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

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FORM 10-Q

(Mark one)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2002

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission file number: 000-24207

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

Delaware(State or other jurisdiction of
incorporation or organization)

94-3248826(IRS employer
Identification number)6701 Kaiser Drive, Fremont, CA(Address of principal executive office)

94555(Zip Code)


(510) 608-6500(Registrant's telephone number, including area code)

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

As
of October 31, 2002 there were 87,574,527 shares of the Registrant's Common Stock outstanding.

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TABLE OF CONTENTS

|                              |                                                                                               |                                                                                                                        |    | Page No.
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | -- | --------
|PART I. Financial Information |                                                                                               |                                                                                                                       
|                              | ITEM 1. Financial Statements                                                                  |                                                                                                                        |   
|                              |                                                                                               | Condensed Consolidated Balance Sheets at September 30, 2002 and December 31, 2001                                      |    | 3       
|                              |                                                                                               | Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2002 and 2001 |    | 4       
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001                  |    | 5       
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                   |    | 6       
|                              | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                        | 11
|                              | ITEM 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                        | 45
|                              | ITEM 4. Controls and Procedures                                                               |                                                                                                                        | 46
|PART II. Other Information    |                                                                                               |                                                                                                                       
|                              | ITEM 1. Legal Proceedings                                                                     |                                                                                                                        | 47
|                              | ITEM 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                        | 47
|                              | ITEM 3. Defaults upon Senior Securities                                                       |                                                                                                                        | 47
|                              | ITEM 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                        | 47
|                              | ITEM 5. Other Information                                                                     |                                                                                                                        | 47
|                              | ITEM 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                        | 47
|SIGNATURES                    |                                                                                               | 48                                                                                                                    
|CERTIFICATIONS                |                                                                                               | 49                                                                                                                    

2

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ABGENIX, INC.  CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data)

|                                     |                                                                                                                                                                                   | September 30,
2002         |         | December 31,
2001 |        
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------------- | -------
|
|ASSETS                               |                                                                                                                                                                                  
|Current assets:                      |                                                                                                                                                                                   |                            |         |                   |        
|                                     | Cash and cash equivalents                                                                                                                                                         |                            | $       | 188,668           |        
|                                     | Marketable securities                                                                                                                                                             |                            |         | 274,926           |        
|                                     | Interest receivable                                                                                                                                                               |                            |         | 3,658             |        
|                                     | Accounts receivable, net                                                                                                                                                          |                            |         | 2,596             |        
|                                     | Prepaid expenses and other current assets                                                                                                                                         |                            |         | 20,577            |        
|                                     |                                                                                                                                                                                   |                            |         |                   |        
|                                     |                                                                                                                                                                                   | Total current assets       |         |                   | 490,425
|Property and equipment, net          |                                                                                                                                                                                   |                            | 203,233 |                   |        
|Long-term investments                |                                                                                                                                                                                   |                            | 20,108  |                   |        
|Goodwill, net                        |                                                                                                                                                                                   |                            | 34,780  |                   |        
|Identified intangible assets, net    |                                                                                                                                                                                   |                            | 94,163  |                   |        
|Deposits and other assets            |                                                                                                                                                                                   |                            | 31,794  |                   |        
|                                     |                                                                                                                                                                                   |                            |         |                   |        
|                                     |                                                                                                                                                                                   | $                          | 874,503 |                   | $      
|                                     |                                                                                                                                                                                   |                            |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                                  
|Current liabilities:                 |                                                                                                                                                                                   |                            |         |                   |        
|                                     | Accounts payable                                                                                                                                                                  |                            | $       | 15,893            |        
|                                     | Deferred revenue                                                                                                                                                                  |                            |         | 3,143             |        
|                                     | Accrued liabilities                                                                                                                                                               |                            |         | 13,411            |        
|                                     | Acquisition liabilities                                                                                                                                                           |                            |         | 1,943             |        
|                                     |                                                                                                                                                                                   |                            |         |                   |        
|                                     |                                                                                                                                                                                   | Total current liabilities  |         |                   | 34,390 
|Deferred rent                        |                                                                                                                                                                                   |                            | 3,863   |                   |        
|Convertible subordinated notes       |                                                                                                                                                                                   |                            | 200,000 |                   |        
|Commitments                          |                                                                                                                                                                                   |                            |         |                   |        
|Stockholders' equity:                |                                                                                                                                                                                   |                            |         |                   |        
|                                     | Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none issued or outstanding                                                                                       |                            |         |                  |        
|                                     | Common stock, $0.0001 par value; 220,000,000 shares authorized; 87,456,797 and 86,835,165 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively |                            |         | 9                 |        
|                                     | Additional paid-in capital                                                                                                                                                        |                            |         | 963,258           |        
|                                     | Accumulated other comprehensive income (loss)                                                                                                                                     |                            |         | 2,447             |        
|                                     | Accumulated deficit                                                                                                                                                               |                            |         | (329,464          | )      
|                                     |                                                                                                                                                                                   |                            |         |                   |        
|                                     |                                                                                                                                                                                   | Total stockholders' equity |         |                   | 636,250
|                                     |                                                                                                                                                                                   |                            |         |                   |        
|                                     |                                                                                                                                                                                   | $                          | 874,503 |                   | $      
|                                     |                                                                                                                                                                                   |                            |         |                   |        

See
accompanying notes.

3

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ABGENIX, INC.  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)  (unaudited)

|                                                              |                                                                                   | Three Months Ended
September 30, |         | Nine Months Ended
September 30, |       
|------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------- | ------- | ------------------------------- | ------
|
|Revenues:                                                     |                                                                                   |                                  |         |                                 |       
|                                                              | Contract revenue                                                                  |                                  | $       | 2,635                           |       
|                                                              | Interest and other income                                                         |                                  |         | 5,068                           |       
|                                                              |                                                                                   |                                  |         |                                 |       
|                                                              |                                                                                   | Total revenues                   |         |                                 | 7,703 
|                                                              |                                                                                   |                                  |         |                                 |       
|Costs and expenses:                                           |                                                                                   |                                  |         |                                 |       
|                                                              | Research and development                                                          |                                  |         | 29,570                          |       
|                                                              | Amortization of goodwill                                                          |                                  |         |                                |       
|                                                              | Amortization of identified intangible assets, related to research and development |                                  |         | 1,815                           |       
|                                                              | General and administrative                                                        |                                  |         | 8,945                           |       
|                                                              | Impairment of investments                                                         |                                  |         |                                |       
|                                                              | Interest expense                                                                  |                                  |         | 1,228                           |       
|                                                              |                                                                                   |                                  |         |                                 |       
|                                                              |                                                                                   | Total costs and expenses         |         |                                 | 41,558
|                                                              |                                                                                   |                                  |         |                                 |       
|Net loss                                                      |                                                                                   | $                                | (33,855 | )                               | $     
|                                                              |                                                                                   |                                  |         |                                 |       
|Basic and diluted net loss per share                          |                                                                                   | $                                | (0.39   | )                               | $     
|                                                              |                                                                                   |                                  |         |                                 |       
|Shares used in computing basic and diluted net loss per share |                                                                                   |                                  | 87,395  |                                 |       
|                                                              |                                                                                   |                                  |         |                                 |       

See
accompanying notes.

4

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ABGENIX, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)  (unaudited)

|                                                                            |                                              | Nine Months Ended
September 30,           |         
|--------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | --------
|
|Operating activities                                                        |                                              |                                           |         
|Net loss                                                                    |                                              | $                                         | (170,015
|Adjustments to reconcile net loss to net cash used in operating activities: |                                              |                                           |         
|                                                                            | Depreciation and other amortization          |                                           |         
|                                                                            | Amortization of goodwill                     |                                           |         
|                                                                            | Amortization of identified intangible assets |                                           |         
|                                                                            | Impairment of investments                    |                                           |         
|                                                                            | Changes for certain assets and liabilities:  |                                           |         
|                                                                            |                                              | Interest receivable                       |         
|                                                                            |                                              | Accounts receivable                       |         
|                                                                            |                                              | Prepaid expenses and other current assets |         
|                                                                            |                                              | Deposits and other assets                 |         
|                                                                            |                                              | Accounts payable                          |         
|                                                                            |                                              | Deferred revenue                          |         
|                                                                            |                                              | Accrued liabilities                       |         
|                                                                            |                                              | Deferred rent                             |         
|                                                                            |                                              |                                           |         
|Net cash used in operating activities                                       |                                              |                                           | (98,539 
|                                                                            |                                              |                                           |         
|Investing activities                                                        |                                              |                                           |         
|Purchases of marketable securities                                          |                                              |                                           | (113,939
|Maturities of marketable securities                                         |                                              |                                           | 134,414 
|Sales of marketable securities                                              |                                              |                                           | 99,022  
|Purchases of property and equipment                                         |                                              |                                           | (124,790
|Investment in note receivable                                               |                                              |                                           | (2,750  
|Purchases of long-term investments                                          |                                              |                                           |        
|Payments for acquisition liabilities                                        |                                              |                                           | (215    
|Purchase of intangible assets                                               |                                              |                                           |        
|                                                                            |                                              |                                           |         
|Net cash used in investing activities                                       |                                              |                                           | (8,258  
|                                                                            |                                              |                                           |         
|Financing activities                                                        |                                              |                                           |         
|Net proceeds from issuance of convertible subordinated notes                |                                              |                                           | 194,000 
|Net proceeds from issuances of common stock                                 |                                              |                                           | 1,802   
|Payments on long-term debt                                                  |                                              |                                           |        
|                                                                            |                                              |                                           |         
|Net cash provided by financing activities                                   |                                              |                                           | 195,802 
|                                                                            |                                              |                                           |         
|Net increase (decrease) in cash and cash equivalents                        |                                              |                                           | 89,005  
|Cash and cash equivalents at beginning of period                            |                                              |                                           | 99,663  
|                                                                            |                                              |                                           |         
|Cash and cash equivalents at end of period                                  |                                              | $                                         | 188,668 
|                                                                            |                                              |                                           |         

See
accompanying notes.

5

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ABGENIX, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  September 30, 2002

1.    Basis of Presentation and Summary of Significant Accounting Policies

Basis of PresentationThe unaudited condensed consolidated financial statements of
Abgenix, Inc. (the "Company" or "Abgenix") included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information
or footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements for the year ended December 31,
2001, and accompanying notes included in the Company's Annual Report as filed on Form 10-K with the Securities and Exchange Commission. The results of operations for the three and
nine months ended September 30, 2002, are not necessarily indicative of the results to be expected for the full year or for any other future period.

Revenue RecognitionThe Company receives payments from customers for license, option, service and milestone fees. These
payments are generally non-refundable but are reported as deferred revenue until they are recognizable as revenue. The Company follows the following principles in recognizing revenue:



Net Loss Per ShareBasic net loss per share is calculated based on the weighted average number of shares outstanding during
the period. The impact of common stock options and warrants was

6

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excluded from the computation of diluted net loss per share, as their effect is antidilutive for the periods presented.

