**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

| (Mark one)                                                                                                                                                                                                                                | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **x**                                                                                                                                                                                                                                     | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| **For  the fiscal year ended December 31, 2005**                                                                                                                                                                                     |
| **OR**                                                                                                                                                                                                                                    |
| **o**                                                                                                                                                                                                                                     | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| **For  the transition period from                  to                 .** |
| **Commission  file number: 000-24207**                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                           |            |  |  |

 

**ABGENIX,INC.**

(Exact name of registrant as specified in itscharter)

| **Delaware**                             |   | **94-3248826**          |
|------------------------------------------|--------|-------------------------|
| (State or other  jurisdiction of         |   | (IRS Employer           |
| incorporation or  organization)          |   | Identification  Number) |
| **6701 Kaiser Drive, Fremont, CA**       |   | **94555**               |
| (Address of  principal executive office) |   | (Zip Code)              |

**(510)608-6500**(Registrant’s telephonenumber, including area code)

**Securitiesregistered pursuant to Section 12(b) of the Act:None**(Title of Class)

**Securitiesregistered pursuant to Section 12(g) of the Act:Common Stock, $0.0001 par value; Preferred Stock Purchase Rights**(Title of Class)

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

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  No x

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

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check One):

Large Accelerated Filer x                         AcceleratedFiler o                             Non-accelerated Filer o

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

The aggregate market valueof the voting stock held by non-affiliates of the Registrant as of June 30,2005 was $765,514,129. The number of shares of Common Stock, $0.0001 par value,outstanding on March 1, 2006, was 91,982,830.

 

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**TABLE OF CONTENTS**

** **

|          | ** ** | ** **                                                                                        | ** ** | **Pages**  |
|----------|------------|---------------------------------------------------------------------------------------------------|------------|------------|
|     |       | **Part I**                                                                                   | ** ** | ** ** |
| Item 1.  |       | Business                                                                                          |       | 3          |
| Item 1A. |       | Risk  Factors                                                                                     |       | 25         |
| Item 1B. |       | Unresolved Staff  Comments                                                                        |       | 45         |
| Item 2.  |       | Properties                                                                                        |       | 45         |
| Item 3.  |       | Legal  Proceedings                                                                                |       | 45         |
| Item 4.  |       | Submission of  Matters to a Vote of Security Holders                                              |       | 45         |
|     |       | **Part II**                                                                                  |       | ** ** |
| Item 5.  |       | Market for  Registrant’s Common Equity and Related Stockholder Matters                       |       | 46         |
| Item 6.  |       | Selected Financial  Data                                                                          |       | 47         |
| Item 7.  |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations  |       | 48         |
| Item 7A. |       | Quantitative  and Qualitative Disclosures about Market Risk                                       |       | 63         |
| Item 8.  |       | Financial  Statements and Supplementary Data                                                      |       | 64         |
| Item 9.  |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure             |       | 97         |
| Item 9A. |       | Controls and  Procedures                                                                          |       | 97         |
| Item 9B. |       | Other Information                                                                                 |       | 99         |
|     |       | **Part III**                                                                                 |       | ** ** |
| Item 10. |       | Directors and  Executive Officers of the Registrant                                               |       | 100        |
| Item 11. |       | Executive  Compensation                                                                           |       | 103        |
| Item 12. |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters  |       | 108        |
| Item 13. |       | Certain  Relationships and Related Transactions                                                   |       | 112        |
| Item 14. |       | Principal  Accountant Fees and Services                                                           |       | 112        |
|     |       | **Part IV**                                                                                  |       | ** ** |
| Item 15. |       | Exhibits and  Financial Statement Schedules                                                       |       | 114        |
|     |       | Signatures                                                                                        |       | 121        |

 

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**PART I**

**Item 1.   Business.**

*The following description of our business should beread in conjunction with the information included elsewhere in this annualreport on Form 10-K. The description contains certain forward*-looking statements that involve risksand uncertainties. When used in this annual report on Form 10-K, thewords “intend,” “anticipate,” “believe,” “estimate,” “plan” and “expect” andsimilar expressions as they relate to us are included to identify forward-looking statements. Our actualresults could differ materially from the results discussed in the forward-looking statements as a result ofcertain of the risk factors set forth below and in the documents incorporatedherein by reference, and those factors described under “Risk Factors”. In thisannual report on Form 10-K, references to “Abgenix,” “we,” “us” and “our”are to Abgenix, Inc. and its subsidiaries.

**Abgenix**

We are a biopharmaceuticalcompany that is focused on the discovery, development and manufacture of humantherapeutic antibodies for the treatment of a variety of disease conditions,including cancer, inflammation and metabolic disease.

