Net Sales per 12-month Period
(July 1 through the following June 30)

Royalty Rate$0$40,000,000

12%$40,000,001$80,000,000

14%>$80,000,001

17%


EKR
is obligated to pay us 20% of all consideration and contingent payments, whether in cash or in kind, received by EKR under out-licenses and distribution agreements
covering the Cardene Pre-Mixed Bag product. The amendment also extended the royalty term for royalties on net sales of the Cardene Pre-Mixed Bag product from
December 31, 2014 to December 31, 2017. If a third party launches a generic version of the Cardene Pre-Mixed Bag product the applicable royalty rate on net sales of the
Cardene Pre-Mixed Bag product would be reduced by 50%. The amended royalty structure was effective for EKR's Cardene Pre-Mixed Bag product sales beginning on July 1,
2009, which impacted our revenues beginning in the fourth quarter of 2009. In consideration for these amended royalty terms, a $2.0 million fee and other changes, we eliminated EKR's potential
obligation to pay us two $30 million milestone payments, which would have been payable if and when EKR achieved certain sales thresholds of the Cardene Pre-Mixed Bag product. As
disclosed in our previous filings with the SEC, based on our expectation that the Cardene Pre-Mixed Bag product would face significant competition from generic versions of the intravenous
version of nicardipine hydrochloride upon the expiration of the patents covering the Cardene® IV product in November 2009, we did not expect that EKR would meet the Cardene
Pre-Mixed Bag sales thresholds that would trigger either of the $30 million milestone payments. Following the expiration of the patents covering the Cardene® IV product
in November 2009, five generic injection versions of nicardipine hydrochloride were launched. We believe these generic forms of nicardipine hydrochloride are competing with the Cardene
Pre-Mixed Bag product and will adversely impact the potential for growth of Cardene Pre-Mixed Bag product sales. To date, sales of the Cardene Pre-Mixed Bag product
have not reached either of the sales thresholds that would have triggered milestone payments under the original terms of the agreement with EKR and we continue to believe that sales of the Cardene
Pre-Mixed Bag product will not achieve these sales threshold levels.

Costs and Expenses

Years Ended December 31,

Annual Percent Change(In thousands)

2009

2008

2007

2009/2008

2008/2007Research and development

$
122,166

$
151,276

$
195,130


(19
)%

(22
)%General and administrative


38,087


46,339


45,045


(18
)%

3
%Restructuring charges


28,338


10,470


6,668


171
%

57Asset impairment charges


1,066


19,902


5,513


(95
)%

261
%Gain on sale of assets





(49,671
)




*


*Total costs and expenses

$
189,657

$
178,316

$
252,356


6
%

(29
)%


*Not
meaningful


52

---



Research and Development Expenses

Our R&D activities include (1) research, (2) process sciences, manufacturing and quality, and (3) preclinical
sciences and clinical development. Our research activities include progressing candidates with validated targets and biological pathways from the preclinical stage to the clinic, utilizing
translational research to better inform the clinical investigation of our therapeutics and advancing our protein engineering technology platform. Our process sciences, manufacturing and quality
activities include process, pharmaceutical and analytical development as well as supply chain and quality functions. Preclinical sciences and clinical development are comprised of preclinical
development, toxicology, pharmacokinetics, bioanalytics and clinical development, which includes regulatory, safety, medical writing, biometry, clinical operations and program management. Our total
R&D expenses for the year ended December 31, 2009, grouped by functional area within our R&D organization, were as follows:

(in thousands)

Year Ended
December 31, 2009Research

$
24,303Process sciences, manufacturing and quality


30,166Preclinical sciences and clinical development


67,697Total R&D expenses

$
122,166


We
track our costs and expenses on a functional area basis and, as a result, we do not have detailed or complete cost breakdowns for our development programs. However, commencing in
2009, our financial systems allow us to develop estimates of the direct costs associated with each of our active clinical and preclinical programs (Direct Program Costs), which include
out-of-pocket expenses as well as estimated employee-related costs. Out-of-pocket costs include costs of conducting our clinical trials, such as fees to
CROs and clinical investigators, monitoring, data management, drug supply and manufacturing expenses, costs of conducting preclinical studies and technology licensing fees. The employee-related costs
were estimated by applying an average per-employee cost for our R&D organization employees to the number of direct employees dedicated to the programs during the year ended
December 31, 2009. Our Direct Program Costs do not include: (1) allocations of R&D management or overhead costs, (2) allocations of facilities and information technology (IT)
expenses, (3) depreciation expenses, (4) amortization of intangible assets, or (5) stock-based compensation.

53

---



The
following table reflects our estimated Direct Program Costs for each of our active clinical and preclinical development programs, as well as Other Direct R&D Costs and Costs
Allocated to R&D, as described in the footnotes below, for the year ended December 31, 2009:

(In thousands)

Year Ended
December 31, 2009Estimated Direct Program Costs:Daclizumab(1)

$
15,863Elotuzumab(2)


26,365PDL 192


5,209PDL 241


4,224TRU-016(3)


23,271Volociximab(4)


3,645Other R&D Programs(5)


6,301

% of R&D ExpensesTotal estimated direct program costs

$
84,878




70
%Other Direct R&D Costs(6)


8,903




7
%Costs Allocated to R&D:Depreciation and amortization


4,098




3
%Corporate overhead(7)


18,936




16
%Stock compensation


5,351




4
%Total R&D expenses

$
122,166




100
%


(1)Daclizumab
costs include $11.3 million in expense reimbursements payable to Biogen Idec under our collaboration agreement for the year ended
December 31, 2009.(2)Elotuzumab
costs include $22.4 million of development expenses that are reimbursable to us by BMS under our collaboration agreement for the year
ended December 31, 2009. The $22.4 million in reimbursement from BMS is reflected within collaboration revenues in the consolidated financial statements for the year ended
December 31, 2009.(3)TRU-016
direct program costs include $21.4 million related to the upfront payments made to Trubion in connection with the execution of
our collaboration agreement and $1.3 million in expense reimbursements payable to Trubion under our collaboration agreement for the year ended December 31, 2009.(4)Volociximab
costs include $1.3 million in expense reimbursements payable to Biogen Idec under our collaboration agreement for the year ended
December 31, 2009.(5)Other
R&D Programs consist primarily of research, protein engineering and preclinical trial activities related to programs that have not reached the late
preclinical stage.(6)Other
Direct R&D Costs include non-program R&D costs, such as non-program specific research, process sciences and manufacturing
activities, quality and compliance activities related to laboratory, manufacturing and clinical practices, and senior management time across all of our R&D activities as senior management does not
allocate its time to specific programs.(7)Corporate
overhead represents allocations of facilities and IT costs to R&D expenses.


Over the past three years, our most significant R&D programs were daclizumab, volociximab, elotuzumab, PDL192 and Nuvion.For 2009 and
2008, the most significant investments of our resources, including the estimated time our employees spent and the amount of direct
costs that we incurred on each of our programs, were in the elotuzumab, daclizumab and volociximab programs. For 2007, the most significant investments of our resources were in the Nuvion, elotuzumab
and PDL192 programs. We terminated ourNuvionprogram in the third quarter of 2007.

The
$29.1 million decrease in R&D expenses from 2008 to 2009 was due primarily to lower employee-related expenses, facilities-related expenses and depreciation and other overhead
costs in 2009 as compared to 2008 resulting from the impact of our restructuring activities and, to a lesser

54

---



extent,
the sale of our manufacturing facility during the first quarter of 2008. Such decreases in R&D expenses were partially offset by the recognition of $23.3 million expenses in 2009 in
connection with our collaboration agreement with Trubion, which was executed during the third quarter of 2009.

The
$43.9 million decrease in R&D expenses from 2007 to 2008 was primarily driven by decreases in ourNuvionprogram costs due to
the decision to terminate theNuvionphase 3 development programs during August 2007 as well as a decrease in PDL192 expenses, primarily related
to lower manufacturing expenses. In addition, R&D expenses decreased due to lower employee-related and overhead expenses in 2008 resulting from the impact of the sale of our manufacturing facility
during the first quarter of 2008 and the restructuring efforts we initiated in the fourth quarter of 2007 and the first quarter of 2008. This reduction in costs was partially offset by increases in
development costs for elotuzumab and volociximab due to the progress of these programs as well as higher depreciation expenses related to assets associated with our Redwood City facilities that we
placed into service in the fourth quarter of 2007.

We
expect increases or decreases in our R&D expenses in the future to correlate generally with the number of products we have under development, the number of trials related to each
product, the phases of such development programs and any out-bound milestone payments that are earned under those programs. Future R&D expenses could also increase or decrease if we enter
into new collaboration agreements or if we acquire the rights to additional products through in-licensing agreements or other means. Future R&D expense could also vary from period to
period depending on which party in our existing collaboration, and any potential new collaboration, is incurring the majority of development costs in any period.

We
currently do not have reliable estimates of total costs for a particular drug candidate to reach the market. Our potential products are subject to a lengthy and uncertain regulatory
process that may involve unanticipated additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would
prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or
significantly delay regulatory approval.

The
length of time that a development program is in a given phase varies substantially according to factors relating to the development program, such as the type and intended use of the
potential product, the clinical trial design, and the ability to enroll patients. For collaborative programs, advancement from one phase to the next and the related costs to do so is also dependent
upon certain factors that are controlled by our collaboration partners. According to industry statistics, it generally takes 10 to 15 years to research, develop and bring to market a new
prescription medicine in the United
States. In light of the steps and complexities involved, the successful development of our potential products is highly uncertain. Actual timelines and costs to develop and commercialize a product are
subject to enormous variability and are very difficult to predict. In addition, various statutes and regulations also govern or influence the manufacturing, safety reporting, labeling, storage, record
keeping and marketing of each product.

For
a discussion of the risks and uncertainties associated with the timing of completing a product development phase, see our Risk Factors within Item 1A of this Annual Report.

General and Administrative Expenses

G&A expenses generally consist of costs of personnel, professional services, consulting and other expenses related to our
administrative and marketing functions, and an allocation of facility and overhead costs.

G&A
expenses decreased by $8.3 million during 2009 in comparison to 2008 due to lower employee-related expenses in 2009 resulting from our prior restructurings and because in
2008, we incurred significant costs related to PDL's evaluation and implementation of strategic initiatives. These

55

---



decreases
in G&A expenses were partially offset by expenses of $4.7 million incurred in the second half of 2009 to address Biogen Idec's unsolicited tender offer.

G&A
expenses increased by $1.3 million during 2008 in comparison to 2007. In 2008, we classified as G&A expenses a higher amount of facilities costs related to idle R&D capacity
as a result of the move to our Redwood City facilities. In addition, in 2008 we recognized expenses for retention bonuses that were offered to our employees, higher legal expenses due to the
Spin-off and other strategic efforts and higher depreciation expenses due to the leasehold improvements that we placed into service in late 2007 associated with our Redwood City
facilities. Such increases were partially offset by lower employee-related expenses as a result of our restructuring activities that commenced in March 2008 and lower stock-based compensation, which
resulted from a reversal of stock-based compensation in connection with the Spin-off (see Note 3 to the Consolidated Financial Statements for further details).

Gain on Sale of Assets and Contract Manufacturing Relationship

In March 2008, we sold our manufacturing facility and related assets (Manufacturing Assets) to an affiliate of Genmab A/S (Genmab) and
recognized a pre-tax gain of $49.7 million upon the close of the sale in March 2008.

In
connection with the sale of the Manufacturing Assets, we entered into an agreement with Genmab under which we and Genmab each provided transition services for a period of one year. In
addition, to fulfill our clinical manufacturing needs in the near-term, we entered into a clinical supply agreement with Genmab that became effective upon the close of the transaction.
Under the terms of the clinical supply agreement, Genmab agreed to produce clinical trial material for certain of our pipeline products until March 2012.

In
November 2009, in connection with its restructuring activities, Genmab announced that it intended to sell this manufacturing facility and notified us that it would not be able to
fulfill its obligations under the supply agreement. In January 2010, we and Genmab agreed to terminate the clinical supply agreement effective November 2010. In connection with this termination,
Genmab refunded to us the $4.9 million in deposits that we had previously made with respect to our manufacturing obligation. As we currently have sufficient material on hand and our
collaboration partners have manufacturing capabilities, we do not believe that this will have any adverse impact on our future operating plans.

Restructuring Charges

Restructuring charges in 2009 included $24.3 million of lease-related restructuring charges we recognized in connection with our
ceasing use of approximately 85%, or approximately 240,000 square feet, of the Administration Building during the second quarter of 2009 and $3.5 million of personnel-related charges related
primarily to our January 2009 restructuring efforts.

Restructuring
charges in 2008 were comprised primarily of $9.3 million of personnel-related charges recognized in connection with our 2008 company-wide restructuring
efforts and, to a lesser extent, $0.9 million of lease-related charges related to the closure of our offices in France.

Restructuring
charges in 2007 were comprised of $3.6 million of personnel-related charges related to our former manufacturing operations and $3.1 million of
facilities-related charges. These facilities-related charges were comprised of $1.8 million, which was recognized when we ceased the use of two of our leased facilities in Plymouth, Minnesota
(part of the Manufacturing Assets that were sold to Genmab in
2008), and $1.3 million, which was recognized when we ceased use of a portion of our formerly leased property in Fremont, California.

See
Note 7 to the Consolidated Financial Statements for additional information on our restructuring activities.

56

---





Asset Impairment Charges

The asset impairment charges that we recognized in 2008 and 2009 resulted primarily from our restructuring activities. In 2008 and
2009, we recognized $3.8 million and $1.1 million, respectively, in asset impairment charges that primarily related to the costs of certain research equipment that was expected to have
no future useful life and certain information technology projects that were terminated and had no future benefit to us. In connection with our 2009 restructuring efforts, we planned the consolidation
of our operations into the Lab Building in Redwood City during the second quarter of 2009. As a result of our intent to vacate the majority of the Administration Building in 2009, we recognized
impairment charges of $16.1 million in the fourth quarter of 2008, which related to certain leasehold improvements and other fixed assets that we expected to abandon in connection with the move
or which we had abandoned as of December 31, 2008. We calculated the fair value associated with the leasehold improvements based on the estimated economic benefit we would derive from these
assets over their remaining useful lives. For all other assets, we estimated their fair values based on the proceeds we expected to receive upon the sale of the assets. We completed the consolidation
efforts in the second quarter of 2009.