Accounting ChangeEffective January 1, 2002, the company completed the adoption of Statement of Financial Accounting
Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after
June 30, 2001, to be accounted for using the purchase method of accounting. As required by SFAS No. 142, the company discontinued amortizing the remaining balances of goodwill as of
January 1, 2002. All remaining and future acquired goodwill will be subject to impairment tests annually, or earlier if indicators of potential impairment exist, using a
fair-value-based approach. All other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." In conjunction with the implementation of SFAS No. 142, the company has completed a goodwill impairment review as of the
beginning of 2002 and found no impairment.

Upon
adoption of the new Business Combination rules, acquired workforce no longer meets the definition of an identified intangible asset. As a result, the net balance of $120,000 has
been reclassified
to goodwill in 2002. During the three and nine months ended September 30, 2002, no goodwill was acquired, impaired or written off.

A
reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization is as follows (in thousands, except per share
amounts):

Three Months Ended
September 30,

Nine Months Ended
September 30,2002

2001

2002

2001Reported net loss

$
(33,855
)
$
(22,641
)
$
(170,015
)
$
(45,071
)Goodwill and workforce amortization





655





1,912Adjusted net loss

$
(33,855
)
$
(21,986
)
$
(170,015
)
$
(43,159
)Reported basic and diluted loss per share

$
(0.39
)
$
(0.26
)
$
(1.95
)
$
(0.52
)Goodwill and workforce amortization





0.01





0.02Adjusted basic and diluted loss per share

$
(0.39
)
$
(0.25
)
$
(1.95
)
$
(0.50
)


Year Ended December 31,2001

2000

1999Reported net loss

$
(60,856
)
$
(8,793
)
$
(20,499
)Goodwill and workforce amortization


2,548


448


Adjusted net loss

$
(58,308
)
$
(8,345
)
$
(20,499
)Reported basic and diluted loss per share

$
(0.71
)
$
(0.11
)
$
(0.35
)Goodwill and workforce amortization


0.03


0.01


Adjusted basic and diluted loss per share

$
(0.68
)
$
(0.10
)
$
(0.35
)


ReclassificationsCertain prior period balances have been reclassified to conform to the current period presentation.

7

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2.    Comprehensive Income (Loss)

Other comprehensive income (loss) consists of unrealized gains or losses on available-for-sale securities. The components of comprehensive
loss were as follows (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2002

2001

2002

2001Net loss

$
(33,855
)
$
(22,641
)
$
(170,015
)
$
(45,071
)Other comprehensive income (loss):Unrealized holding losses arising during period


(1,547
)

(42,595
)

(51,550
)

(22,789
)Less: reclassification adjustment for losses recognized in net loss








65,043


Net unrealized gains (losses) on securities


(1,547
)

(42,595
)

13,493


(22,789
)Comprehensive loss

$
(35,402
)
$
(65,236
)
$
(156,522
)
$
(67,860
)


3.    Identified Intangible Assets

During the three and nine months ended September 30, 2002, no identified intangible assets were acquired, impaired or written off.

Identified
intangible assets as of September 30, 2002 and December 31, 2001 consisted of the following (in thousands):

Gross
Assets

Accumulated
Amortization

NetAs of September 30, 2002:Acquisition-related developed technology

$
106,183

$
14,843

$
91,340Other intangible assets


3,016


193


2,823Identified intangible assets

$
109,199

$
15,036

$
94,163As of December 31, 2001:Acquisition-related developed technology

$
106,183

$
9,546

$
96,637Other intangible assets


3,016


127


2,889Identified intangible assets

$
109,199

$
9,673

$
99,526


Amortization
of acquisition-related intangibles was $1.8 million and $5.3 million, respectively, for the three and nine months ended September 30, 2002, and
$1.4 million and $4.3 million, respectively, for the three and nine months ended September 30, 2001. Amortization of other intangible assets was $46,000 and $139,000,
respectively, for the three and nine months ended September 30, 2002, and $17,000 for the three and nine months ended September 30, 2001. All of the company's acquired identified
intangibles other than goodwill are subject to amortization.

8

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Expected
amortization expense related to identified intangible assets for the three-month period from October 1, 2002, to December 31, 2002, and each of the fiscal years
thereafter is as follows (in thousands):

|                                |  | Periods Ending December 31, |       |  |   |      
|------------------------------- |  | --------------------------- | ----- |  | - | -----
|
|Acquisition-related intangibles |  | $                           | 1,769 |  | $ | 7,076
|Other intangible assets         |  | $                           | 45    |  | $ | 182  

4.    Convertible Subordinated Notes

In March 2002, the Company issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are
convertible into shares of Abgenix common stock at a conversion price of $27.58 per share subject to certain adjustments. The notes accrue interest at an annual rate of 3.5% and the Company is
obligated to pay interest by March 15 and September 15 of each year. The Company made its first payment of $1.8 million on September 11, 2002. The notes will mature on
March 15, 2007, and are redeemable at the Company's option on or after March 20, 2005, or earlier if the price of the Company's common stock exceeds specified levels. In addition, the
holders of the notes may require the Company to repurchase the notes if the Company undergoes a change in control.

5.    Impairment of Investments

The Company purchased an aggregate amount of $80.0 million of common stock of CuraGen Corporation and ImmunoGen, Inc. as strategic investments.
Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the CuraGen and ImmunoGen investments are designated as available-for-sale and
are reported at fair value on the Company's balance sheet. Unrealized holding gains and losses for available-for-sale securities generally are excluded from earnings and
reported as a component of stockholders' equity. However, if a decline in the fair value of available-for-sale securities is judged to be other than temporary, the cost basis
of the security is written down to fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. Under the Company's accounting policy,
marketable equity securities are presumed to be impaired if their fair value is less than their cost basis for more than six months, absent compelling evidence to the contrary. At March 31,
2002, the Company's investments in CuraGen and ImmunoGen common stock had traded below their original cost basis for more than six months, at which time the Company deemed that an impairment of these
investments had occurred. Additionally, at June 30, 2002, these same investments were trading below their March 31, 2002 values, at which time the Company determined that a further
impairment had occurred. Accordingly, the Company recorded impairment charges of $34.7 million and $30.4 million, in the first and second quarters of 2002, respectively, which are
recorded in the Company's results of operations. The amount of the charge in the first quarter was based on the difference between the market price of the securities as of March 31, 2002, and
the Company's original cost basis. The amount of the charge in the second quarter was based on the difference between the market price of these securities as of June 30, 2002, and the Company's
cost basis as of March 31, 2002. At September 30, 2002, the CuraGen investment was trading below its June 30, 2002 values; however, the Company judged that this loss may be
temporary and therefore did not record further impairment charges on the investment. As of September 30, 2002, these investments were recorded at fair value in long-term investments
on the balance sheet, and the net unrealized holding loss of $2.8 million, which reflects the difference between the market price of these securities as of September 30, 2002, and the
Company's cost basis as of June 30, 2002, are reported as a component of stockholders' equity. If the Company deems these investments further impaired at the end of any future period, the
Company may incur an additional impairment charge on these investments.

9

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In
addition, the Company invested $15.0 million in MDS Proteomics Inc., a privately held company, in connection with the Company's collaboration with that company. Because
MDS Proteomics is a private company and its securities are not publicly traded, the value of this investment is inherently more difficult to estimate than an investment in a publicly traded company.
As of June 30, 2002, the Company estimated that the value of its investment had declined to $7.9 million and that an impairment of this investment had occurred. Accordingly, the Company
recorded an impairment charge of $7.1 million in the second quarter of 2002. The amount of the charge in the second quarter was based on the difference between the estimated value as determined
by Abgenix management and the Company's original cost basis. The Company did not record further impairment charges in the third quarter of 2002. As of September 30, 2002, the cost basis of this
investment reflected the new estimated value at June 30, 2002, which is recorded in long-term investments on the balance sheet. If the Company deems its investment in MDS Proteomics
further impaired at the end of any future period, the Company may incur an additional impairment charge on this investment.

6.    Segment Information

The operations of the Company and its wholly owned subsidiaries constitute one business segment.

Revenues
from four customers represented 35%, 31%, 16% and 14%, respectively, of contract revenues for the three months ended September 30, 2002, compared with the same period in
2001, in which three customers represented 49%, 19%, and 17%, respectively, of contract revenues. Revenues from three customers represented 53%, 13% and 11%, respectively, of contract revenues for the
nine months ended September 30, 2002, compared with the same period in 2001, in which three customers represented 49%, 22%, and 10%, respectively, of contract revenues.

7.    Recent Accounting Pronouncement

In June 2002, the Financial Accounting Standards Board issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"), which addresses accounting for restructuring, discontinued operations, plant closing, or other exit or disposal activity. SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002, and earlier adoption is encouraged. The Company adopted SFAS 146 in the fourth quarter of 2002. The Company does not expect the
adoption of SFAS 146 to be significant to the results of operations for the fourth quarter of 2002.

8.    Subsequent EventRestructuring Plan

In October 2002, the Company announced a restructuring plan. The restructuring plan is expected to result in a reduction in force of approximately 15%.
Accordingly, the company anticipates recording a restructuring charge during the fourth quarter of 2002 of approximately $2.0 million, comprised primarily of involuntary termination benefits.

10

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements based upon current expectations that involve risks and uncertainties. In this Quarterly Report on
Form 10-Q, the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and similar expressions as they relate to Abgenix are
included to identify forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those set forth below and under the heading "Additional Factors that Might
Affect Future Results". In this Quarterly Report on Form 10-Q, references to "Abgenix," we," "us," and "our" are to Abgenix, Inc. and its
subsidiaries.

Overview

We are a biopharmaceutical company that develops and intends to commercialize antibody therapeutic products for the treatment of a variety of disease conditions,
including cancer, inflammatory and autoimmune disorders, transplant-related diseases, cardiovascular disease and infectious diseases. We have proprietary technologies that facilitate rapid generation
of highly specific, antibody therapeutic product candidates that contain fully human protein sequences and that bind to disease targets appropriate for antibody therapy. In this Quarterly Report on
Form 10-Q we refer to these candidates as fully human antibody therapeutic product candidates. We developed our XenoMouse® technology, a technology using genetically
modified mice to generate fully human antibodies. We also own a technology that enables the rapid identification of antibodies with desired function and characteristics, referred to as
SLAM technology. In our XenoMax technology, we use SLAM technology to select and isolate antibodies with particular function and characteristics from antibody-producing cells
generated by XenoMouse animals. We believe XenoMax technology enhances our capabilities in product development and flexibility in manufacturing. We intend to use our technologies to build a large and
diversified product portfolio that we expect to develop and commercialize through joint development and licensing arrangements with pharmaceutical companies and others, and through internal product
development programs. We have entered into a variety of contractual arrangements with multiple pharmaceutical, biotechnology and genomics companies involving our XenoMouse and XenoMax technologies.
Two of our customers, Pfizer, Inc. and Amgen, Inc., have initiated clinical trials with fully human antibodies generated from XenoMouse animals. In addition, as of September 30,
2002, we had four proprietary antibody product candidates in clinical trials, one of which we are co-developing with Amgen and Immunex Corp., a wholly-owned subsidiary of Amgen, and one of
which we are co-developing with SangStat Medical Corporation, in each case under joint development and commercialization agreements.

