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

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FORM 10-Q

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(Mark One)

|/x/ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ---------------------------------------------------------------------------------------

For the period ended June 30, 2001

OR

|/ / | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ----------------------------------------------------------------------------------------

Commission file number:000-24207

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

DELAWARE

94-3248826(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification Number)


6701 Kaiser Drive
Fremont, California 94555(Address of principal executive offices)

Telephone Number (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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes /x/  No / /

As
of July 31, 2001 there were 86,156,183 shares of the Registrant's Common Stock outstanding.

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ABGENIX, INC.    Form 10-Q    INDEX

|                             |            | Page No.                                                                                                         
|---------------------------- | ---------- | -----------------------------------------------------------------------------------------------------------------
|PART IFINANCIAL INFORMATION |            | 3                                                                                                                
|                             |            | ITEM 1Financial Statements                                                                                      
|                             |            | Condensed Consolidated Balance SheetsJune 30, 2001 and December 31, 2000                                        
|                             |            | Condensed Consolidated Statements of OperationsThree months and six months ended June 30, 2001 and June 30, 2000
|                             |            | Condensed Consolidated Statements of Cash FlowsSix months ended June 30, 2001 and June 30, 2000                 
|                             |            | Notes to Condensed Consolidated Financial Statements                                                             
|                             |            | ITEM 2Management's Discussion and Analysis of Financial Condition and Results of Operations                     
|                             |            | ITEM 3Quantitative and Qualitative Disclosures about Market Risk                                                
|PART IIOTHER INFORMATION    |            | 32                                                                                                               
|                             |            | ITEM 1Legal Proceedings                                                                                         
|                             |            | ITEM 2Changes in Securities and Use of Proceeds                                                                 
|                             |            | ITEM 3Defaults upon Senior Securities                                                                           
|                             |            | ITEM 4Submission of Matters to a Vote of Security Holders                                                       
|                             |            | ITEM 5Other Information                                                                                         
|                             |            | ITEM 6Exhibits and Reports on Form 8-K                                                                          
|                             | SIGNATURES |                                                                                                                  

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)

|                                                   |                                                                                                                                                                                                 | June 30,
2001              |          | December 31,
2000 |        
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------- | ----------------- | -------
|
|ASSETS                                             |                                                                                                                                                                                                
|Current assets:                                    |                                                                                                                                                                                                 |                            |          |                   |        
|                                                   | Cash and cash equivalents                                                                                                                                                                       |                            | $        | 87,198            |        
|                                                   | Marketable securities                                                                                                                                                                           |                            |          | 488,170           |        
|                                                   | Interest receivable                                                                                                                                                                             |                            |          | 6,062             |        
|                                                   | Accounts receivable                                                                                                                                                                             |                            |          | 3,030             |        
|                                                   | Prepaid expenses and other current assets                                                                                                                                                       |                            |          | 12,740            |        
|                                                   |                                                                                                                                                                                                 |                            |          |                   |        
|                                                   |                                                                                                                                                                                                 | Total current assets       |          |                   | 597,200
|Property and equipment, net                        |                                                                                                                                                                                                 |                            | 36,425   |                   |        
|Long-term investments                              |                                                                                                                                                                                                 |                            | 113,861  |                   |        
|Intangible assets, net of accumulated amortization |                                                                                                                                                                                                 |                            | 114,834  |                   |        
|Deposits and other assets                          |                                                                                                                                                                                                 |                            | 6,781    |                   |        
|                                                   |                                                                                                                                                                                                 |                            |          |                   |        
|                                                   |                                                                                                                                                                                                 | $                          | 869,101  |                   | $      
|                                                   |                                                                                                                                                                                                 |                            |          |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY               |                                                                                                                                                                                                
|Current liabilities:                               |                                                                                                                                                                                                 |                            |          |                   |        
|                                                   | Accounts payable                                                                                                                                                                                |                            | $        | 8,085             |        
|                                                   | Deferred revenue                                                                                                                                                                                |                            |          | 4,330             |        
|                                                   | Accrued product development costs                                                                                                                                                               |                            |          | 1,294             |        
|                                                   | Accrued employee benefits                                                                                                                                                                       |                            |          | 2,334             |        
|                                                   | Other accrued liabilities                                                                                                                                                                       |                            |          | 6,534             |        
|                                                   | Current portion of long-term debt                                                                                                                                                               |                            |          | 31                |        
|                                                   | Acquisition liability                                                                                                                                                                           |                            |          | 1,950             |        
|                                                   |                                                                                                                                                                                                 |                            |          |                   |        
|                                                   |                                                                                                                                                                                                 | Total current liabilities  |          |                   | 24,558 
|Deferred rent                                      |                                                                                                                                                                                                 |                            | 1,149    |                   |        
|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; 86,125,217 and 85,401,548 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively, at amount paid in |                            |          | 912,531           |        
|Additional paid-in capital                         |                                                                                                                                                                                                 |                            | 32,849   |                   |        
|Deferred compensation                              |                                                                                                                                                                                                 |                            | (65      | )                 |        
|Accumulated other comprehensive income/(loss)      |                                                                                                                                                                                                 |                            | 19,101   |                   |        
|Accumulated deficit                                |                                                                                                                                                                                                 |                            | (121,022 | )                 |        
|                                                   |                                                                                                                                                                                                 |                            |          |                   |        
|                                                   |                                                                                                                                                                                                 | Total stockholders' equity |          |                   | 843,394
|                                                   |                                                                                                                                                                                                 |                            |          |                   |        
|                                                   |                                                                                                                                                                                                 | $                          | 869,101  |                   | $      
|                                                   |                                                                                                                                                                                                 |                            |          |                   |        