In
June 2007, management committed to a plan to sell real estate that comprised part of our prior corporate headquarters in Fremont, California. Based on market value information we had
at the time, we concluded that the net carrying value of the assets was impaired as of June 30, 2007 and, during the second quarter of 2007, we recognized an impairment charge of
$5.0 million to reduce the net carrying value of the assets to $20.6 million, which was our estimate of fair value, less costs to sell. The sale of these two buildings closed in October
2007 on terms generally consistent with those expected and, as a result, no significant gain or loss on the sale was recognized at the time of the sale.

Interest and Other Income, Net and Interest Expense

Years Ended December 31,

Annual Percent Change(In thousands)

2009

2008

2007

2009/2008

2008/2007Interest and other income, net

$
3,544

$
29

$
(871
)

*


*Interest expense


(1,668
)

(1,708
)

(639
)

(2
)%

167
%Total interest and other income, net

$
1,876

$
(1,679
)
$
(1,510
)

212
%

11
%


---

Interest
and other income, net includes interest earned on our cash and available-for-sale securities during the periods as well as any other
non-operating income that we earn. In 2009, other income included $1.0 million that we received upon closure of an escrow account established as part of the purchase agreement under
which EKR acquired PDL's former cardiovascular assets in March 2008. In connection with EKR's purchase of the cardiovascular assets, $6.0 million of the purchase price was placed
in an escrow account for a period of one year to cover certain product-return and sales-rebate related costs. Through March 2009, EKR had submitted claims totaling approximately $5.0 million
against the escrow account, which funds were released to EKR by the escrow agent. The rights and obligations under this escrow agreement were transferred to us upon the Spin-off and, in
April 2009, the remaining escrow funds of $1.0 million were transferred to us. In addition, interest income increased from 2008 due to our investment of the $405.0 million cash
contribution to us from PDL in December 2008 in connection with the Spin-off.

Interest
expense consists of a portion of our lease payments on the Lab Building. For accounting purposes, we are considered to be the owner of the leased property and we have recorded
the fair value of the building and a corresponding long-term financing liability on our Consolidated Balance

57

---



Sheets.
(See Note 18 to the Consolidated Financial Statements for further details of the accounting treatment of the lease payments for the Administration Building).

Income Taxes

Prior to July 2008, the operations of Facet Biotech were included in PDL's consolidated U.S. federal and state income
tax returns and in tax returns of certain PDL foreign subsidiaries. Prior to the Spin-off on December 18, 2008, our provision for income taxes was determined as if Facet Biotech had
filed tax returns separate and apart from PDL. The income tax expense recognized in the 2008 periods related solely to foreign taxes on income earned by our foreign operations.

In
2009, we recognized a tax benefit related to the unrealized gain on our marketable equity securities at December 31, 2009, specifically, our investment in Trubion common stock
acquired in conjunction with our collaboration agreement entered into with Trubion in the third quarter of 2009. In establishing the valuation allowance for our deferred tax assets, we need to
consider sources of future taxable income. The potential existence of the unrealized gain on the Trubion equity investment would be considered to be a future source of taxable income and, accordingly,
we would reduce our valuation allowance on our deferred tax assets. In 2009, we recognized a tax benefit of approximately $18,000 for the reduction in our valuation allowance on our deferred tax
assets. This amount could fluctuate significantly in future periods as the underlying stock value fluctuates.

Also
in 2009, we recognized approximately $8,000 for foreign taxes related to our former France operations, which we dissolved during the year.

Other
than tax benefits or provisions related to any gains on our marketable equity securities, we do not expect to recognize any federal or state income tax expense in future periods
based upon our projected U.S. tax losses.

Liquidity and Capital Resources

In connection with the Spin-off on December 18, 2008, PDL provided us, from its cash reserves on hand, cash and cash
equivalents of $405.0 million. During 2009, we utilized approximately $96.2 million in cash, cash equivalents, marketable securities and restricted cash in operating, investing and
financing activities. We expect that the $307.2 million of cash, cash equivalents, marketable securities and restricted cash on hand as of December 31, 2009, as well as future payments
from Biogen Idec and BMS related to our collaboration agreements with these entities, and royalty and milestone revenues from certain other agreements, will fund our operations and working capital
requirements through the end of 2012 based on current operating plans.

Net
cash used in our operating activities in 2009, 2008 and 2007 was $99.5 million, $165.1 million and $181.9 million, respectively. The $65.6 million
decrease in net cash used in operating activities between 2009 and 2008 was primarily attributable to higher R&D reimbursement and royalty revenues, lower employee-related and overhead expenses
resulting from our restructuring efforts and changes in our working capital balances. The factors that contributed to the decrease in net cash used in operating activities were partially offset by the
$20.0 million upfront payment to Trubion upon the execution of our collaboration agreement, as well as additional legal and financial expenses incurred in connection with the unsolicited tender
offer from Biogen Idec. The $16.8 million decrease in net cash used in operating activities between 2008 and 2007 was primarily attributable to the $30.0 million upfront cash payment we
received from BMS under the terms of our collaboration agreement, which was effective in September 2008, and $18.6 million of liabilities that were assumed by PDL upon the Spin-off.
These cash generating items were partially offset by lower cash-generating revenues and increased payments made related to restructuring activities and retention bonuses during 2008.

58

---



Net
cash used in investing activities was $266.2 million and $81.4 million in 2009 and 2007, respectively compared to net cash provided by investing activities of
$255.2 million in 2008. Net cash used in investing activities in 2009 was primarily related to net purchases of marketable securities. Net cash provided by investing activities in 2008 was
attributable primarily to net proceeds of $236.6 million received in connection with the sale of the Manufacturing Assets and the release of $25.0 million of restricted cash relating to
our Redwood City, California, facility. Net cash used in investing activities in 2007 was primarily attributable to $92.3 million in capital expenditures, which included the development and
construction of our headquarters in Redwood City, California, and $10.0 million relating to the establishment of letters of credit related to the construction at our Redwood City, California
facilities, partially offset by $20.9 million in proceeds from the sale of our property in Fremont, California.

Net
cash provided by financing activities in 2009, 2008 and 2007 was $1.6 million, $307.5 million and $263.4 million, respectively. In 2009, net cash provided by
financing activities related to proceeds from the issuance of common stock in connection with employee stock option exercises, partially offset by payments applied against our lease financing
liability. Net cash provided by financing operations for 2008 was due to the $405 million of initial cash contribution received from PDL and net cash provided by financing activities for 2007
was primarily due to net funding from our parent company, PDL.

Our
future capital requirements will depend on numerous factors, including, among others, progress of our product candidates in clinical trials; the continued or additional support by
our collaborators or other third parties of R&D efforts and clinical trials; investment in existing and new R&D programs; time required to gain regulatory approvals; our ability to obtain and retain
funding from third parties under collaborative arrangements; the demand for our potential products, if and when approved; potential acquisitions of technology, product candidates or businesses by us;
our ability to sublease our excess capacity; the ability of our licensees to obtain regulatory approval and successfully manufacture
and market products licensed under our patents; and the costs of defending or prosecuting any patent opposition or litigation necessary to protect our proprietary technology. In order to develop and
obtain regulatory approval for our potential products, we will need to raise substantial additional funds through equity or debt financings, collaborative or out-licensing arrangements or
other means. We cannot assure that such additional financing will be available on acceptable terms, if at all, and such financing may only be available on terms dilutive to our stockholders.

As
of December 31, 2009, our material contractual obligations under lease, contract manufacturing and other agreements for the next five years and thereafter are as follows:

Payments Due by Period(In thousands)

Less Than
1 Year

1-3 Years

3-5 Years

More than
5 Years

TotalCONTRACTUAL OBLIGATIONSLease payments(1)

$
6,843

$
23,746

$
22,777

$
73,841

$
127,207Other lease-related obligations(2)


5,295


15,955


9,737


31,068


62,055Other(3)


62


82


319





463Contract manufacturing


802











802Total contractual obligations

$
13,002

$
39,783

$
32,833

$
104,909

$
190,527


(1)Lease
payments represent actual and estimated contractual rental payments under our facility leases in Redwood City, California. Included in these
contractual obligations are amounts related to the Lab Building in Redwood City, for which we have a liability on our consolidated financial statement of $25.3 million as of December 31,
2009. These lease obligations reflect our estimates of future lease payments, which are subject to potential escalations based on market conditions after the year 2014 and, therefore, could be higher
than amounts included in the table.


59

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(2)Other
lease-related obligations reflect estimated amounts that we are contractually required to pay, including insurance, property taxes and common area
maintenance fees. Such amounts are estimated based on historical costs that we have incurred since the inception of the leases and future expectations.(3)Other
contractual obligations include post-retirement benefits and other operating leases for office equipment.


We
also have committed to make potential future "milestone" payments to third parties as part of collaboration, in-licensing and product development programs. Payments under
these agreements generally become due and payable only upon achievement of certain clinical development, regulatory and/or commercial milestones. Because the achievement of these milestones has not
yet occurred, such contingencies have not been recorded in our Consolidated Balance Sheet as of December 31, 2009. We estimate that such milestones that could be due and payable over the next
year approximate $6.0 million and milestones that could be due and payable over the next three years approximate $23.0 million.

Off-Balance Sheet Arrangements

None.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We place our cash, cash equivalents and marketable securities with multiple financial institutions in the United States. Deposits with
banks may exceed the amount of insurance provided on such deposits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could
be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets. To date, we have not experienced any loss or lack of access to cash
in our operating accounts or to our cash equivalents and marketable securities in our investment portfolios. Financial instruments that potentially subject us to concentrations of credit risk consist
primarily of money market funds, U.S. government-sponsored enterprise securities and commercial paper secured under the FDIC's Temporary Liquidity Guarantee Program. Our investment policy limits the
amount we may invest in any one type of investment issuer, thereby reducing credit risk concentrations.

The
fair value of our cash equivalents and marketable debt securities at December 31, 2009 was $288.4 million. These investments include $23.3 million of cash
equivalents which are due in less than three months, $195.6 million of short-term investments which are due within one year and $69.5 million of long-term
investments which are due between one year and two years from December 31, 2009. Our investment strategy is to manage our marketable securities portfolio to preserve principal and liquidity
while maximizing the return on the investment portfolio through the full investment of available funds. We invest the majority of our marketable securities portfolio in short-term
securities with at least an investment grade rating of A to minimize interest rate and credit risk as well as to provide for an immediate source of funds. Although changes in interest rates may affect
the fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold. Due to the nature of our
investments, which are primarily money market funds, U.S. government-sponsored enterprise securities and commercial paper secured under the FDIC's Temporary Liquidity Guarantee Program, we have
concluded that there is no material market risk exposure.

If
market interest rates were to have increased by 1% as of December 31, 2009, the fair value of our portfolio would have declined by approximately $1.0 million. The
modeling technique used measures changes in the fair values arising from an immediate hypothetical shift in market interest rates and assumes ending fair values include principal plus accrued
interest. As of December 31, 2009,

60

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a
portion of our portfolio was invested in a government money market fund. Government support of the housing Government Sponsored Enterprises (GSEs) has created implied credit and liquidity support
thereby reducing the risks of holding such securities, relative to Treasuries. The ongoing conservatorship of the housing GSEs is not expected to have an adverse effect on government money market
funds. Credit and liquidity risks in the current market could also adversely affect the value of our investments in prime money market funds. If the difference between amortized cost and outside
market valuations becomes significant, the fund's valuation may change causing the fund to "break the buck" (move from the USD 1.00 net asset value). Our money market funds maintained a
positive yield, a USD 1.00 net asset value and were not subject to deposit or withdrawal restrictions as of December 31, 2009. However, if credit market conditions persist or worsen, the
value of our money market funds could be adversely affected.

In
addition to our marketable debt securities, we also hold certain marketable equity securities, specifically our investment in Trubion common stock in connection with our collaboration
with Trubion, that had a fair value of $8.6 million as of December 31, 2009. If the common stock valuation were to either increase or decrease in value by 10%, the fair value of our
portfolio as well as the unrealized gain related to such portfolio would change by approximately $0.9 million.

In
addition, we have a lease financing liability, which was $25.3 million at December 31, 2009, related to the Lab Building. Lease payments related to this financing
liability, including amounts representing interest and ground rental expense, are reflected in the table below. Payments under the Lab Building lease agreement are subject to potential escalations
based on market conditions after the year 2014 and, therefore, could be lower or higher than amounts included in the table.

(in thousands)

2010

2011

2012

2013

Thereafter

TotalLease payments, including amounts representing interest and ground rental expense

$
3,616

$
3,743

$
3,874

$
4,009

$
33,199

$
48,441


61

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FACET BIOTECH CORPORATION        CONSOLIDATED BALANCE SHEETS        (in thousands, except per share data)

December 31,2009

2008AssetsCurrent assets:Cash and cash equivalents

$
33,593

$
397,611Marketable securities


267,242


Prepaid and other current assets


16,511


19,382Total current assets


317,346


416,993Long-term restricted cash


6,387


5,807Property and equipment, net


92,180


105,671Intangible assets, net


5,763


7,409Other assets


1,948


2,141Total assets

$
423,624

$
538,021Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
309

$
337Accrued compensation


6,737


3,669Restructuring accrual, current portion


7,572


1,956Other accrued liabilities


10,350


1,679Deferred revenue, current portion


9,543


13,234Lease financing liability, current portion


1,046


862Total current liabilities


35,557


21,737Deferred revenue, long-term portion


35,972


44,901Restructuring accrual, long-term portion


18,026


Lease financing liability, long-term portion


24,270


25,316Other long-term liabilities


3,276


10,434Total liabilities


117,101


102,388Commitments and contingencies (Note 18)Stockholders' equity:Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding; none authorized at December 31,
 2008





Common stock, par value $0.01 per share, 140,000 shares authorized; 25,097 and 23,901 shares issued and outstanding at December 31,
2009 and December 31, 2008, respectively


251


239Additional paid-in capital


466,055


455,380Accumulated deficit


(161,167
)

(19,497
)Accumulated other comprehensive income (loss)


1,384


(489
)Total stockholders' equity


306,523


435,633Total liabilities and stockholders' equity

$
423,624

$
538,021


See
accompanying notes.

62

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FACET BIOTECH CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)

Year Ended December 31,2009

2008

2007RevenuesCollaboration

$
34,424

$
15,002

$
24,632Other


11,677


3,261


2,060Total revenues


46,101


18,263


26,692Costs and expensesResearch and development


122,166


151,276


195,130General and administrative


38,087


46,339


45,045Restructuring charges


28,338


10,470


6,668Asset impairment charges


1,066


19,902


5,513Gain on sale of assets





(49,671
)

Total costs and expenses


189,657


178,316


252,356Loss from operations


(143,556
)

(160,053
)

(225,664
)Interest and other income, net


3,544


29


(871
)Interest expense


(1,668
)

(1,708
)

(639
)Loss before income taxes


(141,680
)

(161,732
)

(227,174
)Income taxes


(10
)

81


123Net loss

$
(141,670
)
$
(161,813
)
$
(227,297
)Net loss per basic and diluted share

$
(5.90
)
$
(6.77
)
$
(9.51
)Shares used to compute net loss per basic and diluted share


24,023


23,901


23,901


See
accompanying notes.