As
of September 30, 2002, we had entered into contracts covering numerous antigen targets with thirty-one customers to use our XenoMouse and XenoMax technologies to
generate and/or develop the resulting fully human antibodies. As of September 30, 2002, we had also entered into one agreement in which we licensed our SLAM technology to one party on a
non-exclusive basis for the purpose of generating and using antibodies other than antibodies derived from XenoMouse technology or other technology that involves the use of
non-human animals, and on a co-exclusive basis for the purpose of antigen discovery. We do not currently intend to license our SLAM technology for use by any other parties.
Pursuant to our XenoMouse contracts, we and our customers intend to generate antibody product candidates for the treatment of cancer, inflammation, autoimmune diseases, transplant rejection,
cardiovascular disease, growth factor modulation, neurological diseases and infectious diseases. Also, with the opening of our manufacturing facility later this year, we plan to enter into contracts
for antibody manufacturing services. We expect that substantially all of our revenues for the foreseeable future will result from payments under these and other contracts. We have also licensed

11

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technology from third parties for use in conjunction with our proprietary technology. The terms of our current contractual arrangements vary, but can generally be categorized as follows:





12

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As
of September 30, 2002, we had four proprietary antibody therapeutic product candidates that were in clinical trials, two of which were being co-developed with
collaborators, as follows:



13

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We
have jointly agreed to develop and commercialize two of these proprietary antibody therapeutic product candidates. We intend to enter into additional joint development agreements for
other product candidates earlier in the product development lifecycle then when we entered into our existing joint development agreements. We will expend significant capital to conduct clinical trials
or share in the costs of conducting clinical trials, for our proprietary product candidates. We expect that this will substantially increase our capital needs over the next few years and increase our
operating losses.

In
addition to our proprietary antibody therapeutic product candidates in clinical trials, there are two customer-developed antibodies generated with XenoMouse technology in clinical
trials as follows:



Results of Operations

Three Months and Nine Months Ended September 30, 2002 and 2001



Contract revenues totaled $2.6 million and $16.1 million, respectively, in the three and nine months ended September 30, 2002, compared to
$4.1 million and $16.6 million, respectively, in the comparable 2001 periods. Because they depend to a large extent on the success or failure of research and development efforts
undertaken by our collaborators and licensees, our period-to-period contract revenues can fluctuate significantly and are inherently difficult to predict. Over the next several
years, we expect revenue from antibody manufacturing services and product development to exceed revenues from technology licenses.

14

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The
primary components of contract revenues for both periods were as follows:









Interest and other income consist primarily of interest from cash, cash equivalents and marketable securities. Interest and other income decreased to
$5.1 million and $15.5 million, respectively, in the three and nine months ended September 30, 2002, compared to $6.3 million and $24.3 million, respectively, in the
same periods in 2001. The decrease was due to lower interest rates and lower average cash, marketable securities and cash equivalent balances. Interest income is expected to decrease in the fourth
quarter of 2002, as average cash balances decrease.

15

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Research and development expenses increased to $29.6 million and $97.5 million, respectively, in the three and nine months ended
September 30, 2002 from $24.4 million and $65.2 million, respectively, in the same periods in 2001. Management separates research and development expenditures into amounts related
to preclinical research and development, amounts related to clinical development programs and amounts related to facilities as follows:





16

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In
the past, we have not tracked our historical research and development costs by project; rather, we have tracked such costs by the type of cost incurred, including costs in the
categories discussed above: preclinical research and development costs, clinical costs and facility costs. For this reason, we cannot accurately estimate with any degree of certainty our historical
costs for any particular research and development project.



Our identified intangible assets consist primarily of existing technology (including patents and certain royalty rights) that we acquired through the acquisitions
of Hesed Biomed Inc. in November 2001, Abgenix Biopharma Inc. (formerly known as ImmGenics Pharmaceuticals, Inc.) and IntraImmune Therapies, Inc. in
November 2000, and the acquisition of JT America's interest in Xenotech in December 1999. Amortization of intangible assets increased to $1.8 million and $5.4 million,
respectively, in the three and nine months ended September 30, 2002, compared to

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$1.5 million and $4.3 million, respectively, in the same periods in 2001. The increase was due to the amortization of the new technology acquired in our acquisition of Hesed Biomed.
Beginning January 1, 2002, upon our adoption of Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible
Assets," we no longer amortize goodwill, but will perform impairment tests annually, or earlier if indications of impairment exist. We have conducted an initial impairment test on our goodwill and
concluded that no impairment charge was required. In the three and nine months ended September 30, 2001, the amortization of goodwill was $655,000 and $1.9 million, respectively. All
other intangible assets will continue to be amortized over their estimated useful lives.



General and administrative expenses include compensation, professional services, consulting and other expenses related to information systems, legal, finance and
human resources and an allocation of facility costs. General and administrative expenses increased to $8.9 million and $22.9 million, respectively, in the three and nine months ended
September 30, 2002, compared to $6.4 million and $14.3 million, respectively, in the same periods in 2001. The primary reason for the increase in 2002 as compared to 2001, was the
increase in consulting and personnel expenses related to our information systems, including the implementation of a new enterprise resource planning system. Another significant reason for the increase
was the depreciation expense related to the enterprise resource planning system, which was launched at the beginning of the third quarter of 2002. For the nine months ended September 30, 2002,
the increase was also due to the rise in legal costs to support the increased activities of Abgenix, including activities related to intellectual property, securities filings, licensing, financing
activities and other contractual matters. Excluding restructuring charges, we expect personnel, consulting, professional services and other administrative costs to approximate the same levels in the
fourth quarter of 2002 as in the third quarter of 2002.



We purchased an aggregate amount of $80.0 million of common stock of CuraGen and ImmunoGen as strategic investments. Under SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the CuraGen and ImmunoGen investments are designated as available-for-sale and are reported at fair value on our balance
sheet. Unrealized holding gains and losses for available-for-sale securities generally are excluded from earnings and reported as a component of stockholders' equity. However,
if a decline in the fair value of available-for-sale securities is judged to be other than temporary, the cost basis of the security is written down to fair value as a new cost
basis and the amount of the write-down is included in earnings as an impairment charge. Under our accounting policy, marketable equity securities are presumed to be impaired if their fair
value is less than their cost basis for more than six months, absent compelling evidence to the contrary. At March 31, 2002, our investments in CuraGen and ImmunoGen common stock had traded
below their original cost basis for more than six months, at which time we deemed that an impairment of these investments had occurred. Additionally, at September 30, 2002, these same
investments were trading below their March 31, 2002 values, at which time we determined that a further impairment had occurred. Accordingly, we recorded impairment charges of
$34.7 million and $30.4 million, in the first and second quarters of 2002, respectively, which are recorded in our results of operations. The amount of the charge in the first quarter
was based on the difference between the market price of the securities as of March 31, 2002, and our original cost basis. The amount of the charge in the second quarter was based on the
difference between the market price of these securities as of June 30, 2002, and our cost basis as of March 31, 2002. At September 30, 2002, the CuraGen investment was trading
below its June 30, 2002 values, however we judged that this loss may be temporary and therefore did not record further impairment charges on the investment. As of September 30, 2002,
these investments were recorded at fair value in long-term investments on the balance sheet, and the net unrealized holding

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loss of $2.8 million, which reflects the difference between the market price of these securities as of September 30, 2002, and our cost basis as of June 30, 2002, are reported as
a component of stockholders' equity. If we deem these investments further impaired at the end of any future period, we may incur an additional impairment charge on these investments.

In
addition, we invested $15.0 million in MDS Proteomics, a privately held company, in connection with the collaboration with that company. Because MDS Proteomics is a private
company and its securities are not publicly traded, the value of our investment is inherently more difficult to estimate than an investment in a publicly traded company. As of September 30,
2002, we estimated that the value of our investment had declined to $7.9 million and that an impairment of our investment had occurred. Accordingly, we recorded an impairment charge of
$7.1 million in the second quarter of 2002. The amount of the charge in the second quarter was based on the difference between the estimated value as determined by our management and our
original cost basis. We did not record further impairment charges in the third quarter of 2002. As of September 30, 2002, the cost basis of this investment reflected the new estimated value at
June 30, 2002, which is recorded in long-term investments on the balance sheet. If we deem the investment in MDS Proteomics further impaired at the end of any future period, we may
incur an additional impairment charge on this investment.



Interest expense consists of interest and amortization of issuance costs on our convertible debt, and interest on our equipment leaseline financing. Interest
expense increased to $1.2 million and $3.7 million, respectively, in the three and nine months ended September 30, 2002, compared to $1,000 and $0.3 million, respectively,
in the same periods ended September 30, 2001. The increase was primarily due to our issuance of $200.0 million of convertible debt in March 2002, which accrues interest at an
annual rate of 3.5% and on which the first interest payment of $1.8 million was made on September 11, 2002. A portion of the debt was used for the construction of our new manufacturing
facility; therefore, $0.6 million of the $1.8 million interest expense was capitalized. For each future quarterly period, we expect to accrue approximately $1.8 million of
interest expense related to our convertible debt until the debt matures, until we redeem or repurchase the debt or until all or part of the debt is converted into shares of our common stock.

Liquidity and Capital Resources

At September 30, 2002, we had cash, cash equivalents and marketable securities of approximately $463.6 million. In March 2002, we received
approximately $194.0 million of net proceeds from our issuance of $200.0 million of convertible debt. We invest our cash equivalents and marketable securities primarily in highly liquid,
interest bearing, investment grade and government securities in order to preserve principal.

Cash Used in Operating Activities.Net cash used in operating activities was $98.5 million and $26.5 million in
the nine months ended September 30, 2002 and 2001, respectively. The increase in cash used in operating activities in the nine months ended September 30, 2002, compared to the same
period in 2001 reflected primarily the following:



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Cash Used in Investing Activities.Net cash used in investing activities was $8.3 million and $107.2 million in
the nine months ended September 30, 2002 and 2001, respectively. Cash was provided by and used in investing activities as follows:



Cash Provided by Financing Activities.During the nine months ended September 30, 2002, net cash provided by financing
activities was $195.8 million, consisting of $194.0 million net proceeds from our issuance of convertible subordinated notes, as described below, and $1.8 million proceeds from
the exercise of stock options and the issuance of stock under our employee stock purchase plan. During the nine months ended September 30, 2001, net cash provided by financing activities was
$2.8 million, consisting of $3.1 million proceeds from the exercise of stock options and the issuance of stock under our employee stock purchase plan, offset by $0.3 million in
payments on long-term debt.