We have proprietary technologies that facilitate rapidgeneration of highly specific, antibody therapeutic product candidates thatcontain fully human protein sequences and that bind to disease targetsappropriate for antibody therapy. In this annual report on Form 10-Kwe refer to these candidates as fully human antibody therapeutic productcandidates. We developed our XenoMouse® technology, a technology using geneticallymodified mice, to generate fully human antibodies. We also own a technologythat enables the rapid identification of antibodies with desired function andcharacteristics, referred to as SLAMTM technology. In our XenoMaxTM technology,we use SLAM technology to select and isolate antibodies with particularfunction and characteristics from antibody-producing cells generated byXenoMouse animals.

Currently, fourteen antibodies generated with ourXenoMouse technology are in clinical trials or are the subject of a regulatoryapplication to initiate such trials, including two of our proprietary antibodytherapeutic product candidates and twelve antibody product candidates beingdeveloped by companies that have licensed our technology. Our most advancedproprietary product candidate is panitumumab (formerly known as ABX-EGF), whichwe are co-developing with Immunex Corporation, a wholly-owned subsidiary ofAmgen Inc. References in this annual report to Amgen are to both Amgen andImmunex. In late 2005, Abgenix and Amgen initiated the rolling submission of aBiologics License Application (BLA) filing with the U.S. Food and DrugAdministration (FDA) for panitumumab in patients with metastatic colorectalcancer who have failed prior standard chemotherapy, including oxaliplatin andirinotecan. The companies expect this filing to be completed in the firstquarter of 2006. Our other proprietary product candidate, ABX-10241, isin early stage clinical trials for secondary hyperparathyroidism in patientswith renal disease. In addition, we have entered into a variety of contractualarrangements with multiple pharmaceutical, biotechnology and genomics companiesto jointly develop and commercialize products or to enable other companies touse our XenoMouse and XenoMax technologies in the development of their products.Six of our licensing partners, Pfizer, Inc., Amgen, Chiron Corporation,CuraGen Corporation, Human Genome Sciences, Inc. and Agensys, Inc.,have initiated clinical trials or submitted regulatory applications for suchtrials for antibodies generated from XenoMouse technology.

On December 14, 2005,the Company entered into an agreement and plan of merger with Amgen andAthletics Merger Sub, Inc., a wholly-owned subsidiary of Amgen, pursuantto which Amgen is expected to acquire the Company for approximately$2.2 billion in cash plus the assumption of the Company’s debt. Under the terms of theagreement, shareholders of Abgenix will receive $22.50 in cash per commonshare, less any applicable withholding tax. The boards of directors ofthe Company and Amgen have approved the 

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transaction,which remains subject to the approval of the Company’s stockholders at aspecial meeting to be held on March 29, 2006, and other customary closingconditions. If shareholder approval is obtained at the special meeting, themerger is expected to close in late March or early April 2006. Unless otherwise indicated, the discussionsin this document relate to Abgenix as a stand-alone entity and do not reflectthe impact of the proposed acquisition by Amgen.

**Overview of Product Development**

*Proprietary ProductDevelopment*

Two of our antibodytherapeutic product candidates are in clinical trials. The following is anoverview of these programs.

·       **Panitumumab** (ABX-EGF). Our leading proprietaryantibody therapeutic product candidate is panitumumab. Generated using ourXenoMouse technology, panitumumab is a fully human antibody therapeutic productcandidate directed against the human epidermal growth factor receptor (EGFr)and a candidate for the potential treatment of a variety of solid tumors. Weare co-developing panitumumab with Amgen under a joint development andcommercialization agreement described under **Summaryof Contractual Arrangements**below. The status of clinical trials of panitumumabis as follows:

·        *Colorectal cancer, single agent therapy withpanitumumab: Pivotal studies*—In January 2004, Amgen initiatedtwo pivotal studies, one in the United States (known as the 167 trial) and oneoutside the United States (known as the 408 trial), in patients with metastaticcolorectal cancer who have failed prior standard irinotecan- andoxaliplatin-containing chemotherapy regimens. In November 2005, we and Amgen announced top-line data from the pivotal trial in Europe, Canada and Australiacomparing best supportive care with best supportive care and panitumumab, whichindicated that panitumumab had met the primary endpoint of improvingprogression-free survival. In this trial, those patients who receivedpanitumumab showed a 46 percent decrease in the rate of death or tumorprogression, as assessed by central radiology review, versus those who receivedbest supportive care alone. This primary analysis also indicated that asecondary endpoint of objective response rate, also assessed by centralradiology review, was met as well. The FDA granted fast track designation forpanitumumab for patients with metastatic colorectal cancer who have failedstandard irinotecan—andoxaliplatin—containingchemotherapy treatment and, in December 2005, we and Amgen initiated therolling submission of a BLA with the FDA. The companies expect this filing tobe completed in the first quarter of 2006.