63

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FACET BIOTECH CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Year Ended December 31,2009

2008

2007Cash flows from operating activitiesNet loss

$
(141,670
)
$
(161,813
)
$
(227,297
)Adjustments to reconcile net loss to net cash used in operating activities:Asset impairment charges


1,066


19,902


5,513Depreciation


12,533


18,539


28,511Expense allocation from parent





2,233


2,503Amortization of intangible assets


1,646


1,647


1,646Stock based compensation expense


8,616


5,648


14,324Gain on sale of assets





(49,671
)

Loss on disposal of equipment


274


220


763Changes in assets and liabilities:Deferred tax asset





(2,444
)

Other current assets


1,363


(12,787
)

3,479Other assets


193


572


(282
)Accounts payable


(28
)

(1,903
)

(4,133
)Restructuring accrual


23,642


783


2,323Accrued liabilities


11,358


(14,366
)

(2,246
)Other long-term liabilities


(5,866
)

5,330


2,957Deferred revenue


(12,620
)

22,982


(9,991
)Total adjustments


42,177


(3,315
)

45,367Net cash used in operating activities


(99,493
)

(165,128
)

(181,930
)Cash flows from investing activitiesPurchase of marketable securities


(319,754
)




Maturities of marketable securities


54,583





Purchase of property and equipment


(631
)

(3,796
)

(92,327
)Proceeds from the sale of property and equipment


211


236,560


20,903Transfer (to) from restricted cash


(580
)

22,467


(10,005
)Net cash provided by (used in) investing activities


(266,171
)

255,231


(81,429
)Cash flows from financing activitiesIssuance of common stock


2,507





Cash contribution from parent





405,000


Transfers from (to) parent





(78,165
)

268,635Liabilities assumed by parent





(18,633
)

Proceeds from financing of tenant improvements








2,118Payments on other long-term debt and lease financing


(861
)

(694
)

(7,394
)Net cash provided by financing activities


1,646


307,508


263,359Net increase (decrease) in cash and cash equivalents


(364,018
)

397,611


Cash and cash equivalents at beginning of the year


397,611





Cash and cash equivalents at end the year

$
33,593

$
397,611

$





Years Ended December 31,2009

2008

2007Supplemental Disclosure of Non-Cash and Other InformationCash paid during the year for interest

$
1,669

$
1,708

$
574Cash paid during the year for income taxes

$
108

$
170

$
87Non-cash investing and financing activities:Investment in Ophthotech (See Note 17)

$
1,835

$
1,835

$



See accompanying notes.

64

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FACET BIOTECH CORPORATION        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (in thousands, except share data)

Common Stock





Accumulated
Other
Comprehensive
Income (loss)Additional
Paid-In
Capital

Accumulated
Deficit

Parent
Company
Investment

Total
Stockholders'
EquityShares

AmountBalance at December 31, 2006




$


$


$


$
(858
)
$
205,054

$
204,196Parent cost allocations

















16,827


16,827Net transfers from parent

















268,635


268,635Comprehensive loss:




















Net loss

















(227,297
)

(227,297
)Change in postretirement liability not yet recognized as net period expense














319





319Total comprehensive loss




















(226,978
)Balance at December 31, 2007














(539
)

263,219


262,680Parent cost allocations

















7,881


7,881Cash contribution from parent company (See Note 1)

















405,000


405,000Net transfers from parent

















(78,165
)

(78,165
)Contribution of net assets to Facet Biotech and issuance of common shares to PDL stockholders (Note 1)


23,901,368


239


455,380








(455,619
)

Comprehensive loss:Net loss











(19,497
)




(142,316
)

(161,813
)Change in postretirement liability not yet recognized as net period expense














50





50Total comprehensive loss




















(161,763
)Balance at December 31, 2008


23,901,368


239


455,380


(19,497
)

(489
)




435,633Issuance of common stock under employee benefit plans, net


1,195,403


12


2,059











2,071Stock-based compensation expense for employees








8,616











8,616Comprehensive loss:Net loss











(141,670
)







(141,670
)Change in unrealized gains and losses on investments in available-for-sale securities














580





580Change in postretirement liability not yet recognized as net period expense














1,293





1,293Total comprehensive loss




















(139,797
)Balance at December 31, 2009


25,096,771

$
251

$
466,055

$
(161,167
)
$
1,384

$


$
306,523


See accompanying notes.

65

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2009

1. ORGANIZATION AND BUSINESS



Facet Biotech Corporation (we, us, our, Facet Biotech, the Company) is a biotechnology company dedicated to advancing our pipeline of
several clinical-stage products and expanding and deriving value from our proprietary next-generation protein engineering platform technologies to improve the clinical performance of
protein therapeutics.

Facet
Biotech was organized as a Delaware corporation in July 2008 by PDL BioPharma, Inc. (PDL) as a wholly owned subsidiary of PDL. PDL organized the Company in preparation for
the spin-off of the Company, which was effected on December 18, 2008 (the Spin-off). In connection with the Spin-off, PDL contributed to us
PDL's Biotechnology Business and PDL distributed to its stockholders all of the outstanding shares of our common stock. Following the Spin-off, we became an independent,
publicly traded company owning and operating what previously had been PDL's Biotechnology Business.

Prior
to the Spin-off, PDL's Biotechnology Business, now operated by the Company, was not operated by a legal entity separate from PDL and a direct ownership
relationship did not exist among all the components comprising the Biotechnology Business. We describe the Biotechnology Business transferred to us by PDL in connection with the Spin-off
as though the Biotechnology Business were our business for all historical periods described. However, Facet Biotech had not operated the Biotechnology Business prior to the Spin-off.
References in these Consolidated Financial Statements to the historical assets, liabilities, products, business or activities of our business are intended to refer to the historical assets,
liabilities, products, business or activities of
the Biotechnology Business as those were conducted as part of PDL prior to the Spin-off.

Prior
to the Spin-off on December 18, 2008, the accompanying consolidated financial statements have been prepared using PDL's historical cost basis of
the assets and liabilities of the various activities that comprise the Biotechnology Business of PDL and reflect the consolidated results of operations, financial condition and cash flows of Facet
Biotech as a component of PDL. The various assets, liabilities, revenues and expenses associated with PDL were allocated to the historical consolidated financial statements of Facet Biotech in a
manner consistent with the Separation and Distribution Agreement. In some cases, Facet Biotech had been allocated certain expenses from PDL but had not been allocated the underlying productive assets,
for example, certain information systems equipment that were not assigned to Facet Biotech but for which Facet Biotech has benefited from the assets. Such expenses have been reflected in the
Statements of Cash Flows and the Statements of Changes in Parent Company Equity as expense allocations from parent company. Changes in parent company equity prior to the spin-off represent
PDL's net investment in Facet Biotech, after giving effect to Facet Biotech's net loss, parent company expense allocations, net cash transfers to and from PDL and accumulated other
comprehensive loss.

For
the purposes of preparing the financial statements of the Biotechnology Business prior to the Spin-off, which were derived from PDL's historical
consolidated financial statements, allocations of revenues, research and development (R&D) expenses, asset impairment charges, restructuring charges, gains on sales of assets and
non-operating income and expenses to Facet Biotech were made on a specific identification basis. Facet Biotech's operating expenses also included allocations related to information
technology and facilities costs. Management believes that the Consolidated Statements of Operations prior to the Spin-off include a reasonable allocation of costs incurred by PDL, which
benefited Facet Biotech. However, such expenses may not be indicative of the actual level of expense

66

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

1. ORGANIZATION AND BUSINESS (Continued)

that
we would have incurred if we had operated as an independent, publicly traded company. As such, the financial information herein may not necessarily reflect the financial position, results of
operations, and cash flows of Facet Biotech in the future or what it would have been had Facet Biotech been an independent, publicly traded company during the periods presented.

As
Facet Biotech was not a separate legal entity until July 2008, no separate cash accounts for the Biotechnology Business were historically maintained prior to the Spin-off
and, therefore, PDL is presumed to have funded Facet Biotech's operating, investing and financing activities as necessary. For purposes of the historical consolidated financial statements prior to the
Spin-off, funding of Facet Biotech's expenditures is reflected in the consolidated financial statements as a component of parent company investment. In connection with the asset transfer
and Spin-off discussed above, PDL provided Facet Biotech cash and cash equivalents of $405.0 million.

In
connection with the Spin-off, PDL transferred its wholly-owned subsidiaries to Facet Biotech, including PDL BioPharma France S.A.S., Fremont Management, Inc.
and Fremont Holding L.L.C. Facet Biotech's historical financial statements through the Spin-off and the consolidated financial statements for the period from the Spin-off
through December 31, 2009 include all accounts of Facet Biotech and all of these entities after elimination of intercompany accounts and transactions.



The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires
the use of management's estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

2. Summary of Significant Accounting Policies



In accordance with GAAP, we are required to report operating segments and make related disclosures about our products, services,
geographic areas and major customers. We operate in one segment, and our facilities are located solely within the United States.



The following represent the types of arrangements into which we generally enter:



Under our former collaborations with Hoffmann-La Roche Inc. and F. Hoffman La Roche Ltd. (together, Roche)
and our current collaborations with Biogen Idec Inc. (Biogen Idec), Bristol-Myers Squibb Company (BMS) and Trubion Pharmaceuticals, Inc. (Trubion) we share development costs related to
the products covered by the collaboration. The purpose of the collaboration agreements is to create synergies while bringing a product candidate to market by sharing technologies, know-how
and costs. Once a product is brought to market, we would share in commercialization costs as well as in profits related to the product, or generate a royalty based on net sales. Under the
collaboration agreements, we receive a combination of upfront fees, milestone payments and reimbursements of development costs. Our deliverables under the collaborations include the transfer of
intellectual

67

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

2. Summary of Significant Accounting Policies (Continued)

property
rights and an obligation to provide research and development services. We are not able to establish fair value of the undelivered elements (research and development services). As such, we
account for the collaboration as a single unit of accounting, and recognize the upfront fees, milestone payments and reimbursements of development costs as the services are performed. Each quarter, we
and our collaborator reconcile what each party has incurred in terms of development costs, and we record either a net receivable or a net payable on our consolidated financial statements. For each
quarterly period, if we have a net receivable from a collaborator, we recognize revenues by such amount, and if we have a net payable to our collaborator, we recognize additional R&D expenses by such
amount. Therefore, our revenues and R&D expenses may fluctuate depending on which party in the collaboration is conducting the majority of the development activities.



We have entered into license agreements under which the licensees have obtained from us licenses to certain of our intellectual
property rights, including patent rights, related to certain development product candidates. In these arrangements, the licensee is typically responsible
for all of the development work on the licensed development product. We have no substantive future performance obligations under these agreements. Upfront consideration that we receive for license
agreements is recognized as revenue upon execution and delivery of the license agreement and when payment is reasonably assured. If the agreements require continuing involvement in the form of
development, manufacturing or other commercialization efforts by us, we recognize revenues in the same manner as the final deliverable in the arrangement. Under out-license agreements, we
may also receive annual license maintenance fees, payable at the election of the licensee to maintain the license in effect. We have no performance obligations with respect to such fees, and they are
recognized as they are due and when payment is reasonably assured.



Under our humanization agreements, the licensee typically pays us an upfront fee to humanize an antibody. We recognize revenue related
to these fees as the humanization work is performed, which is typically over three to six months, or upon acceptance of the humanized antibody by the licensee if such acceptance clause exists in the
agreement. Under our humanization agreements, we may also receive annual maintenance fees, payable at the election of the licensee to maintain the humanization and know-how licenses in
effect. We have no performance obligations with respect to such fees, and therefore, we recognize these fees as revenues when they are due and when payment is reasonably assured.



Our licensing and humanization arrangements may contain milestones related to reaching particular stages in product development. We
recognize "at risk" milestone payments upon achievement of the underlying milestone event and when they are due and payable under the arrangement. Milestones are deemed to be "at risk" when, at the
onset of an arrangement, management believes that they will require a reasonable amount of effort to be achieved and are not simply reached by the lapse of time or through a perfunctory effort.
Milestones which are not deemed to be "at risk" are recognized as revenue in the same manner as up-front payments. We also receive milestone payments under patent license agreements, under
which we have no further obligations, when our licensees reach

68

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

2. Summary of Significant Accounting Policies (Continued)

certain
stages of development with respect to the licensed product. We recognize these milestones as revenue once they have been reached and payment is reasonably assured.



We base our cost accruals for clinical trials on estimates of the services received and efforts expended pursuant to contracts with
numerous clinical trial centers and clinical research organizations (CROs). In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing
development of potential drugs. The financial terms of these agreements vary from contract to contract, are subject to negotiation and may result in uneven payment flows. Payments under the contracts
depend on factors such as the achievement of certain events, the successful accrual of patients or the completion of portions of the clinical trial or similar conditions. The objective of our accrual
policy is to match the recording of expenses in our consolidated financial statements to the actual services received and efforts expended. As such, we recognize direct expenses related to each
patient enrolled in a clinical trial on an estimated cost-per-patient basis as services are performed. In addition to considering information from our clinical operations group
regarding the status of our clinical trials, we rely on information from CROs, such as estimated costs per patient, to calculate our accrual for direct clinical expenses at the end of each reporting
period. For indirect expenses, which relate to site and other administrative costs to manage our clinical trials, we rely on information provided by the CRO, including costs incurred by the CRO as of
a particular reporting date, to calculate our indirect clinical expenses. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining
non-cancelable obligations associated with the winding down of the clinical trial, which we confirm directly with the CRO. Our estimates and assumptions could differ significantly from the
amounts that we actually may incur.



Major components of R&D expenses consist of personnel costs, including salaries and benefits, clinical development performed by us and
CROs, preclinical work, pharmaceutical development, in-licensing activities, materials and supplies, payments related to work completed for us by third-party research organizations and
overhead allocations consisting of various administrative and facilities related costs. All R&D costs are charged to expense as incurred.



Comprehensive loss is comprised of net loss and other comprehensive income (loss). Specifically, we included changes in unrealized
gains and losses on our holdings of available-for-sale securities, which are excluded from our net loss, as well as the liability or asset that has not yet been recognized as
net periodic benefit cost for our
postretirement benefit plan. Our comprehensive loss for the years ended December 31, 2009, 2008 and 2007 is reflected in the Consolidated Statements of Stockholders' Equity.