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 June 30, |         | Six Months Ended June 30, |       
|------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------- | ------- | ------------------------- | ------
|
|Revenues:                                                     |                                                                        |                             |         |                           |       
|                                                              | Contract revenue                                                       |                             | $       | 8,354                     |       
|                                                              | Interest and other income                                              |                             |         | 7,664                     |       
|                                                              |                                                                        |                             |         |                           |       
|                                                              |                                                                        | Total revenues              |         |                           | 16,018
|Costs and expenses:                                           |                                                                        |                             |         |                           |       
|                                                              | Research and development                                               |                             |         | 25,628                    |       
|                                                              | General and administrative                                             |                             |         | 3,131                     |       
|                                                              | Amortization of intangible assets, related to research and development |                             |         | 2,046                     |       
|                                                              | Interest expense                                                       |                             |         |                          |       
|                                                              |                                                                        |                             |         |                           |       
|                                                              |                                                                        | Total costs and expenses    |         |                           | 30,805
|                                                              |                                                                        |                             |         |                           |       
|Net loss                                                      |                                                                        | $                           | (14,787 | )                         | $     
|                                                              |                                                                        |                             |         |                           |       
|Basic and diluted net loss per share                          |                                                                        | $                           | (0.17   | )                         | $     
|                                                              |                                                                        |                             |         |                           |       
|Shares used in computing basic and diluted net loss per
share |                                                                        |                             | 85,947  |                           |       
|                                                              |                                                                        |                             |         |                           |       

See
accompanying notes.

4

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

|                                                                                          |                                             | Six Months Ended June 30,                 |         
|----------------------------------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------- | --------
|
|Operating activities                                                                      |                                             |                                           |         
|Net loss                                                                                  |                                             | $                                         | (22,430 
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                             |                                           |         
|                                                                                          | Depreciation and amortization               |                                           |         
|                                                                                          | Stock options issued to consultants         |                                           |         
|                                                                                          | 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 product development costs         |         
|                                                                                          |                                             | Accrued employee benefits                 |         
|                                                                                          |                                             | Other accrued liabilities                 |         
|                                                                                          |                                             | Deferred rent                             |         
|                                                                                          |                                             |                                           |         
|Net cash provided by (used in) operating activities                                       |                                             |                                           | (14,106 
|                                                                                          |                                             |                                           |         
|Investing activities                                                                      |                                             |                                           |         
|Purchases of marketable securities                                                        |                                             |                                           | (621,174
|Maturities of marketable securities                                                       |                                             |                                           | 658,872 
|Capital expenditures                                                                      |                                             |                                           | (20,148 
|Payments for acquisition liabilities                                                      |                                             |                                           | (71,145 
|Purchases of long-term investments                                                        |                                             |                                           | (15,101 
|                                                                                          |                                             |                                           |         
|Net cash used in investing activities                                                     |                                             |                                           | (68,696 
|                                                                                          |                                             |                                           |         
|Financing activities                                                                      |                                             |                                           |         
|Net proceeds from issuances of common stock                                               |                                             |                                           | 3,043   
|Payments on long-term debt                                                                |                                             |                                           | (285    
|                                                                                          |                                             |                                           |         
|Net cash provided by financing activities                                                 |                                             |                                           | 2,758   
|                                                                                          |                                             |                                           |         
|Net increase (decrease) in cash and cash equivalents                                      |                                             |                                           | (80,044 
|Cash and cash equivalents at the beginning of the period                                  |                                             |                                           | 167,242 
|                                                                                          |                                             |                                           |         
|Cash and cash equivalents at the end of the period                                        |                                             | $                                         | 87,198  
|                                                                                          |                                             |                                           |         

See
accompanying notes.

5

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ABGENIX, INC.    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  June 30, 2001

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, 2000 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 six months ended June 30, 2001
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 licenses, options and services. These payments are
generally non-refundable but are reported as deferred revenue until they are recognizable as revenue. The Company has followed the following principles in recognizing revenue:



Earnings per ShareNet loss per share is based on the weighted average common shares outstanding. Potentially dilutive
securities have been excluded from the computation, as their effect is antidilutive.

6

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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 income/(loss) were as follows (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2001

2000

2001

2000Net income (loss)

$
(14,787
)
$
(2,420
)
$
(22,430
)
$
(5,804
)Increase (decrease) in net unrealized gains on available-for-sale investments


34,637


(7,331
)

19,806


2,727Comprehensive income (loss)

$
19,850

$
(9,751
)
$
(2,624
)
$
(3,077
)


3. Acquisition of Abgenix Biopharma Inc. (formerly known as ImmGenics Pharmaceuticals, Inc.)

In November 2000, the Company acquired all of the voting stock of Abgenix Biopharma Inc. (formerly known as ImmGenics
Pharmaceuticals Inc.), a Canadian biotechnology company. Under the terms of the agreement, Abgenix Biopharma special shares were issued to former common and preferred shareholders and debenture
holders of Abgenix Biopharma. The holders of the Abgenix Biopharma special shares have the right to put their shares to the Company for cash at $4.97 per share. In February 2001, the Company
notified the holders of the special shares that the purchase price would be settled in cash. The put rights will expire on March 31, 2002. As of June 30, 2001, approximately
13.5 million Abgenix Biopharma special shares had been exchanged for $67.0 million and approximately 200,000 special shares were still outstanding.