·        *Colorectal cancer, single agent therapy withpanitumumab: Phase 2 studies—*Amgen is conducting Phase 2 studies evaluatingpanitumumab as a single agent therapy in the treatment of advanced metastaticcolorectal cancer. One Phase 2 clinical trial, which was initiated in December 2001,is closed. Data from this study, which demonstrated single agent antitumoractivity and general tolerability of panitumumab in this setting, was reportedat the annual meeting of the American Society of Clinical Oncology, or ASCO, inMay 2005. Amgen is also conductinga trial (known as the 250 trial) to evaluate panitumumab in metastaticcolorectal cancer patients with tumors having low or undetectable levels ofEGFr. This trial was initiated in 2004 and enrollment is ongoing. In addition,Amgen is conducting a Phase 2 trial that includes metastatic colorectal cancerpatients who have shown progressive disease on the best supportive care arm ofthe 408 pivotal trial. This study is ongoing.

·        *Colorectal cancer, combination of panitumumab withchemotherapy*—Amgen is conducting a separate Phase 2 clinical trialevaluating the effect of panitumumab administered with irinotecan-containingregimens as first-line treatment in patients with metastatic colorectal 

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cancer. Enrollment in thistrial, which was initiated in January 2002, is closed and treatment isongoing. Data from this study were reported at the European Cancer Conferencein October 2005 and at the American Society of Clinical Oncology forGastrointestinal Cancers annual symposium in January 2006.

·        *Colorectal cancer, combination of panitumumab withchemotherapy and other targeted therapy*—In April 2005, we andAmgen announced the initiation of a randomized Phase 3b study in the first-linetreatment of patients with metastatic colorectal cancer, the “PanitumumabAdvanced Colorectal Cancer Evaluation,” or PACCE study. This study evaluates theeffect of chemotherapy consisting of oxaliplatin—or irinotecan—containingregimens and bevacizumab (Avastin®), with orwithout panitumumab. Enrollment in this study is ongoing.

·        *Non-small cell lung cancer—*Amgen isconducting a Phase 2 clinical trial for panitumumab in the first-line treatmentof advanced non-small cell lung cancer administered with standard chemotherapy,compared to standard chemotherapy alone. Enrollment in this trial, which wasinitiated in July 2001, is closed and treatment is ongoing. A primaryanalysis of this study revealed that when compared with chemotherapy alone, thepanitumumab combination did not improve time to disease progression, the study’sprimary efficacy endpoint. Secondary efficacy endpoints of the study, tumorresponse rate and overall survival, were also not met. The combination ofpanitumumab and standard chemotherapy was generally well tolerated. These datawere presented at the European Cancer Conference in October 2005 andfurther analysis is ongoing.

·        *Renal cell cancer—*We are conducting aPhase 2 clinical trial evaluating the effect of panitumumab as monotherapy inpatients with renal cell cancer. Enrollment in this trial, which was initiatedin April 2001, is closed and treatment is ongoing. An analysis of thisstudy was presented at the Fourth International Kidney Cancer Symposium in October 2005.In patients with metastatic renal cell cancer who had either not received anyprior systemic therapy or had received one prior biologic therapy, no objectivetumor response was observed. Panitumumab was generally well tolerated. Furtheranalysis of the data is ongoing.

·        *Various cancers*—We initiated a Phase 1clinical trial for panitumumab in various solid tumors in 1999. In 2003, weexpanded enrollment to investigate additional panitumumab dose levels andschedules of administration. Enrollment is closed and treatment is complete. Datafrom this dose and schedule study were presented at ASCO in May 2005 andshowed that panitumumab was generally well tolerated at weekly, every otherweek and every third week dosing regimens. Anti-tumor activity was observed atall three doses and schedules in patients with advanced metastatic colorectalcancer.

·        *Further development*—Additional Phase 1 and2 clinical studies evaluating panitumumab in different tumor types either as asingle agent or in combination with different chemotherapeutic agents andtargeting agents, have been initiated or are expected to be initiated from timeto time. For example, several early phase studies of panitumumab in combinationwith chemotherapy and AMG 706, an Amgen proprietary multi-kinase inhibitor, arecurrently ongoing.

·       **ABX-10241**(ABX-PTH). Generated usingour technology, ABX-10241, or ABX-PTH, is a fully human antibodytherapeutic product candidate directed against parathyroid hormone (PTH) forthe potential treatment of secondary hyperparathyroidism. We filed aninvestigational new drug application, or IND, in December 2003 andinitiated a single dose Phase 1 clinical trial evaluating the safety andpharmacokinetics of ABX-10241 in patients with secondaryhyperparathyroidism in February 2004. Preliminary results from an interimanalysis of this study were presented at a scientific meeting in 2004. Enrollmentin this trial is complete. In addition, we initiated a multiple-

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dose Phase 1 trial of ABX-10241in patients with secondary hyperparathyroidism in September 2005. Enrollmentin this study is ongoing.

In addition, we haveentered into co-development agreements for the joint development of antibodyproduct candidates with a variety of companies including Microscience Limited,Dendreon Corporation, Chugai Pharmaceuticals Co., Ltd., Sosei Co., Ltd. and U3Pharma AG.