We calculate basic net loss per share by dividing net loss by the weighted-average number of common shares outstanding during the
reported period. Diluted net loss per share is calculated using the sum of the weighted-average number of common shares outstanding and dilutive common

69

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

2. Summary of Significant Accounting Policies (Continued)

equivalent
shares outstanding. Common equivalent shares result from the assumed exercise of stock options, the assumed release of restrictions on issued restricted stock and the assumed issuance of
common shares under our Employee Stock Purchase Plan (ESPP) using the treasury stock method. We excluded the effect of 0.6 million of weighted-average common equivalent shares in the diluted
net loss per share calculations as their effect would have been anti-dilutive.

For
the years ended December 31, 2008 and 2007, the computation of net loss per basic and diluted share and the weighted-average shares outstanding are presented based on the
23.9 million shares that were issued in connection with the Spin-off on December 18, 2008 as there were no Facet Biotech common shares outstanding prior to that date. Aside
from those 23.9 million shares of Facet Biotech common stock issued as a result of the Spin-off, there were no Facet Biotech common shares or equity instruments issued between
December 18, 2008 and December 31, 2008.



We recognize costs incurred in the preliminary planning phase of software development as expense as the costs are incurred. Software
development costs incurred in the application development phase are capitalized and are included in property and equipment. For the years ended December 31, 2009, 2008 and 2007, we capitalized
software development costs of $0.0 million, $0.2 million and $2.5 million, respectively. Once the developed software is placed into service, these costs are amortized over the
estimated useful life of the software.



We consider all highly liquid investments with initial maturities of three months or less at the date of purchase to be cash
equivalents. We place our cash, cash equivalents, marketable securities and restricted cash with high-credit-quality financial institutions and, by policy, limit the amount of credit
exposure in any one financial instrument.



Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed
using the straight-line method over the following estimated useful lives:

Buildings and improvements

15 yearsLeasehold improvements

Shorter of asset life or term of leaseLaboratory and manufacturing equipment

7 yearsComputer and office equipment

3 yearsFurniture and fixtures

7 years




At December 31, 2009 and 2008, our intangible assets consisted of purchased core technology. We amortize intangible assets with
definite lives over their estimated useful lives and we review them for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We
are amortizing the purchased core technology, which relates to our daclizumab product, over its estimated useful life of 10 years.

70

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

2. Summary of Significant Accounting Policies (Continued)

Long-lived
assets to be held and used are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, or
its estimated useful life has changed significantly. When an asset's expected future undiscounted cash flows are less than its carrying value, an impairment loss is recognized and the asset is written
down to its estimated value. Long-lived assets to be disposed of are reported at the lower of the carrying amount of fair value less cost to dispose.



Prior to July 2008, the operations of Facet Biotech were included in PDL's consolidated U.S. federal and state income
tax returns and in tax returns of certain PDL foreign subsidiaries. Prior to the Spin-off on December 18, 2008, our provision for income taxes was determined as if Facet Biotech had
filed tax returns separate and apart from PDL. The income tax
expense recognized in the 2008 periods related solely to foreign taxes on income earned by our foreign operations.



We have evaluated our subsequent events through February 23, 2010, when our financial statements were issued.



The multiple-element arrangements guidance codified in ASC 605-25 was modified as a result of the final consensus reached
on Emerging Issues Task Force (EITF) Issue No. 08-1, "Revenue Arrangements with Multiple Deliverables," which was codified by Accounting Standard Update (ASU) 2009-13.
The guidance in ASU 2009-13 supersedes the existing guidance on such arrangements. The revised guidance is effective for Facet no later than January 1, 2011, and provides the option
of adopting the revisions retrospectively for all periods presented or prospectively for all revenue arrangements entered into or materially modified after the date of adoption. Further, early
adoption is permitted. We expect to adopt the guidance in ASU 2009-13 prospectively on January 1, 2011. We have not yet determined the impact of the new standard on our results of
operations.

3. Stock-Based Compensation



We have two equity compensation plansour 2008 Equity Incentive Plan and our 2008 Employee Stock Purchase
Planthat provide for the issuance of common stock-based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards,
to our employees, officers, directors, advisors and consultants. The total number of shares of common

71

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

3. Stock-Based Compensation (Continued)

stock
authorized, issued, subject to outstanding equity awards and remaining available for grant under each of these plans as of December 31, 2009, is set forth in the table below:

Title of Plan

Total Shares of
Common Stock
Authorized

Total Shares of
Common Stock
Issued

Total Shares of
Common Stock
Subject to
Outstanding
Awards

Total Shares of
Common Stock
Available
for Grant2008 Equity Incentive Plan


4,456,054


1,202,790


2,987,753


1,127,0912008 Employee Stock Purchase Plan


600,000


88,814





511,186




Under the terms of our 2008 Equity Incentive Plan, stock options granted to employees in connection with the start of employment
customarily vest over four years with 25% of the shares subject to such an option vesting on the first anniversary of the grant date and the remainder of the stock option vesting monthly after the
first anniversary at a rate of one thirty-sixth of the remaining nonvested shares subject to the stock option. Stock options granted to employees as additional incentive and for performance reasons
after the start of employment customarily vest monthly after the grant date or such other vesting start date set by the Company on the grant date at a rate of one forty-eighth of the shares subject to
the option. Stock options generally have a term of seven years. The number of authorized shares under the plan increases on January 1 of each year by an
amount equal to the lesser of 4% of the number of shares issued and outstanding on that date or a number specified by the Board of Directors. In January 2009, we began granting equity awards under our
2008 Equity Incentive Plan.



Our 2008 ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended. Full-time employees of Facet Biotech who will own less than 5% of Facet Biotech's outstanding shares of common stock will be eligible to contribute a percentage of their
base salary, subject to certain limitations, over the course of six-month offering periods for the purchase of shares of common stock. The purchase price for shares of common stock
purchased under Facet Biotech's ESPP is equal to 85% of the fair market value of a share of common stock at the beginning or end of the applicable six-month offering period, whichever is
lower. In March 2009, we commenced employee participation in our 2008 ESPP. The stock-based compensation expense recognized in connection with our ESPP for the year ended December 31, 2009 was
$0.5 million.



GAAP requires the recognition of compensation expense, using a fair-value based method, for costs related to all
share-based awards including stock options and stock issued to our employees and directors under our stock plans. It requires companies to estimate the fair value of share-based awards on the date of
grant using an option-pricing model. The value of the portion of the award that was ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service
periods in our Consolidated Statements of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

3. Stock-Based Compensation (Continued)

Prior
to the Spin-off in December 2008, our employees had received stock-based compensation awards under PDL's equity compensation plans and, therefore, the
following disclosures with respect to the years ended December 31, 2008 and 2007 pertain to stock-based compensation expense that was allocated to Facet Biotech's operations related to
PDL's stock-based equity awards.

All
non-vested PDL equity instruments held by Facet Biotech employees were cancelled on December 18, 2008 when those employees ceased being employed by a wholly-owned
subsidiary of PDL as a result of the Spin-off. As a result of the cancellation of these stock options, the Biotechnology Business of PDL, we reversed $2.3 million in previously
recognized stock-based compensation expense in December 2008.

Stock-based
compensation expense for employees was as follows:

Years Ended December 31,(In thousands)

2009

2008

2007Research and development

$
5,351

$
3,322

$
10,285General and administrative


3,265


2,326


3,974Total stock-based compensation expense

$
8,616


5,648

$
14,259


In
April 2009, we granted approximately 699,000 fully-vested, at-the-money stock options to our employees (Value Transfer Grants). The Value Transfer Grants were
provided to our employees to compensate them for the estimated value of vested PDL stock options that were forfeited in connection with the Spin-off. The total fair value of the Value
Transfer Grants on the date of grant was $4.0 million, as calculated using the Black-Scholes valuation model. As these stock options were fully vested as of the grant date, we recognized 100%
of the fair value of the Value Transfer Grants as stock-based compensation expense in the second quarter of 2009.

In
2007, we recognized approximately $65,000 of stock based compensation expenses for non-employees.



The stock-based compensation expense for the years ended December 31, 2009, 2008 and 2007 was determined using the Black-Scholes
option valuation model. Option valuation models require the input of subjective assumptions and these assumptions can vary over time. As stock-based compensation expense for the years ended
December 31, 2008 and 2007 relate to PDL equity awards, the

73

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

3. Stock-Based Compensation (Continued)

assumptions
utilized to value those awards were based on PDL equity activity. The weighted-average assumptions used were as follows:

Years Ended December 31,2009

2008

2007Stock Option PlansExpected life, in years


4.8


4.0


4.0Risk free interest rate


1.9
%

2.4
%

4.5
%Volatility


83
%

41
%

38
%Dividend yield








Employee Stock Purchase PlansExpected life, in years


0.5


0.5


0.5Risk free interest rate


0.3
%

2.8
%

5.1
%Volatility


102
%

32
%

38
%Dividend yield











The
expected term represents the period that we expected the stock-based awards to be outstanding, which was determined based on historical experience of similar awards, the contractual
terms of the stock-based awards, vesting schedules and expectations of future optionee behavior as influenced by changes to the terms of stock-based awards. Expected volatility is based on both the
historical volatility of common stock of peer companies and the implied volatility derived from the market prices of traded options of common stock of peer companies. The risk-free
interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the stock options at the time of grant.



A summary of our stock option activity for the year ended December 31, 2009 is presented below:

2009(In thousands, except per share data)

Shares

Weighted-Average
Exercise PriceOutstanding at beginning of year




$
Granted


2,543


8.29Exercised


(221
)

9.14Forfeited


(128
)

8.39Outstanding at end of year


2,194


8.20Exercisable at end of year


753


8.36


74

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

3. Stock-Based Compensation (Continued)

The aggregate intrinsic value, which represents the total pre-tax intrinsic value based on the closing price of our common stock of $17.55 on December 31, 2009, which
would have been received by the option holders had all option holders exercised their options as of that date, was $20.5 million. The aggregate intrinsic value for options that were exercisable
as at December 31, 2009 was $6.9 million, based on the closing price of our common stock of $17.55.

Total
unrecognized compensation expense related to unvested stock options outstanding as of December 31, 2009, excluding potential forfeitures, was $7.6 million, which we
expect to recognize over a weighted-average period of 3.2 years. The weighted-average grant date fair value of stock options granted during 2009 was $5.34.



A summary of our restricted stock activity for the year ended December 31, 2009 is presented below:

2009Number of
shares
(in thousands)

Weighted-Average
Grant-Date
Fair Value
Per ShareNonvested at beginning of year




$
Awards granted


982

$
7.18Awards vested(1)


(120
)
$
6.17Forfeited


(68
)
$
6.47Nonvested at end of year


794

$
7.39


(1)Includes
approximately 28,000 shares that were purchased back by us as it related to awards that vested during a closed trading period for certain
employees. These shares have been retired.


Stock-based
compensation expense related to the issuance of restricted stock for the years ended December 31, 2009, 2008 and 2007 was $2.2 million, $0.8 million and
$1.2 million, respectively. Total unrecognized compensation expense related to nonvested restricted stock outstanding as of December 31, 2009 was $4.7 million, which we expect to
recognize over a weighted-average period of 2.2 years.



Our financial results for the period prior to the Spin-off include an allocation of share-based payment expenses of PDL
stock-based incentive plans. PDL had four active stock-based incentive plans under which it granted stock based awards to employees, officers and consultants engaged in the Biotechnology Business: the
1991 Nonstatutory Stock Option Plan, the 1999 Stock Option Plan, the 1999 Nonstatutory Stock Option Plan and the 2005 Equity Incentive Plan. All non-vested PDL equity instruments held by
Facet Biotech employees were cancelled on December 18, 2008 when those employees ceased being employed by a wholly-owned subsidiary of PDL as a result of the Spin-off.

75

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

3. Stock-Based Compensation (Continued)

Under
PDL's 2005 Equity Incentive Plan, PDL was authorized to issue a variety of incentive awards, including stock options, stock appreciation rights, restricted stock
unit awards, performance share and performance unit awards, deferred compensation awards and other stock-based or cash-based awards. Under PDL's 1999 Stock Option Plan and
1999 Nonstatutory Stock Option Plan, PDL was only authorized to issue stock options. PDL no longer granted any options under its 1991 Nonstatutory Stock Option Plan, and all such options granted to
employees engaged in the Biotechnology Business were vested as of December 31, 2007.

Stock
options granted to employees under PDL's plans in connection with the start of employment customarily vested over four years with 25% of the shares subject to such
an option vesting on the first anniversary of the grant date and the remainder of the stock option vesting monthly after the first anniversary at a rate of one thirty-sixth of the remaining nonvested
shares subject to the stock option. Stock options granted to employees as additional incentive and for performance reasons after the start of employment customarily vested monthly after the grant date
or such other vesting start date set by PDL on the grant date at a rate of one forty-eighth of the shares subject to the option. Each outstanding stock option granted prior to mid-July
2005 had a term of 10 years. Stock options granted after mid-July 2005 had a term of seven years.



Prior to the Spin-off, employees of PDL's Biotechnology Business who owned less than 5% of
PDL's outstanding shares of common stock were eligible to contribute a percentage of their base salary, subject to certain limitations, over the course of six-month offering
periods for the purchase of shares of common stock under PDL's 1993 ESPP plan, which was intended to qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended. The purchase price for shares of common stock purchased under PDL's ESPP equaled 85% of the fair market value of a share of common stock at
the beginning or end of the applicable six-month offering period, whichever was lower. The stock-based compensation expense related to the Biotechnology Business recognized in connection
with PDL's ESPP for the years ended December 31, 2008, 20087 and 2006 was $0.3 million, $1.6 million and $1.6 million, respectively.

4. Contractual Agreements with PDL



On December 17, 2008, we and PDL entered into a Separation and Distribution Agreement which set forth our agreement with PDL
regarding the principal transactions necessary to separate Facet Biotech from PDL. The Separation and Distribution Agreement also set forth other provisions that governed certain aspects of our
relationship with PDL after the completion of the Spin-off. The Separation and Distribution Agreement identified assets PDL transferred, liabilities we assumed and contracts PDL assigned
to us as part of the
Spin-off, and described the terms upon which these transfers, assumptions and assignments occurred.



On December 18, 2008, we and PDL entered into a Transition Services Agreement pursuant to which we and PDL would provide each
other with a variety of administrative services for a period of up to 36 months following the Spin-off. The transition services include, but are not limited to, services

76

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

4. Contractual Agreements with PDL (Continued)

related
to financial, tax and accounting support, other administrative support and information technology support.