In
connection with the acquisition, the Company agreed to exchange Abgenix Biopharma stock options held by employees and directors of Abgenix Biopharma for stock options of the
Company, based on an exchange ratio that entitled the holder of each Abgenix Biopharma option to receive a replacement option for Company shares having a total value (less the total exercise price)
not exceeding the total value of Abgenix Biopharma shares underlying the Abgenix Biopharma option (less the total exercise price), as fixed in November 2000 when the Abgenix Biopharma options
were terminated. Replacement options covering a total of 247,155 shares of common stock of the Company were issued in exchange for the Abgenix Biopharma options. The replacement options were fully
vested at the time of the exchange. Pursuant to the Company's stock option plan, the Company also offered the employees and
certain former directors of Abgenix Biopharma a cash buy-out election. As of June 30, 2001, option holders had exercised their cash buy-out rights in respect of options
for 137,073 Company shares pursuant to which a total of $4.1 million in cash was paid. In addition, options representing 84,009 Company shares had been exercised as of that date. As of
August 1, 2001, options for an additional 22,340 shares had been cashed out for $724,286, options covering 3,733 shares had been exercised, and no options remained outstanding.

4. Facility Lease and Letter of Credit

In February 2001, the Company signed an operating lease for an additional facility for research and development activities. The lease expires in
April 2011. As a condition to the lease, the Company provided a stand-by letter of credit for $3.0 million to the lessor as security for the Company's obligations under the
lease. The letter of credit is secured by $3.3 million of cash and marketable securities in an investment account that the Company must maintain for the term of the lease. The investment
account is classified as deposits and other assets on the balance sheet. Future minimum payments under this non-cancelable operating lease are as follows (in thousands):
2001$1,485; 2002$3,049; 2003$3,171; 2004$3,298; 2005$3,430; and $20,732 over the remaining term of the lease.

7

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5. Segment Information

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

Revenue
from three customers represented 62%, 14% and 13% respectively, of contract revenues for the three months ended June 30, 2001, compared with two customers that
represented 86% and 11% respectively, in the same period in 2000. Revenue from three customers represented 49%, 23% and 10%, respectively, of contract revenues for the six months ended June 30,
2001, compared with two customers that represented 75% and 14% respectively, in the same period.

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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. When used 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".

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 transplant-related diseases, inflammatory and autoimmune disorders, cardiovascular disease, infectious diseases and cancer. We have proprietary technologies that facilitate rapid
generation of highly specific, fully human antibody product candidates that bind to disease targets appropriate for antibody therapy. We developed our XenoMouseR technology, a technology
utilizing genetically modified mice. We are also the exclusive licensee of a technology that enables the rapid identification of antibodies with desired function and characteristics, referred to as
SLAM technology. In our newly developed 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 XenoMouse technology to build a
large and diversified product portfolio that we expect to develop and commercialize through licensing arrangements with pharmaceutical companies and others, through joint development 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 technology.
Two of our customers, Pfizer, Inc. and Amgen, Inc., have initiated clinical trials with XenoMouse-generated antibodies. In addition, we have three proprietary antibody product candidates
currently in clinical trials, two of which we have agreed to co-develop and commercialize with others.

As
of June 30, 2001, we had entered into contracts covering numerous antigen targets with twenty-seven customers to use our XenoMouse technology to produce and/or develop the
resulting fully human antibodies. Pursuant to these 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. We expect that substantially all of our revenues for the foreseeable future will
result from payments under these and other contracts. The terms of these arrangements vary, but can generally be categorized as follows:



9

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Our
dependence on contracts with third parties subjects us to a number of risks and uncertainties. Agreements with licensees typically allow the licensees significant discretion in
electing whether to pursue any of the planned activities. We cannot control the amount or timing of resources our licensees may devote to the product candidates. Even if we fulfill our obligations
under an agreement, the licensee can terminate the agreement at any time following proper written notice. If any licensee were to terminate or breach its agreement with us, or otherwise fail to
complete its obligations in a timely manner, our business, financial condition and results of operations may be materially harmed.

We
have three proprietary antibody product candidates that are currently in clinical trials, two of which are now being co-developed with our collaborators, as follows:





10

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We
will expend significant capital to conduct clinical trials for our proprietary product candidates, including several Phase II clinical trials we have initiated or plan to initiate
in 2001. We believe that more extensive clinical data will enable us to enter into additional contractual arrangements related to those proprietary product candidates. We expect that this will
substantially increase our capital needs over the next few years and increase our operating losses. However, we believe that we will be able to receive more favorable proceeds from our contract
parties if we have completed significant development of these products.

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



Internal Development Activities

We intend to build our product portfolio by using our XenoMouse and XenoMax technologies to generate antibodies to antigen targets that we source,
self-funding clinical activities to determine preliminary safety and efficacy, and entering into more development and commercialization agreements with pharmaceutical and biotechnology
companies. We plan to enter into agreements to use our XenoMax technology to assist our licensees and collaborators in isolating antibodies with desired functions and characteristics. These
arrangements may or may not involve joint sharing of costs and profits.