*AstraZenecaCollaboration*

We have entered into abroad collaboration with AstraZeneca UK Limited for the development of antibodytherapeutics for the treatment of certain types of cancer pursuant to which wehave an opportunity to co-develop products with AstraZeneca, as well as providepreclinical and clinical research support and manufacturing support for thedevelopment of product candidates by AstraZeneca. This collaboration involvesthe development of up to 36 antibodies, to be commercialized by AstraZeneca,and potentially the co-development of up to 18 antibodies on an equal cost andprofit sharing basis.

*Customer ProductDevelopment*

We have licensedour XenoMouse technology to pharmaceutical, biotechnology and genomicscompanies interested in developing antibody-based products. Typically, theseagreements provide for up-front and, upon the occurrence of certain events,milestone payments to us, along with royalty payments to us if the productreaches the market. We do not participate in the development or marketing ofthese product candidates. Our customers have advanced twelve antibodiesgenerated with XenoMouse technology into the clinical phase as follows:

·       Pfizer—Wegenerated five XenoMouse-derived fully human antibody therapeutic productcandidates that Pfizer has advanced into the clinical phase, includingticilimumab, an antibody that targets cytotoxic T lymphocyte-associated antigen4 (CTLA-4), and a candidate that targets the type 1 insulin-like growthfactor receptor (IGF-1R). The targets of the other product candidateshave not been disclosed. Pfizer recently advanced ticilimumab into a pivotalstudy; the other four product candidates are currently in Phase 1 evaluation.

·       Amgen—Denosumab(formerly known as AMG 162) is a XenoMouse-derived fully human antibodytherapeutic product candidate that Amgen has advanced into pivotal trials as apotential treatment for bone loss. Amgen has advanced two additionalXenoMouse-derived fully human antibody therapeutic product candidates toundisclosed targets to Phase 1 clinical trials.

·       Chiron—Wegenerated a XenoMouse-derived fully human antibody therapeutic productcandidate that binds to and neutralizes CD40, a receptor expressed on immunecells. Chiron has advanced this candidate, CHIR-12.12, into a Phase 1clinical trial in patients with B cell malignancies.

·       CuraGen—Wegenerated a XenoMouse-derived fully human antibody therapeutic productcandidate that binds to platelet-derived growth factor D (PDGF-D). CuraGen hasadvanced this candidate, known as CR002, to Phase 1 clinical trials as apotential treatment for inflammatory kidney disease.

·       HumanGenome Sciences—CCR5 mAb is a XenoMouse-derived fully human antibodytherapeutic product candidate that binds to the chemokine receptor CCR5 thatallows entry of the HIV-1 virus into immune cells. Human Genome Scienceshas initiated a Phase 1 clinical trial of CCR5 mAb in patients infected withHIV-1.

·       Agensys—AGS-PSCAis a XenoMouse-derived fully human antibody therapeutic product candidate thatselectively binds to prostate stem cell antigen (PSCA). Agensys has initiated aPhase 1 clinical trial of this candidate in patients with advancedprostate cancer.

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**Abgenix Strategy**

Our objective is to be a leader in the discovery,development and commercialization of antibody-based biopharmaceuticalproducts. Key elements of our strategy to accomplish this objective include thefollowing:

*Buildinga diversified product portfolio.**  *Utilizing our XenoMouse and XenoMax technologies,we intend to build a diversified product portfolio, including a mix ofinternally developed and jointly developed product candidates. We are targetingserious medical conditions, including cancer, inflammation, and metabolicdisease. We may gain access to antigens through contractual arrangements withleading academic researchers and companies involved in the identification anddevelopment of antigens or from publicly available sources. In addition todeveloping our own product candidates, our strategy is to supplement ourproduct portfolio by entering into collaborations such as the co-developmentagreement we have with Amgen for panitumumab. These product collaborationsinvolve antibodies that bind to antigens to which we obtain rights from ourcollaborators or from publicly available sources. We may enter into additionaljoint development and commercialization agreements after generating antibodiesand determining preliminary safety and efficacy or we may develop the productcandidate through later stage clinical trials and license it to pharmaceuticalor biotechnology companies for marketing. By entering into co-development andmarketing arrangements, we can pursue multiple product candidates in the developmentstage, enabling us to spread our risk of product development and makecost-effective use of available human and capital resources.

*LeveragingXenoMouse and XenoMax technologies through licensing and other contracts.**  *We may continue to make our platformtechnologies available to others and generate revenues by selectively enteringinto contracts with pharmaceutical and biotechnology companies interested inusing our XenoMouse and XenoMax technologies to develop antibody-basedproducts. We have established agreements with numerous customers covering abroad range of antigens. To date, many of these parties have entered into newor expanded agreements with us that allow them to specify additional antigensfor antibody development. These agreements typically provide for immunizationsof XenoMouse animals with one or more antigens provided by the customer. Customersgenerally have an option for a period of time to acquire product licenses forany antibody product they wish to develop and commercialize. We may continue toenhance our platform technologies through in-licensing, acquisitions orinternal development.