Concurrently with our spin-off from PDL, we entered into a Non-Exclusive Cross License Agreement relating to
the Queen et al. patents and certain related intellectual property we acquired from PDL as a result of the Spin-off. Under the Non-Exclusive Cross License Agreement, PDL
granted to us a royalty-free, development license to the Queen et al. patents and a royalty-bearing, commercialization license to the Queen et al. patents and we granted to PDL a
royalty-free license under certain intellectual property we own solely for the purposes of allowing PDL to perform and fulfill existing obligations that PDL has under certain agreements
between PDL and third parties. We have the right to sublicense the Queen et al. patents subject to restrictions to ensure that we cannot grant sublicenses except in connection with a collaboration,
out-license or similar arrangement in which we also are granting rights to our own product-related intellectual property.



Concurrently with our spin-off from PDL, we entered into an Employee Matters Agreement, which governed the employee benefit
obligations of PDL and us as
they related to current and former employees. The Employee Matters Agreement allocated liabilities and responsibilities relating to employee benefit matters that were subject to ERISA (other than
severance plans) in connection with the Spin-off, including the assignment and transfer of employees, and the establishment of a savings plan and a welfare plan.



Concurrently with our spin-off from PDL, we entered into a Tax Sharing and Indemnification Agreement that generally governs
PDL's and our respective rights, responsibilities and obligations after the separation with respect to taxes. Under the Tax Sharing and Indemnification Agreement, all tax liabilities
(including tax refunds and credits) (1) attributable to PDL's Biotechnology Business for any and all periods or portions thereof ending prior to or on, the distribution date,
(2) resulting or arising from the contribution of PDL's Biotechnology Business to us, the distribution of our shares of common stock and the other separation transactions and
(3) otherwise attributable to PDL, will be borne solely by PDL. As a result, we are liable only for tax liabilities attributable to, or incurred with respect to, the Biotechnology Business
after the distribution date.

5. Collaborative Arrangements



In September 2005, we entered into a collaboration agreement with Biogen Idec for the joint development and commercialization of three
antibodies. The agreement provides for shared development and commercialization of daclizumab in multiple sclerosis and
indications other than transplant and respiratory diseases, and for shared development and commercialization of volociximab (M200) andHuZAF(fontolizumab) in all indications.

77

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

5. Collaborative Arrangements (Continued)

We
received an upfront license fee payment of $40.0 million and, pursuant to a related stock purchase agreement, Biogen Idec purchased 4.1 million shares of
PDL's common stock at $24.637 per share, which represented the then fair market value of the stock, for an aggregate amount of $100.0 million in cash.

We
and Biogen Idec share equally the costs of all development activities and all operating profits from each collaboration product within the United States and Europe. The companies
share the development, manufacturing and commercialization plans for collaboration products and intend to divide implementation responsibilities to leverage each company's capabilities and expertise.
We are eligible to receive development and commercialization milestones based on the further successful development of the antibodies covered by the collaboration agreement. Each party will have
co-promotion rights in the United States, Canada and the European Union for any collaboration product that is commercialized. Outside the United States and Europe, Biogen Idec will fund
all incremental development and commercialization costs and pay a royalty to us, which would be based on percentages of net sales of collaboration products ranging from the low-teens to
approximately the high-teens. If the products under our collaboration with Biogen Idec are successfully developed in multiple indications and all milestones are achieved, the agreement
with Biogen Idec provides for development, regulatory and sales-based milestone payments totaling up to $660 million. Of this amount, the agreement provides for $260 million in
development and regulatory milestone payments related to daclizumab and $300 million in development and regulatory milestone payments and $100 million in sales-based milestone payments
related to volociximab. Through December 31, 2009, we have received $10 million of these milestone payments under the collaboration with Biogen Idec.

Since
we could not establish fair value for the separate elements of the arrangement, we determined that all elements under the collaboration agreement should be accounted for as a
single unit of accounting. As we have continuing obligations under the collaboration agreement, and as significant development risk remains, we recorded the $40.0 million upfront license fee as
deferred revenue, and we are recognizing this amount over the respective periods over which we expect to have obligations for each product under the collaboration.

Our
R&D expenses include the quarterly settlement of combined development costs under our collaboration with Biogen Idec. Since we and Biogen Idec each individually incur development
costs under the collaboration, and the spending mix between the parties can vary, collaboration expenses and revenues can also vary accordingly.

The
following reflects total revenues and certain expenses related to our collaboration with Biogen Idec:

Years Ended December 31,(In thousands)

2009

2008

2007Revenues recognized under collaboration:Upfront license fees and milestone payments recognized

$
8,130

$
7,666

$
12,468Net payments received from Biogen Idec





856


4,791Total revenues under collaboration

$
8,130

$
8,522

$
17,259Operating-expense related payments under collaboration:Net payments made to Biogen Idec

$
12,540

$
4,469

$
858


78

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

5. Collaborative Arrangements (Continued)



In August 2008, we entered into a collaboration agreement with BMS for the joint development and commercialization of elotuzumab in
multiple myeloma and other potential oncology indications. In connection with the closing of the agreement in September 2008, we received an upfront cash payment of $30.0 million from BMS, and
we are eligible to receive development and commercialization milestones based on the further successful development of elotuzumab. We have ongoing obligations throughout the development period of
elotuzumab, and BMS is responsible for all activities following its commercial approval. Under the terms of the agreement, BMS had an option to expand the collaboration to include PDL241, another
anti-CS1 antibody, upon completion of certain pre-agreed preclinical studies. Following our completion of certain preclinical studies for PDL241, BMS notified us that it
elected not to expand our existing collaboration to include PDL241. As a result of this decision, we will not receive from BMS the $15 million opt-in payment or any of the milestone
payments related to this compound under our collaboration agreement with BMS.

Under
the terms of the agreement, BMS funds 80% of the worldwide development costs and we fund the remaining 20%. The companies would share profits on any U.S. sales of elotuzumab, with
us receiving 30% of the profits on any U.S. sales of collaboration products. Outside the United States, we would receive royalties, which would be based on percentages of net sales of collaboration
products ranging from the low- to mid-teens. In addition, the agreement provides for $480 million in development and regulatory milestones and $200 million in
sales-based milestones for elotuzumab in multiple myeloma and other potential oncology indications. In February 2010, we received $15 million of these milestone payments under the collaboration
with BMS as a result of the initiation of a phase 2 study of elotuzumab in multiple myeloma.

With
four months notice, BMS may terminate our collaboration agreement with respect to any product that is jointly developed under the collaboration on a region by region basis. The BMS
agreement shall remain in effect until earlier terminated pursuant to the terms of the agreement, or by mutual written agreement or until the expiration of all payment obligations under the agreement.

Since
we could not establish fair value for the separate elements of the arrangement, we determined that the intellectual property rights and the R&D services under the collaboration
agreement should be accounted for as a single unit of accounting. As we have continuing obligations under the collaboration agreement during the period over which we are jointly developing elotuzumab
with BMS, we recorded the $30.0 million upfront cash payment as deferred revenue and are recognizing this amount over the estimated development period of approximately seven years.

Our
R&D expenses include the quarterly settlement of combined development costs under our collaboration with BMS. Since we and BMS each individually incur development costs under the
collaboration, and the spending mix between the parties can vary, collaboration expenses and revenues can also vary accordingly. At December 31, 2009, we had a receivable of $6.4 million
due from BMS under our collaboration agreement, which has been classified under prepaid and other current assets in our Consolidated Balance Sheet.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

5. Collaborative Arrangements (Continued)

The
following reflects total revenues and certain expenses related to our collaboration with BMS:

Years Ended December 31,(In thousands)

2009

2008

2007Revenues recognized under collaboration:Upfront license fees and milestone payments recognized

$
3,890

$
1,287

$
Net payments received from BMS


22,404


5,193


Total revenues under collaboration

$
26,294

$
6,480

$
Operating-expense related payments under collaboration:Net payments made to BMS

$


$


$





In August 2009, we and Trubion entered into a collaboration agreement for the global development and commercialization of
TRU-016, a product candidate in phase 1 clinical trials for chronic lymphocytic leukemia. Under the terms of the collaboration agreement, we paid Trubion an upfront license fee of
$20.0 million, and we may be obligated to pay Trubion up to $176.5 million in additional contingent payments if certain development, regulatory and sales milestones are achieved for each
product under the collaboration agreement, the significant majority of which are for achievement of later-stage development, regulatory and sales-based milestones. We and Trubion share equally the
costs of all development, commercialization and promotional activities and all global operating profits.

In
addition, we purchased 2,243,649 shares of newly issued shares of Trubion common stock for $10.0 million. Our $10.0 million equity investment in Trubion reflected an
approximate 16% premium over the closing price of Trubion's common stock on the date the stock purchase agreement was executed, resulting in a total premium of $1.4 million. Since the stock
purchase agreement and the collaboration agreement were entered into concurrently, we recognized the $1.4 million premium as additional R&D expense in the third quarter of 2009. We recorded the
fair value of the equity investment in marketable securities. As Trubion's early-stage technology to which we have licensed rights has not reached technological feasibility and has no alternative
future uses, we recognized the $21.4 million upfront license fee as R&D expense upon execution of the agreement in the third quarter of 2009.

Both
we and Trubion have the right to opt out of all rights and obligations to co-develop and co-commercialize any collaboration product at certain specified
milestone points or upon the occurrence of certain events. In addition, we have the right to terminate the collaboration agreement for any reason upon written notice to Trubion, provided that if we
give notice on or before February 27, 2011. If we terminate the collaboration agreement in this manner, we are required to pay a termination fee of $10.0 million.

Our
R&D expenses include the quarterly settlement of combined development costs under our collaboration with Trubion. Since we and Trubion each individually incur development costs under
the collaboration, and the spending mix between the parties can vary, collaboration expenses and revenues can also vary accordingly.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

5. Collaborative Arrangements (Continued)

The
following reflects total revenues and certain expenses related to our collaboration with Trubion:

Years Ended December 31,(In thousands)

2009

2008

2007Revenues recognized under collaboration

$


$


$
Operating-expense related payments under collaboration:Upfront license fee

$
21,407

$


$
Net payments made to Trubion


1,333





Total operating-expense related payments made to Trubion

$
22,740

$


$





Effective October 2003, we entered into an Amended and Restated Worldwide Agreement (the 2003 Worldwide Agreement) with Roche under
which we paid $80 million to Roche in consideration of Roche's license to us of intellectual property related to daclizumab for use in autoimmune and other indications other than transplant
indications. Roche retained rights to daclizumab in transplant indications, including the right to market and sellZenapax®(daclizumab) for
the prevention of acute organ rejection in patients receiving kidney transplants. Under the Amended and Restated Worldwide Agreement, we had the right to terminate our license to Roche in
consideration of a fee payable to Roche (the reversion right). Of the $80 million that we paid to Roche, we recorded a charge to acquired in-process R&D totaling approximately
$48.2 million, representing technology that had not yet reached technological feasibility and that had no known future alternative uses. In particular, this amount related to the rights to
autoimmune indications for daclizumab that we were developing and testing in clinical studies at that time, specifically to treat asthma and ulcerative colitis. We capitalized the remaining
amount of $31.8 million, $16.0 million of which related to the daclizumab core technology, and $15.8 million of which related to the reversion option. We are amortizing the value
of the core technology over the term of the patents underlying the acquired technology, and in the fourth quarter of 2005, we wrote off the entire remaining value of the reversion option in connection
with our entrance into the Second Amended and Restated Worldwide Agreement with Roche in October 2005 because we agreed to not exercise the reversion option.

In
September 2004, we entered into a Co-Development and Commercialization Agreement with Roche for the joint development and commercialization of daclizumab for the
treatment of asthma and other respiratory diseases (the Asthma Collaboration). In October 2005, we and Roche entered into the Amended and Restated Co-Development and Commercialization
Agreement (the Roche Co-Development Agreement), which broadened the scope of the Asthma Collaboration to include the joint development and commercialization of daclizumab for transplant
indications, with an emphasis on transplant maintenance.

In
the second half of 2006, Roche notified us that it had elected to terminate both the Asthma Collaboration and the Roche Co-Development Agreement. As a result, in 2007 we
recognized approximately $5.2 million in previously deferred revenues that would have otherwise been deferred to future periods had the termination not occurred.

During
the year ended December 31, 2007, we recognized revenues of $7.2 million and incurred R&D expenses of $1.0 million under these arrangements with Roche.

81

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

6. Gain on Sale of Assets

In March 2008, we sold our Minnesota manufacturing facility and related operations to an affiliate of Genmab A/S (Genmab) for total cash proceeds of $240.0 million. Under the
terms of the purchase agreement, Genmab acquired our manufacturing and related administrative facilities in Brooklyn Park, Minnesota, and related assets therein, and assumed certain lease obligations
related to our former facilities in Plymouth, Minnesota (together, the Manufacturing Assets). We recognized a pre-tax gain of $49.7 million upon the close of the sale in March 2008.
Such gain represents the $240.0 million in gross proceeds, less the net book value of the underlying assets transferred of $185.4 million and $4.9 million in transaction costs and
other charges.

We
entered into a clinical supply agreement with Genmab, effective in March 2008 upon its purchase of the assets, under which Genmab agreed to manufacture clinical trial material for
certain of our pipeline products until December 2010. We had the right under this agreement to extend the manufacturing schedule beyond 2010 and up through 2012 for additional fees. In November 2009,
in connection with its restructuring activities, Genmab announced that it intended to sell this manufacturing facility and notified us that it would not be able to fulfill its obligations under the
supply agreement. In January 2010, we and Genmab agreed to terminate the clinical supply agreement effective November 2010. In connection with this termination, Genmab refunded to us the
$4.9 million in deposits that we had previously made with respect to our manufacturing obligation.

7. Restructuring Charges



In late September 2007, PDL's Board approved a workforce reduction related to our former manufacturing operations.
During the third quarter of 2007, we informed employees that any employees terminated in a reduction would be eligible for a specified severance package. In early October 2007, we notified the 104
individuals affected by this workforce reduction, and all impacted employees were provided 60 days advance notice of the date their employment would terminate. In 2007, we recognized
restructuring charges related to this workforce reduction of $3.6 million, consisting of post-termination severance costs, 401(k) matching payments and salary and bonus accruals
relating to the portion of the 60-day notice period over which the terminated employees would not be providing services related to the Biotechnology Business. In 2007, all actions under
this restructuring plan were completed and substantially all payments were made.