In
March 2002, we issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are convertible into shares of our common stock
at a conversion price of $27.58 per share subject to certain adjustments. The notes accrue interest at an annual rate of 3.5% and we are obligated to pay interest by March 15 and
September 15 of each year. We made our first interest payment of $1.8 million on September 11, 2002. The notes will mature on March 15, 2007, and are redeemable at our
option on or after March 20, 2005, or earlier if the price of our common stock exceeds specified levels. In addition, the holders of the notes may require us to repurchase the notes if we
undergo a change in control. Proceeds from the sale of the notes, net of commissions payable to the initial purchasers of the notes but before subtracting other offering expenses payable by us, were
$194.0 million.

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In March 2000 and February 2001, we obtained stand-by letters of credit for $2.0 million and $3.0 million, respectively, from a commercial bank as
security for our obligations under two facility leases. These were increased in January 2002 to $2.5 and $3.2 million, respectively, in connection with amendments to our facility leases.
In September 2001, we obtained a stand-by letter of credit for 1.0 million Canadian dollars from a commercial bank as security for our obligations under a facility lease in
Canada. The stand-by letters of credit are secured by an investment account, in which we must maintain a $7.0 million balance. Additionally, in 1997 we leased $2.0 million of
our laboratory and office equipment from a financing company. The lease bore interest at approximately 12.5% to 13.0%, and matured in September 2001.

Financing Uncertainties Related to Our Business Plan.We plan to continue to make significant expenditures to establish and
staff our own manufacturing facility and support our research and development activities, including pre-clinical product development and clinical trials. Recently, we also announced that
we are restructuring and reducing our staff, as a result of which we expect to incur a charge of approximately $2.0 million in the fourth quarter of 2002. We will also continue to look for
opportunities to acquire new technology through in-licensing, collaborations or acquisitions. During the fourth quarter of 2002, we estimate that we will spend approximately
$39.5 million on leasehold improvements and equipment for our new manufacturing and research and development facilities. Additionally, during the same period we expect to spend up to
approximately $8.1 million on new computer hardware and software, including additions and enhancements to our new enterprise resource planning system.

We
currently intend to use our available cash on hand to finance these projects and business developments, but we might also pursue other financing alternatives, such as a bank line of
credit, funding by one ore more collaborators or a mortgage financing, that may become available to us. Whether we use cash on hand or choose to obtain financing will depend on, among other things,
the future success of our business, the prevailing interest rate environment and the condition of financial markets generally.

The
amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, which may adversely affect our liquidity and capital resources
to a significant extent. As of September 30, 2002, four of our proprietary product candidates, ABX-EGF ABX-CBL, ABX-MA1 and ABX-IL8, were in
various stages of clinical trials. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and
intended use of a product candidate. We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

Clinical Phase

Estimated
Completion PeriodPhase 1

1-2 YearsPhase 2

1-2 YearsPhase 3

2-4 Years


However,
the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trials, including, among
others, the following:



We
test our potential product candidates in numerous pre-clinical studies to identify disease indications for which they may be product candidates. We may conduct multiple
clinical trials to cover

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a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for one or more indications for a
given product candidate in order to focus our resources on more promising product candidates or indications. For example, in January 2002 and May 2002, we announced that clinical trials
of our proprietary product candidate ABX-IL8 as a treatment for rheumatoid arthritis and psoriasis, respectively, did not support further clinical studies of that product candidate. The
failure of our clinical trials can also result in additional research and development expenses. For example, we recorded a charge of $6.7 million for
the three months ended June 30, 2002, related to our decision in the second quarter of 2002 to wind down our clinical trials of ABX-IL-8.

An
important element of our business strategy is to pursue the research and development of a diverse range of product candidates for a variety of disease indications. We also intend to
enter co-development agreements, similar to our agreements with Immunex and Sangstat, and enter into additional joint development agreements earlier in the development lifecycle of product
candidates than we did in our existing co-development agreements. Our strategy is designed to diversify the risks associated with our research and development spending. As a result, we believe our
future capital requirements and our future financial success are not substantially dependent on any one product candidate. The decision to terminate or wind down our clinical programs for developing
ABX-IL8 has reduced the diversity of our product portfolio. We believe that this effect is temporary, in view of the number of potential product candidates we have in preclinical
development. To the extent, however, that we are unable to maintain a diverse and broad range of product candidates, our dependence on the success of one or a few product candidates would increase.

Our
proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to
subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical
testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but
subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

Furthermore,
our business strategy includes the option of entering into arrangements with third parties to collaborate in the development and commercialization of our products. In the
event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We
cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, or the extent to which third
parties may control clinical trials pursuant to such arrangements, and how such arrangements would affect our capital requirements.

As
a result of the uncertainties discussed above, among others, the duration and completion costs of our research and development projects are difficult to estimate and are subject to
considerable variation. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly
increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue
with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

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We
also may be required to make further substantial expenditures if unforeseen difficulties arise in other parts of our business. In particular, our future liquidity and capital
requirements also will depend on many factors other than our research and development activities, including:



We
believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other agreements will be sufficient to meet our
operating and capital requirements for at least one year. However, because of the uncertainties in our business discussed above, among others, we cannot assure you that this will be the case. In
addition, we may choose to, or prevailing business conditions may require us to, obtain additional financing from time to time. We may choose to raise additional funds through public or private
financing, licensing and other agreements or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any
additional equity or equity-related financing may be
dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants. We may also choose to obtain funding through collaborations, licensing and other contractual
arrangements. Such agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed would harm our
business, financial condition and results of operations.

History of Net Losses.We have incurred net losses in each of the last five years of operation, including net losses of
$35.9 million in 1997, $16.8 million in 1998, $20.5 million in 1999, $8.8 million in 2000, $60.9 million in 2001 and $170.0 million in the nine months ended
September 30, 2002. As of September 30, 2002, our accumulated deficit was $329.5 million. Our losses to date have resulted principally from:



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We
expect to incur additional losses for the foreseeable future as a result of our research and development costs, including costs associated with conducting preclinical development and
clinical trials, charges related to purchases of technology or other assets, and costs associated with establishing our manufacturing facilities. We intend to invest significantly in our products
prior to entering into licensing agreements. This will increase our need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will
fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the execution or termination of licensing and other agreements, and the
initiation, and success or failure, of clinical trials.

Net Operating Loss Carryforwards.As of December 31, 2001, we had federal net operating loss carryforwards of
approximately $189.0 million. Our net operating loss carryforwards exclude losses incurred prior to our formation in July 1996. Further, we have capitalized the amounts associated with
the 1997 settlement and cross-license that have been expensed for financial statement accounting purposes and we are amortizing those amounts over a period of approximately 15 years for tax
purposes. The net operating loss and credit carryforwards will expire in the years 2006 through 2021, if not utilized. Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net
operating losses and credits before utilization.

Critical Accounting Policies

The financial results that we report are impacted by the application of several accounting policies that require us to make subjective and complex judgments. We
are required to estimate the effect of matters that are inherently uncertain. Changes in our estimates or judgments could materially impact our results of operations, financial condition and cash
flows in future years. We believe our most critical accounting policies include revenue recognition, accounting for our equity investments, accounting for goodwill, and accounting for clinical trial
supplies. Our accounting practices are discussed in more detail in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 1 of "Notes to
Consolidated Financial Statements" in our Annual Report on Form 10-K for the year ended December 31, 2001. The discussion below is an update to the disclosure in our Annual
Report on Form 10-K relating to our method of accounting for our equity investments and accounting for clinical trial supplies.



We are exposed to equity price risk on our strategic investments in CuraGen, ImmunoGen and MDS Proteomics and we may elect to make additional similar investments
in the future. As of September 30, 2002, we had a cost basis of $9.6 million in CuraGen common stock, which reflected the public trading price on that date of $4.22 per share. We also
had a cost basis on September 30, 2002, of $2.6 million in ImmunoGen common stock, which reflected the public trading price on that date of $3.24 per share. We typically do not attempt
to reduce or eliminate our market exposure on these types of investments. Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the CuraGen and ImmunoGen
investments are designated as available-for-sale and are reported at fair value on our balance sheet. Unrealized holding gains and losses on
available-for-sale securities generally are excluded from earnings and reported as a component of stockholders' equity. However, if a decline in the fair value of
available-for-sale securities is judged to be other than temporary, the cost basis of the security is written down to fair value as a new cost basis and the amount of the
write-down is included in earnings as an impairment charge. Under our accounting policy, marketable equity securities are presumed to be impaired if their fair value is less than their
cost basis for more than six months, absent compelling evidence to the contrary. We purchased

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$15 million of CuraGen common stock in December 1999 at price of $17.90 per share and $50 million of CuraGen common stock in November 2000 at a price of $34.69 per share.
We purchased $15 million of ImmunoGen common stock in September 2000 at a price of $19.00 per share. At March 31, 2002, our investments in CuraGen and ImmunoGen common stock had
traded below their original cost basis for more than six months at which time we deemed that an impairment of these investments had occurred. Additionally, at June 30, 2002, these same
investments were trading below their March 31, 2002 values, at which time we determined that a further impairment had occurred. Accordingly, we recorded impairment charges of
$34.7 million and $30.4 million, in the first and second quarters of 2002, respectively, which are recorded in our results of operations. The amount of the charge in the first quarter
was based on the difference between the market price of the securities as of March 31, 2002, and our original cost basis. The amount of the charge in the second quarter was based on the
difference between the market price of these securities as of June 30, 2002, and our cost basis as of March 31, 2002. At September 30, 2002, the CuraGen investment was trading
below its June 30, 2002 values, however we judged that this loss may be temporary and therefore did not record further impairment charges on the investment. As of September 30, 2002,
these investments were recorded at fair value in long-term investments on the balance sheet, and the net unrealized holding loss of $2.8 million, which reflects the difference
between the market price of these securities as of September 30, 2002, and our cost basis as of June 30, 2002, is reported as a component of stockholders' equity. The public trading
prices of the shares of both companies have fluctuated significantly since we purchased them and could continue to do so. If these shares continue to trade below their new cost bases in future
periods, we may incur additional impairment charges relating to these investments. The amounts of these charges, if any, will equal our unrealized loss on these securities as of the end of the
relevant periods.

In
addition, we invested $15.0 million in MDS Proteomics, a privately held company, in connection with our collaboration with that company. Because MDS Proteomics is a private
company and its securities are not publicly traded, the value of our investment is inherently more difficult to estimate than an investment in a publicly traded company. As of June 30, 2002, we
estimated that the value of our investment had declined to $7.9 million and that an impairment of our investment had occurred. Accordingly, we recorded an impairment charge of
$7.1 million on our investment in the second quarter of 2002. The amount of the charge in the second quarter was based on the difference between the estimated value as determined by our
management and our original cost basis. We did not record further impairment charges in the third quarter of 2002. As of September 30, 2002, the cost basis of this investment reflected the new
estimated value at June 30, 2002, which is recorded in long-term investments on the balance sheet.