*Production Services.**  *Our manufacturing facility and ourpilot plant provide integrated process sciences and manufacturing capabilitiesfor the development and manufacture of our proprietary product candidates. Weare using some available capacity to manufacture our proprietary productcandidate, panitumumab. We may use other available capacity to manufactureother proprietary products that may be the subject of future co-developmentagreements. We are also able to offer our production services to existingcustomers and to third parties to further enable their development efforts andto absorb plant capacity not used or reserved for our proprietary productcandidates.

**Scientific Background**

*The Normal AntibodyResponse*

The human immune system protects the body against avariety of infections and other illnesses. Specialized cells, which include Bcells and T cells, work in concert with the other components of the immunesystem to recognize, neutralize and eliminate from the body numerous foreignsubstances, infectious organisms and malignant cells. In particular, B cellsgenerally produce protein molecules, known as antibodies, which are capable ofrecognizing substances potentially harmful to the human body. Such substancesare called antigens. Upon being bound by an antibody, antigens can beneutralized or blocked from interacting with and causing damage to the body. Antibodiesthat bind tightly are said to have high affinity.

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All antibodies have a common core structure composedof four subunits, two identical light (L) chains and two identical heavy (H) chains,named according to their relative size. The heavy and light chains areassembled within the B cell to form an antibody molecule. As shown in thediagram below, one can represent an antibody molecule schematically in the formof a “Y” structure.

The base of the “Y,”together with the part of each arm immediately next to the base, is called theconstant region because its structure tends to be very similar across allantibodies. In contrast, the variable regions are at the end of the two armsand are unique to each antibody.

*Antibodies asProducts*

Recent advances in the technologies for creating andproducing antibody products, coupled with a better understanding of howantibodies and the immune system function in key disease states, have led torenewed interest in the commercial development of antibodies as therapeuticproducts. According to a survey by the Pharmaceutical Research andManufacturers of America, antibodies accounted for over 20% of allbiopharmaceutical products in clinical development in August 2004. We arecurrently aware of eighteen antibody therapeutic products that have beenapproved for marketing in the United States. These products are currently beingmarketed for a wide range of medical disorders such as autoimmune disease,cardiovascular disease, cancer and infectious diseases.

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

·       fewerunwanted side effects as a result of high specificity for the disease target;

·       greaterpatient compliance as a result of favorable pharmacokinetics; and

·       ability to deliver variouspayloads, including drugs, radiation and toxins, to specific disease siteswhile avoiding surrounding tissues.

*CurrentApproaches to Development of Antibody Therapeutic Products*

The therapeutic antibodies marketed today generally belongto a class of molecules known as “monoclonal antibodies”. This term is used torefer to a homogeneous population of antibody molecules that are identical intheir structure and functional characteristics. Traditionally, the approach togenerating 

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monoclonal antibodies hasbeen to immortalize mouse antibody-secreting B cells by fusing them with aperpetually-growing cell line so that they are capable of reproducing over anindefinite period of time. Any of these fused cells, known as hybridomas,producing an antibody with the desired binding characteristics can then beselected, cloned, and expanded, allowing the large scale production of amonoclonal antibody.

Mouse monoclonal antibodies are wholly composed ofmouse protein sequences and tend to be recognized as foreign by the humanimmune system. When patients are repeatedly treated with mouse antibodies, theywill begin to produce antibodies that effectively neutralize the mouseantibody, a reaction referred to as a Human Anti-Mouse Antibody, or HAMA,response. In many cases, the HAMA response prevents the mouse antibodies fromhaving the desired therapeutic effect and may cause the patient to have anallergic reaction.

Recognizing the limitations of mouse monoclonalantibodies, researchers have developed a number of approaches to make themappear more human-like to a patient’s immune system. For example, improvedforms of mouse antibodies, referred to as “chimeric” and “humanized”antibodies, are genetically engineered and assembled from portions of mouse andhuman antibody gene fragments. While these chimeric and humanized antibodiesare more human-like, they still retain a varying amount of the mouse antibodyprotein sequence, and accordingly may continue to trigger a HAMA response.

Additionally, the humanizationprocess can be expensive and time consuming, often requiring weeks or months ofsecondary manipulation after the initial generation of the mouse antibody.

**

*Human Antibodies*

The probability of inducing a HAMA response can bereduced through the generation of antibody therapeutic products with fullyhuman protein sequences. Researchers have developed several antibodytechnologies to produce antibodies with 100% human protein sequences (see thediagram above). One approach to generating human antibodies, called “antibodydisplay” technology, involves cloning and expressing human antibody genes innovel contexts, such as bacteriophages, viruses that infect bacteria,ribosome/mRNA complexes or yeast, in order to display libraries of antibodyfragments for subsequent in vitro selection against antigens. These approachesattempt to mimic in vitro the antibody selection and affinity maturationprocesses that occur in the body.