During the third quarter of 2007, we initiated our move from our prior corporate headquarters in Fremont, California to our new
location in Redwood City, California. In connection with this move, we ceased use of a portion of the leased property in Fremont, California and, as a result, we recognized a restructuring charge of
approximately $1.3 million. We paid all obligations relating to these leases by the end of the first quarter of 2008, when the leases on these facilities terminated.

In
addition, during 2007, we ceased use of two of our leased facilities in Plymouth, Minnesota. During 2007, we recognized restructuring charges of $1.8 million related to these
leased facilities. In connection with the sale of our Manufacturing Assets in March 2008, Genmab assumed our obligations for one of these two facilities, and PDL retained the lease obligation for the
other facility.

82

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

7. Restructuring Charges (Continued)



In an effort to reduce our operating costs, in March 2008 we commenced a restructuring plan pursuant to which we immediately eliminated
approximately 120 employment positions and would eliminate approximately 130 additional employment positions over the subsequent 12 months. All impacted employees were notified in March 2008.
Employees terminated in connection with the restructuring efforts were eligible for a specified severance package. In 2009 and 2008, we recognized restructuring charges of zero and
$9.3 million, respectively, primarily consisting of post-termination severance costs as well as salary accruals relating to the portion of the 60-day notice period over
which the terminated employees would not be providing services to the Company. We have paid all of our obligations under the 2008 Restructuring Plan.



During the fourth quarter of 2008, we decided to close our offices in France, which at the time employed seven individuals. In 2009 and
2008, we recognized $0.5 million and $0.9 million, respectively in restructuring charges under this restructuring plan. We have paid all obligations related to the closure of our French
office.



As a result of a strategic review process to enhance our focus and significantly reduce our operating expenses, we undertook a
reduction in force in early 2009, pursuant to which we eliminated approximately 80 positions (the 2009 Restructuring). As a result of the 2009 Restructuring, we recognized charges related to severance
benefits totaling $3.5 million in 2009. As of December 31, 2009, we had paid all obligations related to the severance benefits under the 2009 Restructuring.

In
connection with the 2009 Restructuring, we vacated approximately 85%, or approximately 240,000 square feet, of one of our two leased buildings in Redwood City (the Administration
Building) and consolidated our operations into the other building (the Lab Building) during the second quarter of 2009. We consolidated our operations into the Lab Building to both reduce our future
operating expenses and expedite potential future subleases for the vacated space. In connection with vacating this space in the Administration Building, we recognized lease-related restructuring
charges of $17.0 million in the second quarter of 2009. The lease-related restructuring charges were comprised of a $23.0 million lease-related restructuring liability, which was
calculated as the present value of the estimated future facility costs for which we would obtain no future economic benefit over the term of our lease, net of estimated future sublease income and a
$6.0 million credit for an existing deferred rent liability associated with the vacated area of the Administration Building.

During
the third and fourth quarters of 2009, based on updated assumptions resulting from our ongoing discussions with potential subtenants, we recognized additional lease-related
restructuring charges of $7.3 million, which, after payments and adjustments, increased the lease-related restructuring liability to $25.6 million as of December 31, 2009. The
adjustments to the lease-related restructuring liability related to prepaid rent and property taxes as of December 31, 2009.

The
estimates underlying the fair value of the lease-related restructuring liability of $25.6 million involve significant assumptions regarding the time required to contract with
subtenants, the amount of space we may be able to sublease, the range of potential future sublease rates and the level of

83

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

7. Restructuring Charges (Continued)

leasehold
improvements expenditures that we may incur to sublease the property. We have continued to evaluate a number of potential sublease scenarios with differing assumptions and have probability
weighted these scenarios and calculated the present value of cash flows based on management's best judgment. We will continue to monitor and update the liability balance when future events impact our
cash flow estimates related to the vacated area of the Administration Building.

In
addition, in connection with our sublease efforts for the Administration Building, we are also pursuing sublease arrangements under which we could potentially contract with subtenants
for both the Administration Building and the Lab Building, which we currently occupy. If we sublease these facilities for rates that are not significantly in excess of our costs, we would not likely
recover the carrying value of certain assets associated with these facilities, which was approximately $57.0 million as of December 31, 2009. As such, we could potentially incur a
substantial asset impairment charge, as much as the carrying value of such assets, if we were to sublease both of these buildings.

The
following table summarizes the restructuring activity discussed above as well as the remaining restructuring accrual balance at December 31, 2009:

(In thousands)

Personnel

Lease-
Related

TotalBalance at December 31, 2006

$


$


$
2007 Manufacturing Restructuring


3,616





3,6162007 Facilities Restructuring





3,052


3,052Total restructuring charges


3,616


3,052


6,668Total adjustments





55


55Total payments


(3,205
)

(1,195
)

(4,400
)Balance at December 31, 2007

$
411

$
1,912

$
2,3232007 Manufacturing Restructuring








2007 Facilities Restructuring





227


2272008 Employee-Related Restructuring


9,393





9,3932008 French Office Restructuring


850





850Total restructuring charges


10,243


227


10,470Total payments


(8,698
)

(2,075
)

(10,773
)Transfer to PDL BioPharma, Inc.





(64
)

(64
)Balance at December 31, 2008

$
1,956

$


$
1,9562008 Employee-Related Restructuring


47





472008 French Office Restructuring


373


135


5082009 Restructuring


3,466


24,317


27,783Total restructuring charges


3,886


24,452


28,338Total payments


(5,842
)

(4,226
)

(10,068
)Deferred rent credit





5,983


5,983Total adjustments





(611
)

(611
)Balance at December 31, 2009

$


$
25,598

$
25,598


84

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

8. Asset Impairment Charges

On June 30, 2007, management committed to a plan to sell two buildings that comprised part of our prior corporate headquarters in Fremont, California. Based on market value
information we had at the time, we concluded that the net carrying value of the assets was impaired as of June 30, 2007, and we recognized an impairment charge of $5.0 million to reduce
the net carrying value of the assets to $20.6 million, which was our estimate of fair value, less cost to sell. The sale of these two buildings closed in October 2007 on terms consistent with
those expected and, as a result, no significant gain or loss on the sale was recognized at the time of sale.

Asset
impairment charges recognized in 2008 and 2009 of $19.9 million and $1.1 million, respectively, were primarily related to our restructuring activities in those
periods and to the costs of certain
research equipment that was expected to have no future useful life and certain information technology projects that were terminated and had no future benefit to us. In addition, in preparation for our
2009 restructuring efforts, in the fourth quarter of 2008 we developed plans to consolidate our operations into the Lab Building in Redwood City in early 2009. As a result of these plans, we
recognized impairment charges of $16.1 million in the fourth quarter of 2008, which related to certain leasehold improvements and other fixed assets that we had expected to abandon in
connection with the move or which we had abandoned as of December 31, 2008. We calculated the fair value associated with the leasehold improvements based on the estimated economic benefit we
would derive from these assets over their remaining useful lives. For all other assets, we estimated their fair values based on the proceeds we expected to receive upon the sale of the assets.

9. Cash Equivalents, Marketable Securities and Restricted Cash

At December 31, 2009, our cash equivalents and marketable securities were comprised of money market funds as well as marketable debt and equity securities. Our marketable
securities are classified as available-for-sale. Available-for-sale securities are carried at estimated fair value, which is based upon quoted market
prices for these or similar instruments, with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders' equity. The amortized cost of debt securities is
adjusted for amortization of premiums and discounts from the purchase date to maturity. Such amortization is included in interest income. The cost of securities sold is based on the specific
identification method. To date, we have not experienced credit losses on investments in these instruments. In addition, we do not require collateral for our investment activities. We did not have any
cash equivalents or marketable securities as of December 31, 2008.

85

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

9. Cash Equivalents, Marketable Securities and Restricted Cash (Continued)

We
have classified all of our available-for-sale securities as current assets since they are available for use in current operations. The following table
summarizes, by type of
security, the amortized cost and estimated fair value of our available-for-sale securities as of December 31, 2009:

(In thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair ValueInstitutional money market funds:maturity within 1 year

$
23,259

$


$


$
23,259Securities of U.S. Government sponsored entities:maturity within 1 year


174,158


448


(4
)

174,602maturity between 1- 3 years


53,672


53


(38
)

53,687U.S. corporate debt securities:maturity within 1 year


20,934


64


(1
)

20,997maturity between 1- 3 years


15,781


34





15,815Marketable equity securities


8,593


45





8,638Total marketable securities

$
296,397

$
644

$
(43
)
$
296,998


Our
available-for-sale marketable securities are reported on our consolidated balance sheet as of December 31, 2009 as follows:

(In thousands)

December 31, 2009Cash and cash equivalents

$
29,756Marketable securities


267,242Total

$
296,998


As
of December 31, 2009 and 2008, we had a total of $6.4 million and $5.8 million of restricted cash, respectively, held in certificates of deposit to support
letters of credit serving as security deposits for our Redwood City, California building and other operating leases.

10. Fair Value Measurements

We are required under U.S. GAAP to establish fair value using a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. These tiers
include:



86

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

10. Fair Value Measurements (Continued)



At December 31, 2009, we determined the fair values of our available-for-sale securities using
Level 1 and Level 2 inputs, as reflected in the table below:

(In thousands)

Level 1

Level 2

Level 3

TotalInstitutional money market funds

$
23,259

$


$


$
23,259Securities of U.S. Government sponsored entities





228,289





228,289Corporate securities(1)





36,812





36,812Marketable equity securities


8,638








8,638Total financial assets measured on a recurring basis

$
31,897

$
265,101

$


$
296,998


(1)All
corporate securities held at December 31, 2009 were secured by the U.S. Government under the terms of the Temporary Liquidity Guarantee Program.




In July 2006, we entered into agreements to lease two buildings in Redwood City, California, to serve as our corporate headquarters.
The underlying lease term for these buildings was 15 years. Significant leasehold improvements were performed for the Lab Building, which previously had never been occupied or improved for
occupancy. Due to our involvement in and assumed risk during the construction period, as well as the nature of the leasehold improvements for the Lab Building, we were required to reflect the lease of
the Lab Building in our financial statements as if we were the owner of the building by recording the fair value of the building and a corresponding lease financing liability. The carrying amount of
this lease financing liability as of December 31, 2009 was $25.3 million, which approximated its fair value at that date.

11. Accumulated Other Comprehensive Income

The balance of accumulated other comprehensive income (loss), net of taxes, as reported on our Consolidated Balance Sheets consists of the following components:

December 31,(In thousands)

2009

2008Unrealized gains and losses on investments in available-for-sale securities

$
580

$
Postretirement liability not yet recognized as net period expense


804


(489
)Accumulated other comprehensive income (loss)

$
1,384

$
(489
)


87

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

12. Property and Equipment

Property and equipment consisted of the following:

December 31,(In thousands)

2009

2008Buildings and improvements

$
26,665

$
26,665Leasehold improvements


82,893


82,711Laboratory and manufacturing equipment


23,873


26,011Computer and office equipment


19,968


21,695Furniture and fixtures


2,060


2,098Construction-in-process


1,719


2,301Land, property and equipment, gross


157,178


161,481Less: accumulated depreciation and amortization


(64,998
)

(55,810
)Land, property and equipment, net

$
92,180

$
105,671


13. Intangible Assets

Intangible assets consisted solely of certain core technology related to daclizumab for all periods presented. Gross and net carrying values consisted of the following:

December 31, 2009

December 31, 2008(In thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountCore technology

$
16,053

$
(10,290
)
$
5,763

$
16,053

$
(8,644
)
$
7,409


Amortization
expenses for our core technology asset of $1.6 million were included in R&D expenses during each of the years ended December 31, 2009, 2008 and 2007. Expected
future annual amortization expense related to these assets is as follows:

(In thousands)

Core
TechnologyFor the year ending December 31,2010

$
1,6472011


1,6472012


1,6472013


822Total amortization expense

$
5,763


88

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

14. Other Accrued Liabilities

Other accrued liabilities consisted of the following:

December 31,(In thousands)

2009

2008Consulting and services

$
2,720

$
644Accrued clinical and pre-clinical trial costs


1,182


1,031Collaboration expense reimbursements


5,880


Other


568


4Total

$
10,350

$
1,679


15. Postretirement Benefit Plan

In June 2003, PDL established a postretirement health care plan (the Plan), which covers medical, dental and vision coverage for certain of our former officers and their dependents.
Coverage under the Plan ceases when participants become eligible for Medicare benefits. The Plan and all related obligations were transferred to Facet Biotech in connection with the
Spin-off of Facet Biotech from PDL on December 18, 2008.

Through
December 31, 2009, coverage for eligible retirees was noncontributory, but we required that retirees contribute 25% of dependent premium cost. In 2009, we amended the Plan
such that (a) the Plan would be closed to any new participants (the Curtailment) and (b) as of January 1, 2010, current retirees would be required to contribute amounts equivalent
to COBRA rates for all individuals covered under the Plan (the Negative Plan Amendment). As a result of these modifications, which significantly reduced our estimated costs under the Plan, we reduced
the accumulated postretirement benefit obligation by approximately $1.5 million, $0.3 million of which related to the Curtailment and $1.2 million related to the Negative Plan
Amendment.

The
reduction in the postretirement benefit obligation related to the Negative Plan Amendment was recorded as a prior service credit within accumulated other comprehensive income (loss)
(OCI) and will be amortized as a credit to expenses over the estimated term of the Plan of 10 years. After adjusting the $1.2 million Negative Plan Amendment by the existing prior
service cost of $0.4 million, we carry a prior service credit of $0.8 million in accumulated OCI. The reduction in the postretirement benefit obligation related to the Curtailment, was
recognized as a gain net of the pre-existing unrecognized actuarial net loss of $0.1 million at the time the plan was
amended. As such, we recognized a net curtailment gain of approximately $0.3 million which was included within G&A expenses during for the year ended December 31, 2009.

89

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

15. Postretirement Benefit Plan (Continued)

The
following table sets forth the change in benefit obligation for the Plan:

December 31,(In thousands)

2009

2008Accumulated postretirement benefit obligation at beginning of year

$
1,832

$
1,658Service cost


77


129Interest cost


85


93Curtailment


(362
)

Negative Plan Amendment


(1,175
)

Actuarial loss


36


24Plan participants' contributions


15


12Benefits paid


(104
)

(84
)Accumulated postretirement benefit obligation at end of year

$
404

$
1,832


We
calculated the accumulated postretirement benefit obligation using an assumed discount rate of 5.3% and 6.0% for the years ended December 31, 2009 and 2008, respectively. In
2009 and 2008, we assumed the rate in per capita costs of covered health care benefits would increase to 8% and gradually decrease to 5.5% by the end of year 2014 and 2015 for the years
December 31, 2009 and 2008, respectively.