11

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Results of Operations

Three Months and Six Months Ended June 30, 2001 and 2000

Contract revenue totaled $8.4 million and $12.5 million in the three and six-month periods ended June 30, 2001 compared to
$3.5 million and $5.4 million, respectively, in the comparable 2000 periods. The primary components 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 $7.7 million in the three
months ended June 30, 2001 compared to $8.8 million in the same period in 2000. Interest and other income increased to $18.0 million in the six-month period ended
June 30, 2001 compared to $13.1 million in the same period in 2000. Interest and other income in the second quarter of 2001 decreased $2.6 million compared to the first quarter of
2001. The decrease in interest and other income for the three months ended June 30, 2001 compared to the same period one year ago and the decrease in interest and other income sequentially from
the first quarter of 2001 was primarily due to lower cash, marketable securities and cash equivalent balances as well as lower interest rates. The increase in interest and other income for the six
months ended June 30, 2001 compared to the same period in 2000 is the result of higher average balances of our marketable securities and cash equivalents as a result of the investment of
$717.1 million of net proceeds from a follow-on offering in February 2000 and a private placement in November 2000.

12

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Research and development expenses consist primarily of compensation and other expenses related to research and development personnel; costs associated with pre-clinical
testing and clinical trials of our product candidates, including the costs of manufacturing the product candidates; and facilities expenses. Research and development expenses increased to
$25.6 million in the three months ended June 30, 2001 from $11.9 million in the comparable period in 2000 and to $42.4 million in the six months ended June 30, 2001
from $19.1 million in the comparable period in 2000. The increase is primarily due to costs associated with the following:

Amortization
of intangible assets relates to existing technology (including patents and certain royalty rights), goodwill and assembled workforce acquired through the acquisitions of
Abgenix Biopharma and IntraImmune Therapies Inc. in November 2000 and Xenotech in December 1999. As a result of the acquisitions in 2000, amortization increased to
$2.0 million in the three months ended June 30, 2001 from $0.8 million in the comparable period in 2000 and to $4.1 million in the six months ended June 30, 2001
from $1.6 million in the comparable period in 2000.

General
and administrative expenses include compensation and other expenses related to finance and administrative personnel, professional services and facilities. General and
administrative expenses increased to $3.1 million in the three months ended June 30, 2001 from $1.8 million in the comparable period in 2000 and to $6.2 million in the six
months ended June 30, 2001 from $3.4 million in the comparable period in 2000. The increase reflects increased personnel costs, including recruiting costs and incentive compensation and
additional consulting costs associated with our Information Services group. The increase is also related to the acquisition of Abgenix Biopharma. We expect personnel costs to increase further as we
continue to build our organization, including consulting costs associated with new information systems.

13

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Liquidity and Capital Resources

At June 30, 2001, we had cash, cash equivalents and marketable securities of approximately $575.4 million. We invest our cash equivalents and
marketable securities in highly liquid, interest bearing, investment grade and government securities in order to preserve principal.

Net
cash used in operating activities was $14.1 million for the six months ended June 30, 2001, and net cash provided by operating activities was $1.4 million for
the six months ended June 30, 2000. The increased use of cash in operations reflects primarily our increased funding of research and development and manufacturing costs related to the
development of new products. Total research and development expenses increased $23.3 million in the six months ended June 30, 2001 from the comparable period in 2000. Also affecting the
increased use of cash in operations in the six months ended June 30, 2001, was the timing of customer payments. Customers provided cash of $10.3 million in the six months ended
June 30, 2001 in comparison to $17.8 million in the six months ended June 30, 2000, both net of the change in accounts receivable and deferred revenue. Additionally, cash was used
in the six months ended June 30, 2001 for a security deposit related to a new facility lease. Partially offsetting the increased use of cash was interest income. Cash provided by interest
income was $21.6 million in the six months ended June 30, 2001 in comparison to $8.3 million in the six months ended June 30, 2000, both net of the change in interest
receivable.

Net
cash used in investing activities was $68.7 million and $389.0 million for the six months ended June 30, 2001, and June 30, 2000, respectively. For the
six months ended June 30, 2001, we received cash from our investment activities as certain of our marketable securities matured in comparison to the six months ended June 30, 2000, in
which cash received from our follow-on public offering in February 2000 was invested in marketable securities. Cash was also used in the six months ended June 30, 2001, as
follows: $67.0 million to the holders of Abgenix Biopharma special shares in connection with our acquisition of Abgenix Biopharma; $4.1 million for the buy-out of certain
stock options issued in connection with the Abgenix Biopharma acquisition; $20.1 million for the acquisition of property and equipment, primarily leasehold improvements related to our new
facility and computer equipment; and $15.0 million for an equity investment in MDS Proteomics Inc. In the six months ended June 30, 2000, $1.7 million was spent on property
and equipment, primarily leasehold improvements related to our new facility and computer equipment.

During
the six months ended June 30, 2001, net cash provided by financing activities was $2.8 million, consisting of proceeds from the exercise of stock options. This
activity compares to the six months ended June 30, 2000, in which net cash provided by financing activities was $498.8 million, consisting primarily of the proceeds of our
follow-on public offering in February 2000, in which we raised $496.5 million. In addition to this funding, in 2000 we received $3.8 million from the exercise of
warrants and stock options and proceeds from the issuance of stock under our employee stock purchase plan.

In
March 2000 and February 2001, we obtained stand-by letters of credit for $2.0 and $3.0 million, respectively, from a commercial bank as security
for our obligations on the leases on our two new leased facilities. The stand-by letters of credit are secured by an investment account, in which we must maintain a $5.5 million
balance. Additionally, in 1997 we leased $2.0 million of our laboratory and office equipment from a financing company. The lease term is 48 months. The lease bears interest at
approximately 12.5%, and matures in September 2001. We also had a construction financing line with a bank in the amount of $4.3 million that was used to finance construction of leasehold
improvements at our first facility. The line was paid off in May 2000.