Another approach involvesthe isolation of human B cells. The B cells can be further propagated eitherthrough introducing them into immunodeficient mice or through generatinghybridomas. This 

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approachis generally limited to generating antibodies only to non-human antigens orantigens to which the human B-cell donor had previously responded.Accordingly, this approach may not be suitable for targeting many key diseasessuch as cancer and inflammatory and autoimmune disorders for which appropriatetherapy might require antibodies to human antigens.

**TheAbgenix Solution—XenoMouse and XenoMax Technologies**

Our approach to generating human antibodies with fullyhuman protein sequences is to use genetically engineered strains of mice inwhich mouse antibody gene expression has been eliminated and functionallyreplaced with human antibody gene expression, while leaving intact the rest ofthe mouse immune system. Rather than engineering each antibody productcandidate, these transgenic mice capitalize on the natural power of the mouseimmune system in diversity and affinity maturation to produce a broadrepertoire of high affinity antibodies. By introducing human antibody genesinto the mouse genome, transgenic mice with such traits can be bred indefinitely.Importantly, these transgenic mice are capable of generating human antibodiesto human antigens because the only human products expressed in the mice (andtherefore recognized as “self”) are the antibodies themselves. The mouse thusrecognizes any other human tissue or protein as a foreign antigen and the mousewill mount an immune response.

A challenge with this approach, however, has been tointroduce enough of the human antibody genes in appropriate configuration intothe mouse genome to ensure that these mice are capable of recognizing the broaddiversity of antigens relevant for human therapies.

To make our transgenic mice a robust tool capable ofconsistently generating high affinity antibodies that can recognize a broadrange of antigens, we equipped the XenoMouse animals with approximately 80% ofthe human heavy chain antibody genes and a majority of the human light chaingenes. The complex assembly of these genes together with their semi-randompairing allows XenoMouse animals to recognize a diverse repertoire of antigenstructures. XenoMouse technology further capitalizes on the natural in vivoaffinity maturation process to generate high affinity, fully human antibodies.In addition, we have developed multiple strains of XenoMouse animals, each ofwhich is capable of producing a different class of antibody to performdifferent therapeutic functions. We believe that our various XenoMouse strainswill provide maximum flexibility for drug developers in generating antibodiesof the specific type best suited for a given disease indication.

Antibodies derived from XenoMouse animals originatesolely from the human immunoglobulin genes that have been introduced into theanimal. Consequently, antibodies generated using XenoMouse technology are fullyhuman and are, therefore, expected to be less likely to be recognized asforeign and to elicit an antibody response to the therapeutic antibody thanantibodies containing mouse proteins. However, an antibody response to aparticular fully human antibody sequence could still occur, resulting information of a human anti-human antibody (HAHA) response, which couldneutralize the effect of the antibody and may result in an allergic reaction.

We obtain the antibodies generated by XenoMouseanimals by extracting the antibody-producing B cells. We can convertthese B cells into hybridomas to generate the quantities of antibodies neededfor standard methods of assaying and selecting antibodies for furtherdevelopment. We have expended considerable effort in enhancing hybridomatechnology and the use of automation to optimize the diversity of theantibodies that we can screen and recover. Alternatively, we can submit the Bcells to our proprietary Selected Lymphocyte Antibody Method (SLAM) technology.We use the term XenoMax technology to refer to the use of XenoMouse technologytogether with SLAM technology. With XenoMax technology, we bypass the hybridomastep by culturing the B-cells directly and rapidly assaying them over a periodof several days using a microplate-based, high throughput system. UsingXenoMax, we can further 

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increase the number ofdifferent antigen-reactive monoclonal antibodies identified in a singleexperiment compared to hybridoma technology.

Other approaches to generating fully human antibodiesfrom mice that we understand are being pursued by competitors include: (i) transgenicmice containing heavy human chain and human light chain genes on a “minilocus”(which are mice that possess a relatively small number of representative humanheavy and light chain genes in their genome), (ii) “transchromosomic” micethat contain large numbers of human heavy chain and light chain genes on one ormore separate, or extra, chromosomes, and (iii) “KM-Mouse® ” animals that are generated as a result ofbreeding “minilocus” containing mice with “transchromosomic” mice. “Transchromosomic”mice were developed by Kirin Brewing Co., Ltd. It is our understandingthat “KM-Mouse” animals were developed through a collaboration between Medarex, Inc.and Kirin Brewing Co. and are currently used by Medarex, Kirin and GenMab A/S.Also, Avanir Pharmaceuticals and XTL Biopharmaceuticals Ltd. use technologiesin which human B cells and T cells are implanted in mice with compromisedimmune systems.

In addition to thegeneration of human antibodies from mice, we understand that competitors suchas Cambridge Antibody Technology Group plc, MorphoSys AG and Dyax Corporationutilize phage display technology for the generation of human antibodies fromphage display libraries derived from human samples. BioSite Incorporated,through a collaboration with Medarex, generates human antibody phage displaylibraries from immunized “KM-Mouse” animals. It is our understanding that theselibraries are not used for deriving therapeutic antibody products.