Amounts
recognized in our Consolidated Balance Sheets are as follows:

December 31,(In thousands)

2009

2008Other accrued liabilities

$
30

$
109Other long-term liabilities


374


1,723Net liability recognized

$
404

$
1,832


Net
periodic benefit cost for the Plan consisted of the following:

December 31,(In thousands)

2009

2008

2007Service cost

$
77

$
129

$
164Interest cost


85


93


96Amortization of prior service cost


35


74


74Amortization of net loss








11Net periodic benefit cost

$
197

$
296

$
345


90

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

15. Postretirement Benefit Plan (Continued)

Assumed
health care trend rates could have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:

One percentage point(In thousands)

Increase

DecreaseEffect on accumulated postretirement benefit obligation as of December 31, 2009

$
25

$
(23
)Effect on total of service and interest cost in 2009

$
1

$
(1
)


In
connection with the Plan, we expect to pay health care net premiums aggregating $0.2 million in each of the five-year periods ending December 31, 2014 and
December 31, 2019.

The
following table sets forth the amounts of net actuarial loss and prior service cost which have been recognized in other comprehensive income but which have not yet been recognized as
components of net periodic benefit cost:

December 31,(In thousands)

2009

2008Net actuarial loss

$
51

$
24Prior service cost (credit)


(1,175
)

Curtailment


(134
)

Amortization of prior service costs


(35
)

(74
)Amount recognized in accumulated other comprehensive income

$
(1,293
)
$
(50
)


The
amounts recognized in accumulated other comprehensive income is as follows:

December 31,(In thousands)

2009

2008Net actuarial loss

$
4

$
87Prior service cost (credit)


(828
)

476Amortization of prior service costs


20


(74
)Amount recognized in accumulated other comprehensive income

$
(804
)
$
489


Of
these amounts, we expect to recognize a benefit of approximately $82,000 for the amortization of the prior service credit, which is a component of net periodic benefit cost, in 2010.

91

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

16. Defined Contribution Plans

We maintain a retirement savings plan under which eligible employees may defer compensation for income tax purposes under Section 401(k) of the Internal Revenue Code (Facet Plan).
Under the Facet Plan, employees may contribute up to 60% of their eligible annual compensation, subject to IRS plan limits. We make matching contributions under the Facet Plan. In 2009 we contributed
100% of an employee's contributions up to an annual maximum match of $6,000. Our total matching contribution expense under the Facet Plan was $0.9 million in 2009.

Prior
to the Spin-off in December 2008, our employees contributed to a similar plan set up by PDL.

17. Non-Monetary Transaction

In January 2008, we and Biogen Idec entered into an exclusive worldwide licensing agreement with Ophthotech Corporation (Ophthotech), a privately held company, for volociximab (M200), an
anti-angiogenesis antibody, to treat age-related macular degeneration (AMD). Under the terms of the agreement, we and Biogen Idec have granted Ophthotech worldwide development
and commercial rights to all ophthalmic uses of volociximab (M200). In addition, we and Biogen Idec have an obligation to supply both clinical and commercial M200 product to Ophthotech. In connection
with this agreement, we received an equity position in Ophthotech, and we may receive a combination of development and commercial milestone payments and royalties on future product sales.

We
estimated the fair value of the nonmarketable equity instruments received based predominately upon the price of similar Ophthotech equity instruments that Ophthotech had recently sold
to independent parties for cash consideration. Based on this approach, we estimated the fair value of our equity position to be $1.8 million, which is included in other assets on our
Consolidated Balance Sheets as of December 31, 2009 and 2008.

For
the purposes of revenue recognition, we are treating the grant of the license and the manufacturing obligation as a single unit of accounting. Because we are currently unable to
estimate the time period over which we are obligated to supply the M200 product for clinical and commercial purposes, we have not recognized any revenue under the agreement. We have recorded the fair
value of the consideration received as long-term deferred revenue as of December 31, 2009. We do not intend to recognize any revenue related to this agreement until such point that
we are able to reasonably estimate the date at which our obligation will end.

18. Commitments and Contingencies



In July 2006, we entered into agreements to lease two buildings in Redwood City, California, to serve as our corporate headquarters.
The underlying lease term for these facilities is 15 years. We took possession of these buildings during the fourth quarter of 2006, constructed leasehold improvements for both buildings, and
completed our move into the buildings by the end of 2007. The Administration Building is primarily general office space, while the Lab Building is office and laboratory space.

92

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

18. Commitments and Contingencies (Continued)

Estimated
future lease payments related to the Administration Building, as well as other leased office equipment, are as follows:

For the year ending December 31,

(In thousands)2010

$
3,2642011


3,2382012


3,2292013


5,6712014


7,134Thereafter


56,288$
78,824


Significant
leasehold improvements were performed for the Lab Building, which had never been occupied or improved for occupancy. Due to our involvement in and assumed risk during the
construction period, as well as the nature of the leasehold improvements for the Lab Building, we were required to reflect the lease of the Lab Building in our financial statements as if we were the
owners of the building. Therefore, in 2006, we recorded the fair value of the building and a corresponding long-term financing liability of $24.7 million. In addition, we
capitalized implied interest related to the construction of the leasehold improvements for the Lab Building totaling $3.1 million in 2007.

At
December 31, 2009 and 2008, respectively, the accumulated depreciation on the building was $3.9 million and $2.1 million, respectively, and the financing
liability was $25.3 million and $26.2 million, respectively. The total carrying value of the lease financing liability approximated its fair value as at December 31, 2009.

Estimated
future contractual lease payments for the Lab Building as of December 31, 2009, are as follows:

For the year ending December 31,

(In thousands)2010

$
3,6162011


3,7432012


3,8742013


4,0102014


4,150Thereafter


29,048Total


48,441Less: amount representing interest


(11,568
)Less: amount representing ground rental expense


(11,557
)Present value of future payments

$
25,316


The
contractual lease payments reflected in the tables above exclude significant other lease-related payments that we are contractually obligated to make over the term of the underlying
agreements, including insurance, property taxes and common area maintenance fees.

93

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

18. Commitments and Contingencies (Continued)

Total
rent expense for the years ended December 31, 2009, 2008 and 2007, excluding amounts recorded against the lease-related restructuring accrual, was $3.4 million,
$6.1 million, and $8.5 million, respectively.



As permitted under Delaware law, pursuant to the terms of our bylaws, we have agreed to indemnify our officers and directors and,
pursuant to the terms of indemnification agreements we entered into, we agreed to indemnify our executive officers and directors for certain events or occurrences, subject to certain limits, while the
officer or director is or was serving as an officer or director of the Company. While the maximum amount of potential future indemnification is unlimited, we have a director and officer insurance
policy in place that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements and bylaw provisions are
immaterial, and accordingly, we have not recorded the fair value liability associated with these agreements as of December 31, 2009 or December 31, 2008.

Under
the terms of the Separation and Distribution Agreement, we and PDL each agreed to indemnify the other from and after the Spin-off with respect to the indebtedness,
liabilities and obligations that will be retained by our respective companies. These indemnification obligations could be significant. The ability to satisfy these indemnities if called upon to do so
will depend upon the future financial strength of each of our companies. We cannot determine whether we will have to indemnify PDL for any substantial obligations in the future. We also cannot assure
you that, if PDL has to indemnify us for any substantial obligations, PDL will have the ability to satisfy those obligations.

In
April 2009, we became aware of assertions from one of PDL's former commercial product distributors that it believes it should be reimbursed for certain amounts relating
to sales rebates on the sale of the Busulfex® commercial product in Italy during the 2006 and 2007 fiscal
periods. We believe these assertions are invalid and without merit. Under the terms of the indemnification provisions contained in the Separation and Distribution Agreement, we could be responsible
for any amounts ultimately deemed due and payable to this distributor by PDL should these assertions be deemed valid. As any potential liability related to these assertions is not probable at this
time, we have not recorded any liability relating to this matter on our balance sheet as of December 31, 2009.

19. Long-Term Liabilities

The long-term portion of our lease financing liability as of December 31, 2009 and 2008 was $24.3 million and $25.3 million, respectively, related to our
Lab Building in Redwood City, California (see Note 18 for further details). Our other long-term liabilities as of December 31, 2009 and 2008 included $0.4 million and
$1.7 million, respectively, related to the non-current portion of our accumulated postretirement benefit obligation recognized as of December 31, 2009 and 2008 (see
Note 15 for further details), and $1.2 million and $6.3 million, respectively, related to the timing difference between straight-line recognition of rent expenses and
actual rent payments. We reduced our deferred rent in the second quarter of 2009 by $6.0 million in connection with our restructuring activities (see Note 7 for further details).

94

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

20. Revenues by Geographic Area and Significant Customers

The following table summarizes revenues from companies who individually accounted for 10% or more of our total revenues (as a percentage of total revenues):

Years Ended December 31,Licensees

2009

2008

2007Biogen Idec


18
%

47
%

65
%BMS


57
%

35
%

*Roche


*


*


27
%EKR


20
%

*


*


*Amount
is less than 10%


Revenues
by geographic area are based on the country of domicile of the counterparty to the agreement. The following table summarizes revenues by geographic area:

Years Ended December 31,(In thousands)

2009

2008

2007United States

$
46,101

$
18,263

$
19,213Europe








7,479Total revenues

$
46,101

$
18,263

$
26,692


21. Income Taxes

The operations of Facet Biotech were historically included in PDL's consolidated U.S. federal and state income tax returns and in returns of certain PDL foreign
subsidiaries. The provision for income taxes for Facet Biotech has been determined as if Facet Biotech had filed tax returns separate and apart from PDL. Income tax expense in 2009, 2008 and 2007
primarily related to foreign taxes on income earned by our foreign operations. The provision for income taxes for Facet Biotech consisted of the following:

Years Ended December 31,(In thousands)

2009

2008

2007Current income tax expenseForeign

$
8

$
81

$
123Deferred income tax benefitFederal


(16
)




State


(2
)




(18
)




Income tax expense (benefit)


(10
)

81


123Income tax expense (benefit) for other comprehensive income


18





Total provision

$
8

$
81

$
123


95

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

21. Income Taxes (Continued)

A
reconciliation of the income tax provision computed using the U.S. statutory federal income tax rate to the income tax provision included in the Consolidated Statements of Operations
for Facet Biotech is as follows:

Years Ended December 31,(In thousands)

2009

2008

2007Tax at U.S. statutory rate on loss before income taxes

$
(57,518
)
$
(56,606
)
$
(79,511
)Unutilized net operating losses


57,518


56,606


79,511Unrealized gain on marketable equity securities


(18
)




Foreign taxes


8


81


123Total

$
(10
)
$
81

$
123


As
of December 31, 2009, we had federal and state net operating loss carry forwards of $70.0 million and $78.9 million, respectively, and we had federal and
California state research and other credit carry forwards of $0.4 million and $0.5 million, respectively. The federal net operating losses will expire at various dates beginning in the
year 2029, and the state net operating losses will begin to expire in 2023. Utilization of federal and state net operating loss carry forwards may be subject to a substantial limitation due to "change
in ownership" provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses before utilization.

Deferred
income tax assets and liabilities are determined based on the differences between financial reporting and income tax bases of assets and liabilities, as well as net operating
loss and credit carry forwards, and are measured using the enacted tax rates and laws in effect when the differences

96

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

21. Income Taxes (Continued)

are
expected to reverse. The significant components of the net deferred tax assets and liabilities are as follows:

December 31,(In thousands)

2009

2008Deferred tax assets:Net operating loss carryforwards

$
28,179

$
770Research and other tax credits


311


Intangible assets


23,612


17,068Deferred revenue


18,528


10,447Reserves and accruals


17,801


5,601Stock compensation


2,316


Other


3,045


3,654Capitalized research and development costs


149


1,659Total deferred tax assets


93,941


39,199Valuation allowance


(83,633
)

(26,001
)Total deferred tax assets

$
10,308

$
13,198Deferred tax liabilities:Plant, property and equipment


(10,308
)

(13,198
)Total deferred tax liabilities

$
(10,308
)
$
(13,198
)Net deferred tax liabilities

$


$



Due
to our lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance. The current year increase in the valuation allowance is
$57.6 million.

During
the fiscal year ended December 31, 2009, we recorded a $0.4 million net increase in our liabilities associated with uncertain tax positions. A reconciliation of our
unrecognized tax benefits, excluding accrued interest and penalties, for 2009 is as follows:

(In thousands)

December 31,
2009Balance at January 1, 2009

$
Increases related to current year tax positions


409Increases related to prior year tax positions


Decreases related to prior year tax positions


Expiration of statute of limitations for the assessment of taxes


Balance at December 31, 2007

$
409


Of
the $0.4 million unrecognized tax benefit, none would affect the effective tax rate if recognized.

Our
policy is to include interest and penalties associated with the unrecognized tax benefits within the provision for income taxes on the consolidated statement of operations. As of
December 31, 2009 and 2008, we had no accrued interest or penalties associated with the underpayment of income taxes. In general, our income tax returns are subject to examination by U.S.
federal, state and various local

97

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2009

21. Income Taxes (Continued)

authorities
for tax years 2008 and forward. We do not anticipate any unrecognized benefits in the next 12 months that would result in a material change to our financial position.

22. Release of Escrow Funds

In the second quarter of 2009, we received $1.0 million from an escrow account that was initially set up by PDL and EKR Therapeutics, Inc. (EKR) under the terms of EKR's
purchase of PDL's former cardiovascular assets in March 2008. In connection with EKR's purchase of the cardiovascular assets, $6.0 million of the purchase price was placed in an
escrow account for a period of one year to cover certain product-return and sales-rebate related costs. Through the term of the escrow agreement, EKR had submitted claims totaling approximately
$5 million against the escrow account, which funds were released to EKR by the escrow agent. The rights and obligations under this escrow agreement were transferred to us upon the
Spin-off and, in April 2009, the remaining escrow funds of $1.0 million were transferred to us. We recognized such amount in interest and other income, net in the second quarter of
2009.

23. Legal Proceedings

From time to time, we may be party to a variety of legal proceedings that arise in the normal course of our business. While the results of these legal proceedings cannot be predicted
with certainty, management believes that the final outcome of currently pending proceedings will not have, individually or in the aggregate, a material adverse effect on our financial position,
results of operations or cash flows.