We
plan to continue to make significant expenditures to establish our own manufacturing facility and expand our research and development activities, including pre-clinical
product development and clinical trials. We will also continue to look for new technology suppliers as potential acquisitions or alliance collaborators. Over the next eighteen months, we estimate that
we will spend approximately

14

---

$180.0-$200.0 million on leasehold improvements and equipment for our new manufacturing and research and development facilities. Additionally, we expect to spend approximately
$10.0-$20.0 million on new computer hardware and software, including the acquisition of a new enterprise resource planning system. We also plan to spend significant amounts to
develop, on a proprietary or co-developed basis, investigational new drug applications (INDs) for up to three product candidates annually, beginning in 2002. We believe that the annual
goals of our customers and collaborators for 2002 and beyond include up to five INDs for additional product candidates based on our XenoMouse technology. If unforeseen difficulties arise in the course
of developing product candidates, obtaining needed licenses, manufacturing product candidates, performing pre-clinical development and clinical trials of such product candidates, obtaining
necessary regulatory approvals, or in other aspects of our business, we may be required to make further substantial expenditures. 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 contractual agreements will be sufficient to meet our
operating and capital requirements for at least one year. 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 contractual agreements or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us. Furthermore, any additional equity
financing may be dilutive to our shareholders, and debt financing, if available, may involve restrictive covenants. We may also choose to obtain funding through licensing and other contractual
agreements. 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.

We
have incurred net losses in each of the last five years of operation, including net losses of $7.1 million in 1996, $35.9 million in 1997, $16.8 million in
1998, $20.5 million in 1999, $8.8 million in 2000 and $22.4 million in the six months ended June 30, 2001. As of June 30, 2001, our accumulated deficit was
$121.0 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 increases in our research and development costs, including costs associated with conducting
pre-clinical development and clinical trials, and 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 may increase our need for capital and will result in losses for 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
contractual agreements, and the initiation, success or failure of clinical trials.

As
of December 31, 2000, we had federal net operating loss carryforwards of approximately $148.0 million. Our net operating loss carryforwards exclude losses incurred
prior to our formation in July 1996. Further, the amounts associated with the 1997 cross-license and settlement that have been expensed for financial statement accounting purposes have been
capitalized and are being amortized over a period of approximately 15 years for tax purposes. The net operating loss and credit carryforwards will expire in the years 2011 through 2020, 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.

ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS

Risks Related to the Development and Commercialization of our Products

Our XenoMouse and XenoMax technologies may not produce safe, efficacious or commercially viable products.

Our XenoMouse and XenoMax technologies are new approaches to the generation of antibody therapeutic products. We have not commercialized any antibody 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
product candidates are still at an early stage of development. Clinical trials have begun with respect to only three fully human antibody 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. If our technologies fail to generate antibody product candidates that lead to the successful development and commercialization of products, our business, financial condition and results of
operations will be materially harmed.

Successful development of our products is uncertain.

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:



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Because
of these risks, our research and development efforts and those of our customers and collaborators may not result in any commercially viable products. If a significant portion
of these development efforts is not successfully completed, required regulatory approvals are not obtained or any approved products are not commercially successful, our business, financial condition
and results of operations will be materially harmed.

Clinical trials for our product candidates will be expensive and their outcome is uncertain.

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 pre-clinical testing and clinical trials that our product candidates are safe and effective for use in humans. We will incur substantial expense for, and devote a
significant amount of time to, pre-clinical testing and clinical trials.

Historically,
the results from pre-clinical 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 pre-clinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory
delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

As
of June 30, 2001 three of our proprietary product candidates, ABX-CBL, ABX-IL8 and ABX-EGF, were in clinical trials. Patient
follow-up for these clinical trials has been limited. To date, data obtained from these clinical trials has been insufficient to demonstrate safety and efficacy under applicable Federal
Drug Administration, or FDA, guidelines. As a result, this data will not support an application for regulatory approval without further clinical trials. Clinical trials conducted by us or by third
parties on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for ABX-CBL, ABX-IL8, ABX-EGF or any other
potential product candidates. Regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates.

In
addition, our other product candidates are in pre-clinical development, but we have not submitted investigational new drug applications nor begun clinical trials for
these product candidates. Our pre-clinical or clinical development efforts may not be successfully completed, we may not file further investigational new drug applications 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. Our commencement and rate of completion of clinical trials may be delayed by many factors, 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 and efficacy in clinical trials. This failure may delay development of other product candidates and hinder our ability to conduct
related pre-clinical testing and clinical trials. As a result of these failures, we may also be unable to obtain additional financing. Any delays in, or termination of, our clinical trials
could materially harm our business, financial condition and results of operations.

We currently rely on a sole source third-party manufacturer.

We currently rely, and will continue to rely for at least the next five years, on a single contract manufacturer, Lonza Biologics (Lonza), to produce
ABX-CBL, ABX-IL8 and ABX-EGF under good manufacturing practice regulations, for use in our clinical trials. In December 2000, we entered into a manufacturing
supply agreement with Lonza, under which Lonza will make available exclusively to us, for a period of five years, a cell culture production suite, with associated purification capacity, within Lonza's
facility. As a result of this agreement, we expect to gain access to production capacity and scheduling flexibility similar to owning the production capability, while Lonza retains responsibility for
staffing and operating the facility. The term of the agreement is five years with an option to extend the term. The dedicated cell culture production suite is being refurbished and is expected to be
operational and available to us in the third quarter of 2001. Lonza has a limited number of facilities in which our product candidates can be produced and has limited experience in manufacturing
ABX-CBL, ABX-IL8 and ABX-EGF 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, which 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 regulations, production costs, and development of advanced manufacturing techniques and process controls. Our third-party manufacturer 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. If our third-party manufacturer fails to deliver the required
quantities of our product candidates for clinical use on a timely basis and at commercially reasonable prices, and we fail to find a replacement manufacturer or develop our own manufacturing
capabilities, our business, financial condition and results of operations will be materially harmed.