Accounting for Goodwill.

On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses the financial accounting and reporting
standards for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill no longer be amortized, and instead, be tested for impairment on a
periodic basis. We completed a goodwill impairment review as of the beginning of 2002 and found no impairment. Under our accounting policy, we have adopted an annual goodwill impairment test date as
of the beginning of the fourth quarter of 2002. Following this approach, we will use the carrying values available as of September 30, 2002, assess if they have a
potential impairment and complete the measurement of impairment, if required. For a brief period of time during the third quarter, our common stock traded at a price that represented a market
capitalization less than our book value. Should this condition persist for a significant portion of the fourth quarter of 2002, or should the extent of the reduction in the market capitalization
become significant, this condition may signify a potential impairment of our goodwill. If we determine that a potential impairment of our goodwill exists, we will perform the impairment measurement
procedures under SFAS No. 142, which may result in a charge for the impairment of goodwill in the fourth quarter of 2002. As of September 30, 2002, the carrying value of our goodwill was
approximately $34.8 million.

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Accounting for Clinical Trial Supplies.

We pay fees to outside contractors for the manufacture of our antibody therapeutic product candidates. Such fees are capitalized as prepaid expense if management
determines that the clinical trial supplies have alternative future uses in clinical trials for multiple indications of a product candidate and are expensed upon the use of the materials, primarily as
they are used in clinical trials. We would immediately expense previously capitalized costs if the asset were not expected to have an alternative future use, such as use in a clinical trial. In the
second quarter of 2002, as a result of our decision to wind down our clinical trials of ABX-IL-8, we recorded a charge of $6.7 million relating to clinical trial
supplies that we had previously capitalized. As of September 30, 2002, the balance of prepaid clinical trial supplies was $14.7 million. We may incur additional expenses related to
clinical supply writedowns depending on the outcome of ongoing clinical trials.

Contractual Obligations and Commercial Commitments

As of September 30, 2002, future minimum payments for certain contractual obligations for years subsequent to December 31, 2001 were as follows:

|                        |                  | Total |   | 2002    |         | 2003-
2004* |        | 2005-
2006* |   | 2007 and
Thereafter
|----------------------- | ---------------- | ----- | - | ------- | ------- | ----------- | ------ | ----------- | - | -------------------
|
|Contractual Obligations |                  |       |   |         |         |             |        |             |   |                    
|                        | Operating leases |       | $ | 165,856 |         | $           | 10,802 |             | $ | 25,761             
|                        | Convertible debt |       |   | 200,000 |         |             |       |             |   |                   
|                        |                  |       |   |         |         |             |        |             |   |                    
|                        |                  | Total |   | $       | 365,856 |             | $      | 10,802      |   | $                  

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In
March 2002, we issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are convertible into shares of our common stock
at a conversion price of $27.58 per share subject to certain adjustments. The notes accrue interest at an annual rate of 3.5%, and we are obligated to pay interest on March 15 and
September 15 of each year, beginning on September 15, 2002. The notes will mature on March 15, 2007 and are redeemable at our option on or after March 20, 2005, or earlier
if the price of our common stock exceeds specified levels. In addition, the holders of the notes may require us to repurchase the notes if we undergo a change in control. Therefore, in
March 2007, or earlier if we undergo a change in control, we may use a significant portion of our cash balance to repay the $200.0 million principal amount of our convertible debt. If
our cash balance at any time is insufficient to meet our obligations under the notes, we would have to seek additional financing, if available, to support our obligations under the notes. In addition,
we expect to make interest payments on the notes of $5.8 million in 2002, $7.0 million per year for years of 2003 through 2006, and $1.2 million in 2007, assuming all the notes
remain outstanding until their maturity date.

Other
significant commercial commitments include the following:



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Recent Accounting Pronouncement

In June 2002, the Financial Accounting Standards Board issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities", which
addresses accounting for restructuring, discontinued operations, plant closing, or other exit or disposal activity. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002, and earlier adoption is encouraged. We adopted SFAS 146 in the fourth quarter of 2002. We do not expect the adoption of SFAS 146 to be significant to the
results of operations for the fourth quarter of 2002.

Additional Factors That Might Affect Future Results

Risks Related to our Finances

We are an early stage company without commercial therapeutic products, and we cannot assure you that we will develop sufficient revenues in the future to sustain our business.

You must evaluate us in light of the uncertainties and complexities present in an early stage biopharmaceutical company. Our product candidates are in early
stages of development. We will need to make significant additional investments in research and development, preclinical testing and clinical trials, and in regulatory and sales and marketing
activities, to commercialize current and future product candidates. Our product candidates, if successfully developed, may not generate sufficient or sustainable revenues to enable us to be
profitable.

We have a history of losses and we expect to continue to incur losses for the foreseeable future.

We have incurred net losses in each of the last five years of operation, including net losses of $35.9 million in 1997, $16.8 million in 1998,
$20.5 million in 1999, $8.8 million in 2000, $60.9 million in

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2001 and $170.0 million in the nine months ended September 30, 2002. As of September 30, 2002, our accumulated deficit was $329.5 million. Our losses to date have resulted
principally from:



We
expect to incur additional losses for the foreseeable future as a result of our research and development costs, including costs associated with conducting preclinical development and
clinical trials, and charges related to purchases of technology or other assets. We intend to invest significantly in our products prior to entering into licensing agreements. This will increase our
need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of
increases or decreases in our research and development efforts, the execution or termination of licensing and other contractual arrangements, and the initiation, success or failure of clinical trials.

We are currently unprofitable and may never be profitable, and our future revenues could fluctuate significantly.

Prior to June 1996, Cell Genesys owned our business and operated it as a separate business unit. Since that time, we have funded our research and
development activities primarily from private placements and public offerings of our securities and from revenues generated by our licensing and other contractual arrangements.

We
expect that substantially all of our revenues for the foreseeable future will result from payments under licensing and other contractual arrangements and from interest income. To
date, payments under licensing and other agreements have been in the form of option fees, reimbursement for research and development expenses, license fees and milestone payments. Payments under our
existing and any future customer agreements will be subject to significant fluctuation in both timing and amount. Our revenues may not be indicative of our future performance or of our ability to
continue to achieve such milestones. Our revenues and results of operations for any period may also not be comparable to the revenues or results of operations for any other period. We may not be able
to:



Our
failure to achieve any of the above goals would materially harm our business, financial condition and results of operations.

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We may require additional financing, and an inability to raise the necessary capital or to do so on acceptable terms would threaten the continued success of our business.

We will continue to expend substantial resources to support research and development, including costs associated with preclinical development and clinical trials.
In the nine months ended September 30, 2002, we spent $97.5 million on research and development and in the years ended December 31, 2001, 2000 and 1999, we spent
$96.2 million, $50.1 million and $21.1 million, respectively, on research and development. Regulatory and business factors will require us to expend substantial funds in the
course of completing required additional development, preclinical testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will
be necessary to execute our business plan are subject to numerous uncertainties, which may adversely affect our liquidity and capital resources. Our future liquidity and capital requirements will
depend on many factors, including:



We
believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other contractual arrangements, will be sufficient to
meet our operating and capital requirements for at least one year. However, because of the uncertainties in our business, including the uncertainties listed above, we cannot assure you that this will
be the case. In addition, we may choose to obtain additional financing from time to time. We may choose to raise additional funds through public or private financing, licensing and other agreements or
arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be
dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants. We may also choose to obtain funding through licensing and other contractual arrangements. Such
agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed would harm our business, financial
condition and results of operations.

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Our strategic investments expose us to equity price risk and our investments in those companies may be deemed impaired, which would affect our results of operations.

We are exposed to equity price risk on our strategic investments in CuraGen, ImmunoGen and MDS Proteomics, and we may elect to make additional similar investments
in the future. As of September 30, 2002, we had a cost basis of $9.6 million in CuraGen common stock, which reflected the public trading price on that date of $4.22 per share. We also
had a cost basis on September 30, 2002, of $2.6 million of ImmunoGen common stock, which reflected the public trading price on that date of $3.24 per share. We typically do not attempt
to reduce or eliminate our market exposure on these types of investments. Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the CuraGen and ImmunoGen
investments are designated as available-for-sale and are reported at fair value on our balance sheet. Unrealized holding gains and losses on
available-for-sale securities generally are excluded from earnings and reported as a component of stockholders' equity. However, if a decline in the fair value of
available-for-sale securities is judged to be other than temporary, the cost basis of the security is written down to fair value as a new cost basis and the amount of the
write-down is included in earnings as an impairment charge. Under our accounting policy, marketable equity securities are presumed to be impaired if their fair value is less than their
cost basis for more than six months, absent compelling evidence to the contrary. We purchased $15 million of CuraGen common stock in December 1999 at price of $17.90 per share and
$50 million of CuraGen common stock in November 2000 at a price of $34.69 per share. We purchased $15 million of ImmunoGen common stock in September 2000 at a price of
$19.00 per share. At March 31, 2002, our investments in CuraGen and ImmunoGen common stock had traded below their original cost basis for more than six months, at which time we deemed that an
impairment of these investments had occurred and recorded an impairment charge of $34.7 million in our results of operations in the first quarter or 2002. Additionally, at June 30, 2002,
these same investments were trading below their March 31, 2002 values, at which time we determined that a further impairment had occurred and recorded an impairment charge of
$30.4 million on our results of operations in the second quarter or 2002. The amount of the charge in the first quarter was based on the difference between the market price of the securities as
of March 31, 2002, and our original cost basis. The amount of the charge in the second quarter was based on the difference between the market price of these securities as of June 30,
2002, and our cost basis as of March 31, 2002. As of June 30, 2002, the cost basis of these investments reflected the public trading prices on June 30, 2002, which is recorded in
long-term investments on the balance sheet. The public trading prices of the shares of both companies have fluctuated significantly since we purchased them and could continue to do so. If
the public trading prices of these shares continue to trade below their new cost bases in future periods, we may incur additional impairment charges relating to these investments. The amounts of these
charges, if any, will equal our unrealized loss on these securities as of the end of the relevant periods.

In
addition, we invested $15.0 million in MDS Proteomics, a privately held company, in connection with our collaboration with that company. Because MDS Proteomics is a private
company and its securities are not publicly traded, the value of our investment is inherently more difficult to estimate than an investment in a publicly traded company. As of June 30, 2002, we
estimated that the value of our investment had declined to $7.9 million and that an impairment of our investment had occurred. Accordingly, we recorded an impairment charge of
$7.1 million on this investment in the second quarter of 2002. The amount of the charge in the second quarter was based on the difference between the estimated value as determined by our
management and our original cost basis. We did not record further impairment charges in the third quarter of 2002. As of September 30, 2002, the cost basis of this
investment reflected the current estimated value at June 30, 2002, which is recorded in long-term investments on the balance sheet.