**Our Technology Advantages**

We believe that our technologies offer the followingadvantages:

*Producingantibodies with fully human protein sequences.**  *Our XenoMouse technology, unlikechimeric and humanization technologies, allows the generation of antibodieswith 100% human protein sequences. More than 1,000 patients have been testedwith our antibody product candidates and we have only very rarely observed HAHAresponses.

*Generatinga diverse antibody response to many targets appropriate for antibody therapy.**  *Because we have introduced asubstantial majority of human antibody genes into XenoMouse animals, we believethat the technology has the potential to generate high affinity antibodies thatrecognize a broad range of structures contributing to human diseases. Inaddition, based on our experience, we expect XenoMouse technology to be capableof generating antibodies to almost any medically relevant antigen, human orotherwise. For a given antigen, having multiple antibodies to choose from couldbe important in selecting the optimal antibody product.

*Generatinghigh affinity antibodies that do not require further engineering.**  *XenoMouse technology uses thenatural in vivo affinity maturation process to generate antibody productcandidates, usually in two to four months. In contrast to antibodies generatedusing humanization and phage display technology, we and our customers canproduce XenoMouse antibodies without the need for any subsequent engineering, aprocess that at times has proven to be challenging and time consuming. Byavoiding the need to further engineer antibodies, we reduce the risk that anantibody’s structure and therefore functionality will be altered between theinitial antibody selected for testing and the final antibody approved formarketing and placed into production.

*Enablingmore efficient product development.    *XenoMousetechnology can potentially produce multiple product candidates more quicklythan humanization and phage display technology and we and our customers canconduct preclinical testing on several antibodies in parallel to identify theoptimal product candidate that will be tested in clinical trials.

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*Providingflexibility in choosing manufacturing processes.**  *Once we have identified an antibodywith the desired characteristics, we can produce preclinical material eitherdirectly from hybridomas or from recombinant cell lines. Humanized and phagedisplay antibodies, having been engineered, cannot be produced in hybridomas.In addition to potential timesaving, production in hybridomas avoids the needto license certain third party intellectual property rights covering certainprocesses for production of antibodies in recombinant cell lines.

*Providingan integrated production platform.**  *Our integrated production platformhas been designed to minimize the risks associated with process, scale and sitechanges. We believe that our platform, which integrates a comprehensive rangeof process sciences services, including cell line, cell culture, purification,formulation and assay development, and our manufacturing facility can enable usto rapidly advance product candidates from cell line generation to production.This integrated approach may reduce the variability and risk associated with technologytransfer and improve production quality and efficiency.

**ProprietaryProduct Development Programs**

We arecurrently developing antibody therapeutics for a variety of indications. Thetable below sets forth the current development status of our proprietaryproduct candidates:

| Product Candidate     | ** ** | ** **                                                     | ** ** | **Indication** | ** ** | **Status** |
|-----------------------|------------|----------------------------------------------------------------|------------|----------------|------------|------------|
| Panitumumab (ABX-EGF) | ** ** | **Colorectal Cancer (CRC)**                                    |       |           |
|                  |       | Third-line treatment  (monotherapy), US and outside the US     |       | Pivotal(1)     |
|                  |       | First-line treatment  (with chemotherapy and Avastin)          |       | Phase 3b(1)    |
|                  |       | First-line treatment  (with chemotherapy)                      |       | Phase 2(1)     |
|                  |       | First-line treatment  (with chemotherapy and AMG 7062)         |       | Phase 1/2(1)   |
|                  |       | Third-line treatment  (monotherapy), low or no EGFr expression |       | Phase 2(1)     |
|                  | ** ** | **Non-small Cell Lung Cancer  (NSCLC)**                        |       |           |
|                  |       | First-line treatment  (with chemotherapy)                      |       | Phase 2(1)     |
|                  |       | Second-line treatment  (monotherapy)                           |       | Phase 2(1)     |
|                  |       | First-line treatment  (with chemotherapy and AMG 7062)         |       | Phase 1/2(1)   |
|                  | ** ** | **Renal Cell Cancer (RCC)**                                    |       |           |
|                  |       | First-line and  second-line treatment (monotherapy)            |       | Phase 2        |
| ABX-10241             |       | Secondary  hyperparathyroidism                                 |       | Phase 1        |

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(1)          Clinical trial managedby Amgen.

(2)          AMG706 is an Amgen proprietary multi-kinase inhibitor.