Our own ability to manufacture is uncertain.

We are building our own manufacturing facility for the manufacture of products for clinical trials and early commercial launch, in compliance with FDA good
manufacturing practices. In May 2000, we signed a long-term lease for a building to contain this manufacturing facility. Construction has started and this facility is expected to be
operational by year-end 2002. The costs of the facility, including design, leasehold improvements and equipment, will approximate $140 million. Construction 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. The process of

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manufacturing antibody products is complex. We have no experience in the clinical or commercial scale manufacturing of ABX-CBL, ABX-IL8 and ABX-EGF, or any other
antibody products. Such antibody products will also need to be manufactured in a facility and by a process that comply with FDA and other regulations. It may take a substantial period of time to begin
producing antibodies in compliance with such 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. If we are unable to establish and maintain a manufacturing facility within our planned time and cost parameters, the development and sales of our products and our
financial performance may be materially harmed.

We
also may encounter problems with the following:



We
are currently evaluating our options for commercial production of our antibody 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 who operate manufacturing
faclilities 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, we and any third-party manufacturer will be required to register with the FDA and other regulatory authorities any manufacturing facilities in which our antibody products
are manufactured. The facilities will then be subject to inspections confirming compliance with FDA good manufacturing practice or other regulations. If we or any of our third-party manufacturers fail
to maintain regulatory compliance, our business, financial condition and results of operations will be materially harmed.

We will need to find third parties to license and develop 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, academic institutions and other entities. We must enter into these agreements to successfully develop
and commercialize product candidates. These agreements are necessary in order for us to:



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Only
a limited number of fully human antibody product candidates have been generated pursuant to our collaboration agreements, and only four antibody product candidates generated with
XenoMouse technology have entered clinical testing. These product candidates may not result in commercially successful products. Current or future collaboration agreements may not be successful. If we
fail to maintain our existing collaboration agreements or to enter into additional agreements, our business, financial condition and results of operations could be materially harmed.

Our
dependence on licensing 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
collaborators typically are afforded significant discretion in electing whether to pursue any of the planned activities. Licensing and other contractual agreements 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. If any of our collaborators were to terminate or breach our agreement, or otherwise fail to complete its obligations in a timely manner, our business, financial condition and results
of operations may be materially harmed. 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 future collaborators may pursue alternative technologies, including those of our competitors. 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 or termination
in the research, development or commercialization of product candidates or result in time-consuming and expensive litigation or arbitration. If any of our collaborators pursue alternative
technologies or fail to develop or
commercialize successfully any product candidate to which they have obtained rights from us, our business, financial condition and results of operations may be materially harmed.

We do not have marketing and sales experience.

We do not have marketing, sales or distribution experience or capability. For certain products, we may establish an internal marketing and sales force. We
intend to enter into arrangements with third parties to market and sell most of our products. We may not be able to enter into 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, then we must 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. If we fail to establish successful marketing and sales capabilities or fail to enter into successful
marketing arrangements with third parties, our business, financial condition and results of operations will be materially harmed.

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We are subject to extensive government regulation and we may not be able to obtain regulatory approvals.

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 our products are
marketed abroad, they also are subject to extensive regulation by foreign governments. None of our product candidates has been approved for sale in the United States or any foreign market. The
regulatory review and approval process, which includes pre-clinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain. Securing FDA approval
requires the submission of extensive pre-clinical and clinical data and supporting information to the FDA for each indication to establish the product candidates' 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 to an approved product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. Any required approvals,
once obtained, may be withdrawn. Compliance with other regulatory requirements may not be maintained. 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:



We
expect to rely on our customers to file investigational new drug applications and generally direct the regulatory approval process for many of our products. Our customers may not
be able to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. If we fail to obtain required governmental approvals, our
customers will experience delays in or be precluded from marketing products developed through our research. In addition, the commercial use of our products will be precluded. Delays and limitations
may materially harm our business, financial condition and results of operations.

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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. These facilities must be approved 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. If we or our third-party manufacturers fail to comply, our business, financial condition and results of operations will be
materially harmed.

Market acceptance of our products is uncertain.

Our product candidates may not gain market acceptance among physicians, patients, healthcare 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 the clinical safety and efficacy of therapies using our antibody products is established, 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. For example, antibody products 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 and utilize any product candidates that we or our customers develop. If our products do not achieve significant market acceptance, our business, financial condition and
results of operations will be materially harmed.

Risks Related to our Finances

We are an early stage company.

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 require significant additional investment in research and development, pre-clinical testing and clinical trials, and 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.

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We have a history of losses.

We have incurred net losses in each of the last five years of operation, including net losses of $7.1 million in 1996, $35.9 million in 1997,
$16.8 million in 1998, $20.5 million in 1999, $8.8 million in 2000 and $22.4 million in the six months ended June 30, 2001. As of June 30, 2001, our
accumulated deficit was $121.0 million. Our losses to date have resulted principally from:



We
expect to incur additional losses for the foreseeable future as a result of increases in our research and development costs, including costs associated with conducting
pre-clinical 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 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 contractual agreements, and the initiation, success or failure of
clinical trials.