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Risks Related to the Development and Commercialization of our Products

Our XenoMouse and XenoMax technologies may not produce safe, efficacious or commercially viable products, which will be critical to our ability to generate revenues from our
products.

Our XenoMouse and XenoMax technologies are new approaches to developing antibodies as products for the treatment of diseases and medical disorders. We have not
commercialized any antibody therapeutic products based on our technologies. Moreover, we are not aware of any commercialized, fully human antibody therapeutic products that have been generated from
any technologies similar to ours. Our antibody therapeutic product candidates are still at an early stage of development. We have initiated clinical trials with respect to three proprietary fully
human antibody therapeutic product candidates, and our collaborators have initiated clinical trials with respect to two other fully human antibody therapeutic product candidates generated by XenoMouse
technology. We cannot be certain that either XenoMouse technology or XenoMax technology will generate antibodies against every antigen to which they are exposed in an efficient and timely manner, if
at all. Furthermore, XenoMouse technology and XenoMax technology may not result in any meaningful benefits to our current or potential customers or in product candidates that are safe and efficacious
for patients. Our failure to generate antibody therapeutic product candidates that lead to the successful commercialization of products would materially harm our business, financial condition and
results of operations.

If we do not successfully develop our products, or if they do not achieve commercial success, our business will be materially harmed.

Our development of current and future product candidates, either alone or in conjunction with collaborators, is subject to the risks of failure inherent in the
development of new pharmaceutical products and products based on new technologies. These risks include:



Because
of these risks, our research and development efforts and those of our customers and collaborators may not result in any commercially viable products. Our failure to successfully
complete a significant portion of these development efforts, to obtain required regulatory approvals or to achieve commercial success with any approved products would materially harm our business,
financial condition and results of operations.

In
addition, our decision in May 2002 to terminate or wind down our clinical programs for developing ABX-IL8 has reduced the diversity of our product portfolio. We
hope to be able to make up for this loss of diversity through the number of potential new product candidates we have in preclinical development. However, to the extent that we are unable to maintain a
broad and diverse

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range of product candidates, our success would depend more heavily on one or a few product candidates.

Before we commercialize and sell any of our product candidates, we must conduct clinical trials, which are expensive and have uncertain outcomes.

Conducting clinical trials is a lengthy, time-consuming and expensive 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 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.

Historically,
the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and
biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may encounter regulatory delays or rejections as
a result of many factors, including changes in regulatory policy during the period of product development.

Four
of our proprietary product candidates, ABX-EGF, ABX-CBL, ABX-MA1 and ABX-IL8, are in clinical trials. Patient follow-up
for these clinical trials has been limited because these trials have been ongoing for a relatively short period of time. To date, data obtained from these clinical trials have been insufficient to
demonstrate safety and efficacy under applicable Food and Drug Administration, or FDA, guidelines. As a result, these data will not support an application for regulatory approval without further
clinical trials. Clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for any of
our product candidates. We expect to commence new clinical trials from time to time in the course of our business as our product development work continues. However, regulatory authorities may not
permit us to undertake any additional clinical trials for our product candidates.

In
addition, we have ongoing research projects that may lead to product candidates, but we have not submitted INDs nor begun clinical trials for these projects. Our preclinical or
clinical development efforts may not be successfully completed, we may not file further INDs and clinical trials may not commence as planned.

Completion
of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product
candidate. However, we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

Clinical Phase

Estimated
Completion
PeriodPhase 1

1-2 YearsPhase 2

1-2 YearsPhase 3

2-4 Years


Many
factors may delay our commencement and rate of completion of clinical trials, including:



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We
have limited experience in conducting and managing clinical trials. We rely on third parties, including our customers, to assist us in managing and monitoring clinical trials. Our
reliance on these third parties may result in delays in completing, or in failure to complete, these trials if the third parties fail to perform under our agreements with them.

Our
product candidates may fail to demonstrate safety or efficacy in clinical trials. Such failure could delay the development of other product candidates or hinder our ability to obtain
additional financing. In addition, failures in our clinical trials can lead to additional research and development charges. Any delays in, or termination of, our clinical trials could materially harm
our business, financial condition and results of operations.

We currently rely on third-party manufacturers, and we may have difficulty conducting clinical trials of our product candidates if a manufacturer does not perform in accordance
with our expectations.

To date we have relied on a single contract manufacturer, Lonza Biologics, to produce ABX-CBL, ABX-IL8 and ABX-EGF under good
manufacturing practice regulations, for use in our clinical trials. We may also rely on other contract manufacturers from time to time to produce our product candidates for use in our clinical trials.
For example, Fred Hutchinson Cancer Research Center produces ABX-MA1 for use in our clinical trials. While our Fremont manufacturing facility is expected to be operational by the end of
2002, thus creating additional capacity, which we will control, we cannot assure you that this facility will open when expected. In November 2000, we entered into a manufacturing supply
agreement with Lonza, under which Lonza is making available exclusively to us, for a period of five years, a cell culture production suite, with associated purification capacity, within Lonza's
facility. The agreement includes an option to extend the initial five-year term. The dedicated cell culture production suite is operational and became available to us in the third quarter
of 2001. Although we have gained access through this agreement to production capacity and scheduling flexibility similar to owning the production capability, Lonza retains responsibility for, and
control over, staffing and operating the facility. In July 2001, we entered into an agreement granting us an option to negotiate an additional manufacturing supply agreement that would have
provided us with additional capacity. In July 2002, after evaluation of our revised capacity needs, we notified Lonza that we had decided not to continue these negotiations.

Lonza
has a limited number of facilities in which it can produce our product candidates and has limited experience in manufacturing them in quantities sufficient for conducting clinical
trials or for commercialization. We currently rely on Lonza to produce our product candidates under good manufacturing practice regulations that meet acceptable standards for our clinical trials.

Third-party
manufacturers may encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified
personnel, compliance with FDA and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls. Our third-party manufacturers may not
perform as agreed or may not remain in the contract manufacturing business for the time required by us to successfully produce and market our product candidates. The failure of our third-party
manufacturers to deliver the required quantities of our product candidates for clinical use on a timely basis and at commercially reasonable prices, and our failure to find replacement manufacturers
or develop our own manufacturing capabilities, would materially harm our business, financial condition and results of operations.

Our own ability to manufacture is uncertain, which may make it more difficult for us to develop and sell our products.

We are building our own manufacturing facility for the manufacture of product candidates for clinical trials and to support the potential early commercial launch
of a limited number of products, in

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each case, in compliance with FDA and European good manufacturing practices. In May 2000, we signed a long-term lease for a building to contain this manufacturing facility.
Construction is nearly completed and we expect this facility to be operational by the end of 2002. The costs of the facility, including design fees, permits, validation, leasehold improvements and
equipment, will approximate $140.0 million. Completion of this facility may take longer than expected, and the planned and actual construction costs of building and qualifying the facility for
regulatory compliance may be higher than expected. In addition, if the commercial launch of one or more of our product candidates proves successful, we will likely need to use one or more third-party
facilities to produce these products in sufficient quantities. The process of manufacturing antibody therapeutic products is complex. We have no experience in the clinical or commercial scale
manufacturing of our existing product candidates, or any other antibody therapeutic products. Also, we will need to manufacture such antibody therapeutic products in a facility and by a process that
comply with FDA, European and other regulations. It may take a substantial period of time to begin producing antibodies in compliance with those regulations. Our manufacturing operations will be
subject to ongoing, periodic unannounced inspection by the FDA and state agencies to ensure compliance with good manufacturing practices. Our inability to establish and maintain a manufacturing
facility within our planned time and cost parameters could materially harm the development and sales of our products and our financial performance.

We
also may encounter problems with the following:



We
continually evaluate our options for commercial production of our antibody therapeutic products, which include use of third-party manufacturers, establishing our own commercial scale
manufacturing facility or entering into a manufacturing joint venture relationship with a third party. We are aware of
only a limited number of companies on a worldwide basis that operate manufacturing facilities in which our product candidates can be manufactured under good manufacturing practice regulations, a
requirement for all pharmaceutical products. It would take a substantial period of time for a contract manufacturing facility that has not been producing antibodies to begin producing antibodies under
good manufacturing practice regulations. We may not be able to contract with any of these companies on acceptable terms, if at all.

In
addition, the FDA and other regulatory authorities will require us to register any manufacturing facilities in which our antibody therapeutic products are manufactured. The FDA and
other regulatory authorities will then subject the facilities to inspections confirming compliance with FDA good manufacturing practice or other regulations. Our failure or the failure of our
third-party manufacturers to maintain regulatory compliance would materially harm our business, financial condition and results of operations.

The successful growth of our business depends to a large extent on our ability to find third-party collaborators to develop and commercialize many of our product candidates.

Our strategy for the development and commercialization of antibody therapeutic products depends, in large part, upon the formation of collaboration agreements
with third parties. Potential third parties include pharmaceutical and biotechnology companies, technology companies, academic institutions and

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other entities. We must enter into these agreements to successfully develop and commercialize product candidates. These agreements are necessary in order for us to:



Our
ability to continue our current collaborations and to enter into additional third party collaborations is dependent in large part on our ability to successfully demonstrate that our
XenoMouse technology is an attractive method of developing fully human antibody therapeutic products. We have generated only a limited number of fully human antibody therapeutic product candidates
pursuant to our collaboration agreements and only five fully human antibody therapeutic product candidates generated with XenoMouse technology have entered clinical testing. We announced in
May 2002 that one of these product candidates has not met our expectations. In addition, our current expectation of the number of INDs to be filed by our collaborators this year is lower than
our previous estimates. Our failure to maintain our existing collaboration agreements or to enter into additional agreements could materially harm our business, financial condition and results of
operations.