98

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The
Board of Directors and Stockholders of Facet Biotech Corporation

We
have audited the accompanying consolidated balance sheets of Facet Biotech Corporation as of December 31, 2009 and 2008, and the related consolidated statements of operations,
cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Facet Biotech Corporation at
December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S.
generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Facet Biotech Corporation's internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 23, 2010 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Palo
Alto, California
February 23, 2010

99

---



QUARTERLY FINANCIAL DATA (UNAUDITED)

2009 Quarter Ended(1)(In thousands, except per share data)

December 31

September 30

June 30

March 31Revenues

$
15,103

$
10,848

$
10,551

$
9,599Restructuring charges

$
8,920

$
(1,652
)
$
16,865

$
4,205Net loss

$
(30,734
)
$
(40,915
)
$
(40,849
)
$
(29,172
)Net loss per basic and diluted share

$
(1.27
)
$
(1.70
)
$
(1.71
)
$
(1.22
)


2008 Quarter Ended(1)(In thousands, except per share data)

December 31

September 30

June 30

March 31Revenues

$
6,650

$
4,956

$
1,975

$
4,682Restructuring

$
1,029

$
990

$
2,904

$
5,547Net loss

$
(49,983
)
$
(48,971
)
$
(49,683
)
$
(13,176
)Net loss per basic and diluted share

$
(2.09
)
$
(2.05
)
$
(2.08
)
$
(0.55
)


(1)The
2009 and 2008 amounts were computed independently for each quarter, and the sum of the quarters may not equal the annual amounts due to rounding.


100

---



ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.Under the supervision and with the participation of our management, including our
Chief Executive
Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2009, our disclosure controls and procedures were effective to ensure the information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Management's Annual Report on Internal Control Over Financial Reporting.Facet Biotech, under the supervision and with the
participation of our
management, including our Chief Executive Officer and Chief Financial Officer, is responsible for the preparation and integrity of our Consolidated Financial Statements, establishing and maintaining
adequate internal control over financial reporting and all related information appearing in this Annual Report. We employed the Internal Control-Integrated Framework founded by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on our evaluation under the framework in Internal
Control-Integrated Framework, our management has assessed our internal control over financial reporting to be effective as of December 31, 2009.

Changes in Internal Controls.There were no changes in our internal controls over financial reporting during the quarter ended
December 31,
2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls.A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute,
assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues,
if any, within an organization have been detected. We continue to improve and refine our internal controls and our compliance with existing controls is an ongoing process.

Our
independent registered public accountants, Ernst & Young LLP, audited the consolidated financial statements included in this Annual Report and have issued an audit
report on the effectiveness of our internal control over financial reporting. The report on the audit of internal control over financial reporting appears below, and the report on the audit of the
consolidated financial statements appears in Part II, Item 8 of this Annual Report.

101

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Stockholders of Facet Biotech Corporation

We
have audited Facet Biotech Corporation's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Facet Biotech Corporation's management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit .

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Facet Biotech Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO
criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2009
and 2008, and the related consolidated statements of operations, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2009 of Facet Biotech
Corporation and our report dated February 23, 2010 expressed an unqualified opinion thereon.

/S/ ERNST & YOUNG LLP

Palo
Alto, California
February 23, 2010

102

---





ITEM 9B.    OTHER INFORMATION

Not applicable.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 is incorporated by reference from the information provided under the headings "Members
of the Board of Directors," "Executive Officers," "Audit Committee," "Nominating and Governance Committee," "Code of Ethics," and "Section 16(a) Beneficial Ownership Reporting Compliance" of
the Proxy Statement.

ITEM 11.    EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated by reference from the information provided under the heading
"Compensation Discussion and Analysis," "Executive Officer Compensation," "Compensation of Directors," "Compensation CommitteeCompensation Committee Interlocks and Insider Participation"
and "Report of the Compensation Committee" of the Proxy Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is incorporated by reference from the information provided under the heading "Security
Ownership of Certain Beneficial Owners and Management" of the Proxy Statement and from the information provided under the heading "Equity Compensation Plan Information" in Part II,
Item 5 of this Annual Report.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated by reference from the information provided under the heading "Related
Person Transactions," "Audit CommitteeReview and Approval of Transactions with Related Persons" and "Independence of Directors" of the Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item 14 is incorporated by reference from the information provided under the heading
"Appointment of Independent Registered Public Accounting Firm" of the Proxy Statement.

103

---



PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Our
financial statements and the Report of the Independent Registered Public Accounting Firm are included in Part II, Item 8.



Item

PageConsolidated Balance Sheets


62Consolidated Statements of Operations


63Consolidated Statements of Cash Flows


64Consolidated Statements of Stockholders' Equity


65Notes to Consolidated Financial Statements


66Report of Independent Registered Public Accounting Firm


99


(2)All
financial statement schedules are omitted because the information is inapplicable or presented in our Financial Statements or notes.(3)Index
to Exhibits


Exhibit No.

Exhibit2.1

Separation and Distribution Agreement, dated as of December 17, 2008, by and between Facet Biotech Corporation and PDL BioPharma, Inc. (incorporated by reference to Exhibit 10.1 to Current Report on
Form 8-K filed December 18, 2008)2.2

Amendment No. 1 to Separation and Distribution Agreement, dated January 20, 2009, by and between Facet Biotech Corporation and PDL BioPharma, Inc. (incorporated by reference to Exhibit 2.2 to
Annual Report on Form 10-K filed March 31, 2009)3.1

Amended and Restated Certificate of Incorporation of Facet Biotech Corporation effective August 28, 2008 (incorporated by reference to Exhibit 3.1 to Registration Statement on Form 10-12B/A filed
October 6, 2008)3.2

Certificate of Designation, Preferences and Rights of Series A Preferred Stock, effective September 8, 2009 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed
September 9, 2009)3.3

Bylaws of Facet Biotech Corporation (incorporated by reference to Exhibit 3.2 to Registration Statement on Form 10-12B/A filed October 6, 2008)4.1

Specimen Stock Certificate of Facet Biotech Corporation (incorporated by reference to Exhibit 4.1 to Registration Statement on Form 10-12B/A filed October 27, 2008)4.2

Rights Agreement, effective as of September 7, 2009, between Facet Biotech Corporation and Mellon Investor Services LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to Current Report on
Form 8-K filed September 9, 2009)4.3

Amendment to Rights Agreement, dated as of December 15, 2009, between Facet Biotech Corporation and Mellon Investor Services LLC (incorporated by reference to Exhibit 4.2 to Registration Statement on
Form 8-A filed December 16, 2009)4.4

Amendment No. 2 to Rights Agreement, dated as of December 16, 2009, between Facet Biotech Corporation and Mellon Investor Services LLC (incorporated by reference to Exhibit 4.3 to Registration
Statement on Form 8-A filed December 16, 2009)


104

---



Exhibit No.

Exhibit4.5

Stockholders Agreement, dated December 15, 2009, between Facet Biotech Corporation, and Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., BVF Investments, L.L.C., Investment 10, L.L.C., BVF
Partners L.P., BVF Inc. and Mark N. Lampert (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed December 15, 2009)4.6

Stockholders Agreement, dated December 16, 2009, between Facet Biotech Corporation and The Baupost Group, L.L.C., SAK Corporation and Seth A. Klarman (incorporated by reference to Exhibit 10.1 to Current
Report on Form 8-K filed December 16, 2009)*10.1

2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to Registration Statement on Form 10-12B/A filed October 27, 2008)*10.2

Form of Notice of Grant of Stock Option under the 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to Registration Statement on Form 10-12B/A filed October 6, 2008)*10.3

Form of Stock Option Agreement under the 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to Registration Statement on Form 10-12B/A filed October 6, 2008)*10.4

Forms of Notice of Grant of Restricted Stock Award under the 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to Registration Statement on Form 10-12B/A filed October 6,
2008)*10.5

Form of Restricted Stock Agreement under the 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to Registration Statement on Form 10-12B/A filed October 6, 2008)*10.6

Retention and Severance Plan (incorporated by reference to Exhibit 10.8 to Registration Statement on Form 10-12B/A filed October 27, 2008)*10.7

Agreement to Participate in the Retention and Severance Plan, dated December 1, 2008, by and between Facet Biotech Corporation and Faheem Hasnain (incorporated by reference to Exhibit 10.9 to Annual Report
on Form 10-K filed March 31, 2009)*10.8

Agreement to Participate in the Retention and Severance Plan, dated December 1, 2008, by and between Facet Biotech Corporation and Andrew Guggenhime (incorporated by reference to Exhibit 10.10 to Annual
Report on Form 10-K filed March 31, 2009)*10.9

Agreement to Participate in the Retention and Severance Plan, dated December 1, 2008, by and between Facet Biotech Corporation and Maninder Hora (incorporated by reference to Exhibit 10.11 to Annual Report
on Form 10-K filed March 31, 2009)*10.10

Form of Indemnity Agreement (incorporated by reference to Exhibit 10.9 to Registration Statement on Form 10-12B/A filed November 12, 2008)*10.11

Offer Letter, dated December 1, 2008, by and between Facet Biotech Corporation and Faheem Hasnain (incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K filed March 31,
2009)*10.12

Offer Letter, dated November 13, 2008, by and between Facet Biotech Corporation and Andrew Guggenhime (incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K filed March 31,
2009)*10.13

Offer Letter, dated November 13, 2008, by and between Facet Biotech Corporation and Maninder Hora (incorporated by reference to Exhibit 10.16 to Annual Report on Form 10-K filed March 31,
2009)


105

---



Exhibit No.

Exhibit10.14

Triple Net Space Lease effective July 6, 2006 between Pacific Shores Investors LLC and PDL BioPharma, Inc. (for building located at 1400 Seaport Boulevard, Redwood City, California) (incorporated by
reference to Exhibit 10.10 to Registration Statement on Form 10-12B filed August 13, 2008)10.15

First Amendment to Triple Net Space Lease, dated March 31, 2008, between Facet Biotech Corporation and SRI Eight Pacific Shores LLC (for building located at 1400 Seaport Boulevard, Redwood City, California)
(incorporated by reference to Exhibit 10.23 to Annual Report on Form 10-K filed March 31, 2009)10.16

Second Amendment to Triple Net Space Lease, dated December 18, 2008, among Facet Biotech Corporation, PDL BioPharma, Inc. and SRI Eight Pacific Shores LLC (for building located at 1400 Seaport Boulevard,
 Redwood City, California) (incorporated by reference to Exhibit 10.24 to Annual Report on Form 10-K filed March 31, 2009)10.17

Triple Net Space Lease, effective July 6, 2006, between the Pacific Shores Investors LLC and PDL BioPharma, Inc. (for building located at 1500 Seaport Boulevard, Redwood City, California) (incorporated
by reference to Exhibit 10.11 to Registration Statement on Form 10-12B filed August 13, 2008)10.18

First Amendment to Triple Net Space Lease, dated March 31, 2008, between Facet Biotech Corporation and SRI Eight Pacific Shores LLC (for building located at 1500 Seaport Boulevard, Redwood City, California)
(incorporated by reference to Exhibit 10.26 to Annual Report on Form 10-K filed March 31, 2009)10.19

Second Amendment to Triple Net Space Lease, dated December 18, 2008, among Facet Biotech Corporation, PDL BioPharma, Inc. and SRI Eight Pacific Shores LLC (for building located at 1500 Seaport Boulevard,
 Redwood City, California) (incorporated by reference to Exhibit 10.27 to Annual Report on Form 10-K filed March 31, 2009)10.20

Sublease, effective July 6, 2006, between Openwave Systems Inc. and PDL BioPharma, Inc. (for building located at 1400 Seaport Boulevard, Redwood City, California) (incorporated by reference to
Exhibit 10.12 to Registration Statement on Form 10-12B filed August 13, 2008)10.21

Collaboration Agreement dated as of September 12, 2005 by and between PDL BioPharma, Inc. and Biogen Idec MA Inc. and First Amendment to Collaboration Agreement effective as of November 1, 2007
(incorporated by reference to Exhibit 10.15 to Registration Statement on Form 10-12B/A filed December 4, 2008)10.22

Second Amendment to the Collaboration Agreement effective January 20, 2010, by and between Facet Biotech Corporation and Biogen Idec MA Inc.10.23

License Agreement dated as of December 15, 2005 by and between Protein Design Labs, Inc. and Human Genome Sciences, Inc. (incorporated by reference to Exhibit 10.16 to Registration Statement on
Form 10-12B/A filed December 4, 2008)10.24

Asset Purchase Agreement dated as of February 4, 2008 by and between PDL BioPharma, Inc. and EKR Therapeutics, Inc. and Amendment No. 1 to Asset Purchase Agreement dated as of March 7, 2008
(incorporated by reference to Exhibit 10.17 to Registration Statement on Form 10-12B/A filed December 4, 2008)10.25

Amendment No. 2 to Asset Purchase Agreement, effective October 19, 2009, by and between Facet Biotech Corporation and EKR Therapeutics, Inc.10.26

Collaboration Agreement dated as of August 18, 2008 by and between PDL BioPharma, Inc. and Bristol-Myers Squibb Company (incorporated by reference to Exhibit 10.19 to Registration Statement on
Form 10-12B/A filed December 4, 2008)


106

---



Exhibit No.

Exhibit10.27

Collaboration Agreement dated as of August 27, 2009 by and between Facet Biotech Corporation and Trubion Pharmaceuticals, Inc.(incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
filed November 3, 2009)21.1

Subsidiaries of Facet Biotech Corporation23.1

Consent of Independent Registered Public Accounting Firm31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended32.1

Certification by the Principal Executive Officer and the Principal Financial Officer of Facet Biotech Corporation, as required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as
amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)


*Management
contract or compensatory plan or arrangement.Certain
information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4) and 24b-2.


107

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

FACET BIOTECH CORPORATION (REGISTRANT)By:

/s/ FAHEEM HASNAIN Faheem Hasnain President and Chief Executive Officer
(Principal Executive Officer)Date: February 23, 2010


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/ FAHEEM HASNAIN (Faheem Hasnain)

President and Chief Executive Officer
(Principal Executive Officer)

February 23, 2010/s/ ANDREW L. GUGGENHIME (Andrew L. Guggenhime)

Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

February 23, 2010/s/ HERB C. CROSS (Herb C. Cross)

Corporate Controller
(Principal Accounting Officer)

February 23, 2010/s/ BRADFORD S. GOODWIN (Bradford S. Goodwin)

Director

February 23, 2010/s/ GARY LYONS (Gary Lyons)

Director

February 23, 2010/s/ DAVID R. PARKINSON, M.D. (David R. Parkinson, M.D.)

Director

February 23, 2010/s/ KURT VON EMSTER (Kurt von Emster)

Director

February 23, 2010/s/ HOYOUNG HUH, M.D., PH.D. (Hoyoung Huh)

Director

February 23, 2010


108

---