Our future profitability is uncertain.

Prior to June 1996, our business was owned by Cell Genesys, Inc. and operated as a business unit of Cell Genesys. 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 contractual agreements.

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:



If
we fail to achieve any of the above goals, our business, financial condition and results of operations will be materially harmed.

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We may require additional financing.

We will continue to expend substantial resources for the expansion of research and development, including costs associated with conducting
pre-clinical development and clinical trials. We will be required to expend substantial funds in the course of completing required additional development, pre-clinical testing
and clinical trials of and regulatory approval for product candidates. 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 contractual agreements will be sufficient to meet our
operating and capital requirements for at least one year. 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 contractual agreements or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us. Furthermore, any additional equity
financing may be dilutive to our shareholders, and debt financing, if available, may involve restrictive covenants. We may also choose to obtain funding through licensing and other contractual
agreements. 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.

Risks Related to our Intellectual Property

Our patent position is uncertain and our success depends on our proprietary rights.

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 own six issued patents in the United States, one granted patent in Europe, and three granted patents in Japan, and we have several pending patent
applications in the

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United States and abroad, each of which relates to XenoMouse technology and products generated by it. Our wholly owned subsidiary, Xenotech, owns two issued U.S. patents, one Australian patent, and
several pending U.S. and foreign patent applications related to methods of treatment of bone disease in cancer patients. Our wholly owned subsidiary, Abgenix Biopharma, is exclusively licensed under
one issued U.S. patent and one pending patent application in Canada and Europe relating to the Selected Lymphocyte Antibody Method ("SLAM") technology. Our wholly owned subsidiary, IntraImmune
Therapies, is licensed under patents and pending applications in the United States and in Europe related to intrabody technology. In addition, we have seven issued U.S. patents and several pending
patent applications in the United States and abroad that are jointly owned with Japan Tobacco relating to antibody technology or genetic manipulation. 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, enforceability cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or
circumvented. 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 or adequate remedies for our technology 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 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.

Research has been conducted for many years in the antibody and transgenic animal fields. This has resulted in a substantial number of issued patents and an
even larger number of pending patent applications. 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. In the event of such infringement or violation, we and our customers may be prevented 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 International, Inc. 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.

We
have one granted European patent relating to XenoMouse technology that is currently undergoing opposition proceedings within the European Patent Office and the outcome of this
opposition is uncertain.

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GlaxoSmithKline, plc ("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, commercialization of one or more of our products could be impeded in any territories in which these claims were in force.

Genentech, Inc.
owns a U.S. patent that issued in June 1998 relating to inhibiting the growth of tumor cells that involves an anti-EGF receptor antibody in
combination with a cytotoxic factor. ImClone Systems, Inc. owns or is licensed under a U.S. patent that issued in April 2001, relating to inhibiting the growth of tumor cells that
involves an anti-EGF receptor antibody in combination with an anti-neoplastic agent. We believe there are strong arguments that all claims of both the Genentech patent and the
ImClone patent are invalid. We are continuing to analyze the scope of these patents. We believe that currently all of the Company's activities relating to anti-EGFr monoclonal antibodies
are within the exemption provided by the U.S. patent laws for uses reasonably related to obtaining FDA approval of a drug. Based on our product development plans, we do not expect the scope of our
activities in this regard to change in the future prior to filing an application for a biologic license with the FDA. If the claims of either the Genentech patent or the ImClone patent are judicially
determined to cover our activities with ABX-EGF and are held valid, we may be required to obtain a license to Genentech's or ImClone's patent, as the case may be, to label and sell
ABX-EGF for some or all such combination indications. Should a license be denied or unavailable on commercially reasonable terms, our commercialization of ABX-EGF could be
impeded 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. We are analyzing the patent to determine its relevance to our
business and if appropriate will analyze the scope and validity of its claims.

The
biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual property rights. 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:



If
we become involved in any litigation, interference or other administrative proceedings, we could incur substantial expense and the efforts of our technical and management personnel
could be significantly diverted. An adverse determination may subject us to loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available
from third parties. We may be restricted or prevented from manufacturing and selling our products, if any, in the event of an adverse determination in a judicial or administrative proceeding or if we
fail to obtain necessary

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licenses. 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.

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
product candidates or have successfully commercialized antibody products. Many of these companies are addressing the same diseases and disease indications as us or our customers. 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 International, Inc., a wholly-owned subsidiary of Medarex, Inc.; Medarex's joint venture partner, Kirin Brewing
Co., Ltd.; Cambridge Antibody Technology Group plc; Protein Design Labs, Inc.; and MorphoSys AG.

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 Medical Corp., Novartis, 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 also aware that several companies,
including Genentech, Inc. and Biogen, Inc., have potential product candidates for the treatment of psoriasis that may compete with ABX-IL8, which is in clinical trials.
Furthermore, we are aware that ImClone Systems, Inc., AstraZeneca PLC, GlaxoSmithKline and a collaboration of OSI Pharmaceuticals, Inc., Genentech, Inc. 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.

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.

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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.

We face uncertainty over reimbursement and healthcare reform.

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
third-party payors include government health administration authorities, managed care providers, private health insurers and other organizations. These 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. We
may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of our products. Such studies may require us to provide a significant amount of
resources. Our product candidates may not be considered cost-effective. 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. Domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. Accordingly,
legislation and regulations affecting the pricing of pharmaceuticals may change before our proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement
for pharmaceuticals. If the government and third-party payors fail to provide adequate
coverage and reimbursement rates for our product candidates, the market acceptance of our products may be adversely affected. If our products do not receive market acceptance, our business, financial
condition and results of operations will be materially harmed.