Our
dependence on licensing, collaboration and other agreements with third parties subjects us to a number of risks. These agreements may not be on terms that prove favorable to us, and
we typically afford our collaborators significant discretion in electing whether to pursue any of the planned activities. Licensing and other contractual arrangements may require us to relinquish our
rights to certain of our technologies, products or marketing territories. We cannot control the amount or timing of resources our collaborators may devote to the product candidates, and collaborators
may not perform their obligations as expected. Additionally, business combinations or significant changes in a collaborator's business strategy may adversely affect a collaborator's willingness or
ability to complete its obligations under the arrangement. Even if we fulfill our obligations under an agreement, typically our collaborators can terminate the agreement at any time following proper
written notice. The termination or breach of agreements by our collaborators, or the failure of our collaborators to complete their obligations in a timely manner, could materially harm our business,
financial condition and results of operations. If we are not able to establish further collaboration agreements or any or all of our existing agreements are terminated, we may be required to seek new
collaborators or to undertake product development and commercialization at our own expense. Such an undertaking may:



Existing
or potential collaborators may pursue alternative technologies, including those of our competitors, or enter into other transactions that could make a collaboration with us less
attractive to them. For example, if an existing collaborator purchases a company that is one of our competitors, that company could be less willing to continue its collaboration with us. In addition,
a company that has a strategy of purchasing companies with attractive technologies might have less incentive to enter into a collaboration agreement with us. Moreover, disputes may arise with respect
to the ownership of rights to any technology or products developed with any current or future collaborator. Lengthy negotiations
with potential new collaborators or disagreements between us and our collaborators may lead to delays in or termination of the research, development or commercialization of product candidates or
result in time-consuming and expensive litigation or arbitration. The decision by our collaborators to pursue

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alternative technologies or the failure of our collaborators to develop or commercialize successfully any product candidate to which they have obtained rights from us could materially harm our
business, financial condition and results of operations.

We are subject to extensive government regulation, which will require us to spend significant amounts of money, and we may not be able to obtain regulatory approvals, which are
required for us to conduct clinical testing and commercialize our products.

Our product candidates under development are subject to extensive and rigorous domestic government regulation. The FDA regulates, among other things, the
development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. If we market our products
abroad, they will also be subject to extensive regulation by foreign governments. Neither the FDA nor any other regulatory agency has approved any of our product candidates for sale in the United
States or any foreign market. The regulatory review and approval process, which includes preclinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain.
Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish the product candidate's safety and
efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance, and may involve ongoing requirements for
post-marketing studies. Regulatory requirements are subject to frequent change. Delays in obtaining regulatory approvals may:



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 withdraw
any required approvals after we obtain them. We may not maintain compliance with other regulatory requirements. Further, if we fail to comply with applicable FDA and other regulatory requirements at
any stage
during the regulatory process, we or our third-party manufacturers may be subject to sanctions, including:



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In many instances we expect to rely on our customers and co-developers to file INDs and generally direct the regulatory approval process for products derived from our
technologies. These customers and co-developers may not be able to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product
candidates. If they fail to obtain required governmental approvals, we will experience delays in or be precluded from marketing or realizing the commercial benefits from the marketing of products
derived from our technologies. In addition, our failure to obtain the required approvals would preclude the commercial use of our products. Any such delays and limitations may materially harm our
business, financial condition and results of operations.

We
and our third-party manufacturers also are required to comply with the applicable FDA current good manufacturing practice regulations. 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 are subject to inspection by the FDA and
the FDA must approve these facilities before we can use them in commercial manufacturing of our products. We or our third-party manufacturers may not be able to comply with the applicable good
manufacturing practice requirements and other FDA regulatory requirements. The failure of us or our third-party manufacturers to comply with these requirements would materially harm our business,
financial condition and results of operations.

If our products do not gain market acceptance among the medical community, our revenues would greatly decline.

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



Physicians
will not recommend therapies using our products until such time as clinical data or other factors demonstrate the safety and efficacy of such procedures as compared to
conventional drug and other treatments. Even if we establish the clinical safety and efficacy of therapies using our antibody product candidates, physicians may elect not to recommend the therapies
for any number of other reasons, including whether the mode of administration of our antibody 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, will compete with a number of drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products may also compete with new
products currently under development by others. Physicians, patients, third-party payors and the medical community may not accept or utilize any product candidates that we or our customers develop.
The failure of our products to achieve significant market acceptance would materially harm our business, financial condition and results of operations.

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We do not have marketing and sales experience, which may require us to rely on others to market and sell our products and may make it more challenging for us to commercialize
our product candidates.

Although we have been marketing our XenoMouse technology to potential customers and collaborators for several years, we do not have marketing, sales or
distribution experience or capability with respect to our therapeutic product candidates. We intend to enter into arrangements with third parties to market and sell most of our therapeutic product
candidates when we commercialize them, which may be as early as 2005. We may not be able to enter into these marketing and sales arrangements with others on acceptable terms, if at all. To the extent
that we enter into marketing and sales arrangements with other companies, our revenues, if any, will depend on the efforts of others. These efforts may not be successful. If we are unable to enter
into third-party arrangements, we will need to develop a marketing and sales force, which may need to be substantial in size, in order to achieve commercial success for any product candidate approved
by the FDA. We may not successfully develop marketing and sales capabilities or have sufficient resources to do so. If we do develop such capabilities, we will compete with other companies that have
experienced and well-funded marketing and sales operations. Our failure to enter into successful marketing arrangements with third parties and our inability to conduct such activities
ourselves would materially harm our business, financial condition and results of operations.

Risks Related to Our Intellectual Property

Our ability to protect our intellectual property rights will be critically important to the success of our business, and we may not be able to protect these rights in the
United States or abroad.

Our success depends in part on our ability to:



We
will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or
are effectively maintained as trade secrets. We attempt to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. However, the patent position of biopharmaceutical companies involves complex legal and factual questions, and, therefore, we cannot
predict with certainty whether our patent applications will be approved or any resulting patents will be enforced. In addition, third parties may challenge, invalidate or circumvent any of our
patents, once they are issued. Thus, any patents that we own or license from third parties may not provide any protection against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents being issued. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages
against competitors with similar technologies. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.

In
addition to patents, we rely on trade secrets and proprietary know-how. We seek protection, in part, through confidentiality and proprietary information agreements. These
agreements may not provide meaningful protection for our technology or adequate remedies in the event of unauthorized use or
disclosure of confidential and proprietary information, and, in addition, the parties may breach such agreements. Also, our trade secrets may otherwise become known to, or be independently

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developed by, our competitors. Furthermore, others may independently develop similar technologies or duplicate any technology that we have developed.

We may face challenges from third parties regarding the validity of our patents and proprietary rights, or from third parties asserting that we are infringing their patents or
proprietary rights, which could result in litigation that would be costly to defend and could deprive us of valuable rights.

Parties have conducted research for many years in the antibody and transgenic animal fields. The term "transgenic", when applied to an animal, such as a mouse,
refers to an animal that has chromosomes into which human genes have been incorporated. This research has resulted in a substantial number of issued patents and an even larger number of pending patent
applications. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Our commercial
success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Our technologies may unintentionally infringe the patents or
violate other proprietary rights of third parties. Such infringement or violation may prevent us and our customers from pursuing product development or commercialization. Such a result could
materially harm our business, financial condition and results of operations.

In
March 1997, we entered into a cross-license and settlement agreement with GenPharm to avoid protracted litigation. Under the cross-license, we licensed on a
non-exclusive basis certain patents, patent applications, third-party licenses and inventions pertaining to the development and use of certain transgenic rodents, including mice, that
produce fully human antibodies that are integral to our products and business. Our business, financial condition and results of operations could be materially harmed if any of the parties breaches the
cross-license agreement.

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

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

Genentech
owns a U.S. patent that issued in June 1998 relating to inhibiting the growth of tumor cells that involves an antibody that binds to an epidermal growth factor receptor,
or an anti-EGF receptor antibody, in combination with a cytotoxic factor, which is a substance having a toxic effect on cells. ImClone Systems, Inc. owns or is licensed under a U.S.
patent that issued in April 2001, relating to inhibiting the growth of tumor cells that involves an anti-EGF receptor antibody in combination with an anti-neoplastic, or
anti-tumor, agent. We do not believe based on our review that either the Genentech or ImClone patent would be successfully asserted against any planned commercial sales of
ABX-EGF. We believe that currently all of our activities relating to anti-EGF receptor monoclonal antibodies are within the exemption provided by the U.S. patent laws for uses
reasonably related to

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obtaining FDA approval of a drug. We do not expect the scope of our product development plans to change in the future prior to filing an application for a biologic license with the FDA. If a court
determines that the claims of either the Genentech patent or the ImClone patent cover our activities with ABX-EGF and are valid, such a decision may require us to obtain a license to
Genentech's or ImClone's patent, as the case may be, to label and sell ABX-EGF for certain combination therapies. Our failure to obtain a license, or to obtain a license on commercially
reasonable terms, could impede our commercialization of ABX-EGF in the United States.

In
2000, the Japanese Patent Office granted a patent to Kirin Beer Kabushiki Kaisha, one of our competitors, relating to non-human transgenic mammals. Kirin has filed
corresponding patent applications in Europe and Australia. Kirin may also have filed a corresponding patent application in the United States. Our licensee, Japan Tobacco, has filed opposition
proceedings against the Kirin patent. We cannot predict the outcome of those opposition proceedings, which may take years to be resolved.

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



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

Risks Related to Our Industry

We face intense competition and rapid technological change, and if we fail to develop products that keep pace with new technologies and that gain market acceptance, our product
candidates or technologies could become obsolete.

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We are aware of several
pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antibody therapy. These companies have commenced clinical trials of antibody
therapeutic product candidates or have successfully commercialized antibody therapeutic products. Many of these companies are addressing the same diseases and disease indications as we or our
customers are. Also, we compete with companies that offer antibody generation services to companies that have antigens. These competitors have specific expertise or technology related to antibody
development and introduce new or modified technologies from time to time. These companies include GenPharm, a wholly owned subsidiary of Medarex, Inc., Medarex's collaborator, Kirin Brewing
Co. Ltd.; Genmab A/S; Cambridge Antibody

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Technology Group plc; Protein Design Labs, Inc.; MorphoSys AG; Xenerex Biosciences Inc., a subsidiary of Avanir Pharmaceuticals; XLT Biopharmaceuticals Ltd.; and Alexion
Pharmaceuticals, Inc.

Some
of our competitors have received regulatory approval of or are developing or testing product candidates that may compete directly with our product candidates. For example, SangStat,
Novartis AG, Pharmacia Corporation and Roche market organ transplant rejection products that may compete with ABX-CBL, which is in clinical trials. In addition, MedImmune, Inc. has
a potential antibody product candidate in clinical trials for graft versus host disease that may compete with ABX-CBL. We are aware that ImClone, AstraZeneca, plc, Glaxo and a
collaboration of OSI Pharmaceuticals, Inc., Genentech and
Roche have potential antibody and small molecule product candidates in clinical development that may compete with ABX-EGF, which is also in clinical trials. In September 2002, an
FDA advisory panel voted to recommend for approval AstraZeneca's small molecule product candidate Iressa, which may compete with ABX-EGF. Furthermore, we are also aware that AstraZeneca
has received approval for Iressa in Japan for the treatment of advanced non-small cell lung cancer.

Many
of these companies and institutions, either alone or together with their customers, have substantially greater financial resources and larger research and development staffs than we
do. In addition, many of these competitors, either alone or together with their customers, have significantly greater experience than we do in:



Accordingly,
our competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products before we do. If we commence commercial product sales, we will
be competing against companies with greater marketing and manufacturing capabilities, areas in which we have limited or no experience.

We
also face, and will continue to face, competition from academic institutions, government agencies and research institutions. There are numerous competitors working on products to
treat each of the diseases for which we are seeking to develop therapeutic products. In addition, any product candidate that we successfully develop may compete with existing therapies that have long
histories of safe and effective use. Competition may also arise from:



Developments
by competitors may render our product candidates or technologies obsolete or non-competitive. We face and will continue to face intense competition from other
companies for agreements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These
competitors, either alone or with their customers, may succeed in developing technologies or products that are more effective than ours.

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We face uncertainty over reimbursement and healthcare reform, which, if determined adversely to us, could seriously hinder the market acceptance of our products.

In both domestic and foreign markets, sales of our product candidates will depend in part upon the availability of reimbursement from third-party payors, such as
government health administration authorities, managed care providers and private health insurers. Third-party payors are increasingly challenging the price and examining the cost effectiveness of
medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Adequate third-party reimbursement may not be available
to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, domestic and foreign governments continue to propose and pass
legislation designed to reduce the cost of healthcare, which could further limit reimbursement for pharmaceuticals. The failure of the government and third-party payors to provide adequate coverage
and reimbursement rates for our product candidates could adversely affect the market acceptance of our products. The failure of our products to receive market acceptance would materially harm our
business, financial condition and results of operations.

Other Risks Related to Our Company

Our restructuring plan may not achieve the results we intend and may harm our business.

In October 2002, we announced a restructuring plan, which includes a reduction in headcount of approximately 15%. The planning and implementation of our
restructuring has placed, and may continue to place, a significant strain on our managerial, operational and other resources. The restructuring may negatively affect our employee turnover, recruiting
and retention, and may not enable us to reduce our costs to the extent expected.

We may experience difficulty in the integration of any future acquisition with the operations of our business.

We may from time to time seek to expand our business through corporate acquisitions. Our acquisition of companies and businesses and expansion of operations,
involve risks such as the following:



In
addition, our acquisition of companies and businesses and expansion of operations may result in dilutive issuances of equity securities, the incurrence of additional debt, large
one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense or other charges to expense.

The future growth and success of our business will depend on our ability to continue to attract and retain our employees and consultants.

For us to pursue product development, marketing and commercialization plans, we may need to hire additional qualified scientific personnel. We will also need to
hire personnel with expertise in clinical testing, government regulation, manufacturing, marketing and finance. Attracting and retaining qualified personnel will be critical to our success. We may not
be able to attract and retain personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical

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and healthcare companies, universities and non-profit research institutions. Our inability to attract and retain qualified personnel might materially harm our business, financial
condition and results of operations.

We have implemented a stockholder rights plan and are subject to other anti-takeover provisions, which could deter a party from effecting a takeover of us at a
premium to our then-current stock price.

In June 1999, our board of directors adopted a stockholder rights plan, which we amended and restated in November 1999 and May 2002. The
stockholder rights plan and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, control of us. This could limit the price that certain investors might be willing to pay in the future for our common
stock. Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws allow us to:



We
are subject to certain provisions of Delaware law which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203
of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless the transaction
meets certain conditions. The stockholder rights plan, the possible issuance of preferred stock, the procedures required for director nominations and stockholder proposals and Delaware law could have
the effect of delaying, deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block
of our common stock. The provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock.

We face product liability risks and may not be able to obtain adequate insurance, and if we are held liable for an uninsured claim or a claim in excess of our insurance limits,
our business, financial condition and results of operations may be harmed.

The use of any of our product candidates in clinical trials, and the sale of any approved products, may expose us to liability claims resulting from such use or
sale of our products. Consumers, healthcare providers, pharmaceutical companies or others selling such products might make claims of this kind.
We may experience financial losses in the future due to product liability claims. We have obtained limited product liability insurance coverage for our clinical trials, under which the coverage limits
are $10.0 million per occurrence and $10.0 million in the aggregate. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval
for product candidates in development. We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If third parties bring a successful
product liability claim or series of claims against us for uninsured liabilities or in excess of insured liabilities, our business, financial condition and results of operations may be materially
harmed.

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Our operations involve hazardous materials, and we could be held responsible for any damages caused by such materials.

Our research and manufacturing activities involve the controlled use of hazardous materials. In addition, although we maintain insurance for harm to employees and
to our facilities caused by hazardous materials, we do not insure against any other harm (including harm to the environment) caused by the use of hazardous materials on our premises. We cannot
eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed
our financial resources and may materially harm our business, financial condition and results of operations.

We do not intend to pay cash dividends on our common stock.

We intend to retain any future earnings to finance the growth and development of our business and we do not plan to pay cash dividends on our common stock in the
foreseeable future.

Our stock price is highly volatile, and you may not be able to sell your shares of our common stock at a price greater than or equal to the price you paid for them.

The market price and trading volume of our common stock are volatile, and we expect such volatility to continue for the foreseeable future. For example, during
the period between October 1, 2001 and September 30, 2002, our common stock closed as high as $37.46 per share and as low as $5.79 per share. This may impact your decision to buy or sell
our common stock. Factors affecting our stock price include:



If we were deemed to be an investment company, we would become subject to provisions of the Investment Company Act that likely would have a material adverse impact on our
business.

A company is required to register as an investment company under the Investment Company Act of 1940, or the 1940 Act, if, among other things, and subject to
various exceptions:



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A
major portion of our assets has been invested in investment grade interest-bearing securities. Such investments could in some circumstances require us to register as an investment
company under the 1940 Act. Registration under the 1940 Act, or a determination that we failed to register when required to do so, could have a material adverse impact on us. We believe that we are
and will remain exempt from the registration requirements, but absent interpretation by the courts or the SEC of the relevant exemption as applied to companies engaged in research and development,
this result cannot be assured. In addition, a change in our allocation of assets on account of 1940 Act concerns could reduce the rate of return on our liquid assets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk.The objective of our investment activities is to preserve principal, while at the same time maximizing
yields without significantly increasing risk. To achieve this objective, we invest in highly liquid, investment grade and government debt securities. Our investments in debt securities are subject to
interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short-term securities and our goal is to maintain an average maturity of approximately
one year. A hypothetical 1.0% per annum increase in interest rates would result in a decrease in the fair market value of our debt securities of approximately $6.1 million at
September 30, 2002, and approximately $5.6 million at December 31, 2001.

Equity Price Risk.We are exposed to equity price risk on strategic investments, such as those we have made in CuraGen,
ImmunoGen and MDS Proteomics. We typically do not attempt to reduce or eliminate our market exposure on these securities. With respect to CuraGen and ImmunoGen, each of whose common stock is publicly
traded, the market price of these securities was approximately $12.2 million and $64.1 million as of September 30, 2002 and December 31, 2001, respectively. Due to
decreases in the market price, we recorded impairment charges of $34.7 million for the three months ended March 31, 2002, and of $30.4 million for the three months ended
June 30, 2002, related to our investments in CuraGen and ImmunoGen. At September 30, 2002, we experienced a further net unrealized holding loss of $2.8 million, which was reported
as a component of stockholders' equity. The
trading prices of shares of CuraGen and ImmunoGen have fluctuated significantly since we purchased these securities. Each additional 10% decrease in market value of these securities would result in a
decrease in value of approximately $1.2 million from the fair value of those investments at September 30, 2002. Additional price declines could cause us to record additional impairment
charges in future periods.

An
adverse movement of equity market prices generally would also have an impact on the valuation of our non-publicly traded strategic equity securities, such as MDS
Proteomics. Such a movement and the related underlying economic conditions would negatively impact the prospects of any company we invest in, its ability to raise capital and the likelihood of our
being able to realize our investment through liquidity events such as a public offering, merger or private sale. For the three months ended June 30, 2002, we incurred a $7.1 million
charge related to a write-down of our investment in MDS Proteomics, and we may incur future writedowns of these securities. At September 30, 2002, our strategic investment in MDS
Proteomics had a carrying amount of $7.9 million.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures, as that term is defined by Rule 13a-14(c) promulgated under the Securities
Exchange Act of 1934, within 90 days of the filing date of this report, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures
are effective in ensuring that all material information required to be included in this quarterly report on Form 10-Q has been made known to them in a timely fashion.

Changes in Internal Controls

There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their
evaluation, nor were any corrective actions required with regard to significant deficiencies and material weaknesses subsequent to that date.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable.

ITEM 2. Changes in Securities and Use of Proceeds

Not applicable.

ITEM 3. Defaults upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to Vote of Security Holders

Not applicable.

ITEM 5. Other Information

In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are
responsible for disclosing the non-audit services approved by the Audit Committee of Board of Directors to be performed by Ernst & Young LLP, our external auditor.
Non-audit services are services other than those provided in connection with an audit or a review of our financial statements. The Audit Committee has approved engagements of
Ernst & Young LLP for the following non-audit services: (1) tax compliance services for Abgenix, Inc. and its subsidiaries; (2) tax planning services for
Abgenix, Inc. and Abgenix Biopharma; (3) tax consulting services; and (4) accounting consulting services.

ITEM 6. Exhibits and Reports on Form 8-K



|Number |     | Description                                                                          
|------ | --- | -------------------------------------------------------------------------------------
|3.1    | (1) | Amended and Restated Certificate of Incorporation of Abgenix, as currently in effect.
|3.2    | (2) | Amended and Restated Bylaws of Abgenix, as currently in effect.                      
|4.7    |     | Amended and Restated Abgenix, Inc. 1998 Director Option Plan.                        

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We
filed a Form 8-K on August 14, 2002, reporting under Item 9Regulation FD Disclosure, the written certifications that accompanied our Quarterly
Report on Form 10-Q for the period ended June 30, 2002.

We
are filing a Form 8-K on November 14, 2002, reporting under Item 9Regulation FD Disclosure, the written certifications that accompany this
Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements 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.

Dated:
November 14, 2002

| |  | ABGENIX, INC.(Registrant)                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------
| |  | /s/RAYMOND M. WITHYRaymond M. Withy, Ph.D. President and Chief Executive Officer
(Principal Executive Officer)
| |  | /s/KURT LEUTZINGERKurt Leutzinger Chief Financial Officer
(Principal Financial and Accounting Officer)        

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CERTIFICATIONS

I,
Raymond M. Withy, Ph.D., certify that:





Dated:
November 14, 2002

| |  | /s/RAYMOND M. WITHYRaymond M. Withy, Ph.D. President and Chief Executive
Officer
(Principal Executive Officer)
| |  | --------------------------------------------------------------------------------------------------------------

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I,
Kurt Leutzinger, certify that:





Dated:
November 14, 2002

| |  | /s/KURT LEUTZINGERKurt Leutzinger Chief Financial Officer
(Principal Financial and Accounting Officer)
| |  | ------------------------------------------------------------------------------------------------------

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