Other Risks Related to our Company

We acquired Abgenix Biopharma Inc., a Vancouver-based biotechnology company in November 2000. We may experience difficulty in the integration of this acquisition,
or any future acquisition, with the operations of our business.

In early November, we acquired all of the voting stock of Abgenix Biopharma, a Canadian biotechnology company that develops and intends to commercialize
antibody-based therapeutic and diagnostic products for the treatment and diagnosis of a variety of diseases, for an aggregate consideration of approximately $77.2 million.

We
have a limited history of operating the business of our company and Abgenix Biopharma on a consolidated basis, and we have no prior experience operating a business outside of the
United States. We may have difficulty integrating Abgenix Biopharma's research and development operations with our

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own. Difficulty managing the integration of Abgenix Biopharma could result from many factors, some of which are beyond our control, including the following:



In
the future, we may from time to time seek to expand our business through additional 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, including the recent acquisition of Abgenix Biopharma, 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.

We depend on key personnel and must continue to attract and retain key employees and consultants.

We are highly dependent on the principal members of our scientific and management staff. For us to pursue product development, marketing and commercialization
plans, we will need to hire additional qualified scientific personnel to perform research and development. 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 and healthcare companies, universities and non-profit research institutions. If we lose any of these persons,
or are unable to attract and retain qualified personnel, our business, financial condition and results of operations may be materially harmed.

In
addition, we rely on members of our Scientific Advisory Board and other consultants to assist us in formulating our research and development strategy. All of our consultants and
the members of our Scientific Advisory Board are employed by other entities. They may have commitments to, or advisory or consulting agreements with, other entities that may limit their availability
to us. If we lose the services of these advisors, the achievement of our development objectives may be impeded. Such impediments may 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.

In June 1999, our board of directors adopted a stockholder rights plan, which was amended in November 1999. 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

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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
certain conditions are met. 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 could also 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.

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. These claims might be made directly by consumers, healthcare providers or by pharmaceutical companies or others selling such products. 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 $5.0 million per
occurrence and $5.0 million in the aggregate. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained 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 a successful product liability claim or series of claims
is brought against us for uninsured liabilities or in excess of insured liabilities, our business, financial condition and results of operations may be materially harmed.

Our operations involve hazardous materials.

Our research and manufacturing activities involve the controlled use of hazardous materials. 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.

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 June 30, 2000 and June 30, 2001, our common stock closed as high as $93.1875 per share and as low as $16.75 per

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share. This may impact your decision to buy or sell our common stock. Factors affecting our stock price include:



The state of California is currently experiencing a shortage of electrical energy that may cause certain of our operations to be suspended temporarily.

Substantially all of our operations in Fremont, California are run by electrical energy purchased from a local utility. We have not experienced energy
shortages and do not anticipate any significant difficulties in the foreseeable future. We have limited back-up generating capacity. Extended shortages of energy could slow our research
efforts and increase our operating costs.

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 and high quality 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 $1.0 million, at June 30, 2001 and approximately
$1.1 million, at December 31, 2000.

Equity
Price Risk. We are exposed to equity price risk on strategic investments in CuraGen Corporation and Immunogen, Inc. 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 trades on public exchanges, assuming an adverse change of 30% in the market price of their
stock, the fair value of our equity investments would decrease in value by approximately $29.6 million and $23.8 million as of June 30, 2001 and December 31, 2000,
respectively. This estimate is not necessarily indicative of future performance and actual results may differ materially.

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PART IIOTHER INFORMATION

ITEM 1Legal Proceedings

Not applicable.

ITEM 2Changes in Securities and Use of Proceeds

Use of Proceeds

Not applicable.

Recent Sales of Unregistered Securities

Not applicable.

ITEM 3Defaults upon Senior Securities

Not applicable.

ITEM 4Submission of Matters to Vote of Security Holders

At our Annual Meeting of Stockholders, held on June 1, 2001 one matter was voted upon. A description of the matter and tabulation of votes follows:

Election
of Directors:

|                     |  | Votes     
|-------------------- |  | ----------
|
|
|R. Scott Greer       |  | 66,240,125
|M. Kathleen Behrens  |  | 70,065,155
|Raju S. Kucherlapati |  | 70,066,252
|Mark B. Logan        |  | 70,063,491
|Joseph E. Maroun     |  | 70,062,066
|Stephen A. Sherwin   |  | 70,063,219

ITEM 5Other Information

Not applicable.

ITEM 6Exhibits and Reports on Form 8-K



|Exhibit No. |   | Caption                                                                              
|----------- | - | -------------------------------------------------------------------------------------
|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.                      
|4.1(1       | ) | Specimen Common Stock Certificate.                                                   
|10.4.1(2    | ) | 1998 Director Option Plan, as amended effective April 26, 2001.                      

---

Not
applicable.

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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:
August 14, 2001

| |  | ABGENIX, INC.(Registrant)                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------
| |  | /s/R. SCOTT GREERR. Scott Greer
Chief Executive Officer
(Principal Executive Officer)                                    
| |  | /s/KURT LEUTZINGERKurt Leutzinger
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

|EXHIBITS |  |                                                                     
|-------- |  | --------------------------------------------------------------------
|3.2      |  | Amended and Restated Bylaws of Abgenix, Inc, as currently in effect.
|10.4.1   |  | 1998 Director Option Plan, as amended effective April 26, 2001.     

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