*Panitumumab*

Tumor cells thatoverexpress the epidermal growth factor receptor, or EGFr, on their surfaceoften depend on EGFr’s activation for growth. EGFr is expressed in a variety ofcancers including lung, breast, ovarian, bladder, prostate, colorectal, kidneyand head and neck. The activation of EGFr is triggered by the binding to EGFrby epidermal growth factor, or EGF, or transforming growth factor alpha, or TGFa, both of which are expressed bythe tumor or by neighboring cells. We believe that blocking the ability of EGFand TGFato bind with EGFr may offer a treatment for certain cancers. Panitumumabbinds to EGFr with high affinity and has been shown to inhibit tumor cellproliferation in vivo and cause eradication of EGF dependent human tumorsestablished in mouse models. Published studies have shown that panitumumab caninhibit growth of EGF-dependent human tumors cells in mouse models. Panitumumabhas also demonstrated the ability to reverse cancer cell growth and causeeradication of established tumors in mice even when administered aftersignificant tumor growth has occurred. 

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Furthermore,in these models where tumors were eradicated, researchers did not observe anyrelapse of the tumor after discontinuation of the antibody treatment.

We are co-developingpanitumumab with Amgen under a development and commercialization agreement. The following is a summary of the status of theseclinical trials.

*Colorectal cancer, singleagent therapy with panitumumab.*   In January 2004, Amgen initiated two pivotal studies ofpanitumumab as third-line monotherapy in patients with metastaticcolorectal cancer, one in the United States and one outside the United States. Theinitiation of the U.S. trial followed the receipt of a Special ProtocolAssessment letter from the FDA endorsing the design of the trial (known as the167 trial) to support a regulatory submission for potential acceleratedapproval. Enrollment in this trial, which began in the first quarter of 2004,is proceeding more slowly than originally anticipated. The second pivotal study(known as the 408 trial), a randomized controlled study comparing bestsupportive care with best supportive care and panitumumab, is being conductedin Europe, Canada and Australia in support of the global registration program. Enrollment in this study is complete. InNovember 2005, we and Amgenannounced top-line data from this study indicating that it had met theprimary endpoint of improving progression-free survival. In this trial, thosepatients who received panitumumab showed a 46 percent decrease in the rate ofdeath and tumor progression, as assessed by central radiology review, versusthose who received best supportive care alone. This primary analysis alsoindicated that a secondary endpoint of objective response rate, also assessedby central radiology review, was met as well. This study enrolled 463 patients with metastatic colorectal cancer who had failed standardirinotecan- and oxaliplatin-containing chemotherapy. In December 2004, theFDA indicated that data from one pivotal trial, once completed, could beacceptable with additional data from other pending studies to support amarketing application for accelerated approval in the United States. The FDAgranted fast track designation for panitumumab for patients with metastaticcolorectal cancer who have failed standard irinotecan—and oxaliplatin—containingchemotherapy treatment. Fast track designation allows the FDA to accept, on arolling basis, portions of a marketing application for review prior to thecompletion of the final registrational package. In December 2005, we andAmgen initiated the rolling submission of a BLA with the FDA for panitumumaband the companies expect this filing to be completed in the first quarter of2006.

A Phase 2 study evaluatedthe effect of panitumumab monotherapy in patients with metastatic colorectalcancer who had previously failed chemotherapy. An interim analysis of thisstudy was reported at the annual meeting of the American Society of ClinicalOncology in May 2003. Forty-four patients were included in this analysis. Fortypatients were efficacy evaluable, which was prospectively defined as havingreceived at least 5 of 8 planned weekly doses of panitumumab during the first 8weeks of treatment.  Panitumumab wasgiven weekly at 2.5 mg/kg. Four of 40 (10%) efficacy evaluable patientsachieved a partial response at week 8, which was confirmed 4 weeks later. Fifty-fivepercent of patients had stable disease at week 8. On the basis of this efficacyresult, we and Amgen designed a pivotal trial program for panitumumab inthird-line monotherapy treatment of colorectal cancer.

Updatedinterim data from this Phase 2 study were presented at the annualmeeting of the American Society for Clinical Oncology in June 2005 anddemonstrated that panitumumab has antitumor activity when administered as asingle-agent treatment to patients with metastatic colorectal cancer who havefailed chemotherapy. The interim analysis showed that patients with measurablemetastatic colorectal cancer which expressed the epidermal growth factorreceptor experienced partial responses. The study included 148 patients whowere previously treated with fluoropyrimidine (with or without leucovorin), andeither irinotecan or oxaliplatin, or both. Patients received 2.5 mg/kg ofpanitumumab by weekly intravenous infusion in 8-week treatment cyclesuntil disease progression or unacceptable toxicity. Tumor responses wereconfirmed at least four weeks after the initial response was observed. Treatmentwith panitumumab resulted in a partial response rate of 9% with a medianduration of response of 18.1 weeks by central review, and no complete responses.Responses were seen in patients receiving up to four lines of prior therapy.Median progression free survival was 13.6 weeks and median overall survivaltime was 37.6 

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weeks. Inthe interim analysis, panitumumab was generally well tolerated, with skin rashas the most common side effect: 95% of patients experienced a skin rash whichwas generally mild to moderate; only 7% experienced a grade 3 skin rash. Otherside effects experienced by some patients were fatigue, nausea and diarrhea. Onepatient had a grade 3 infusion-related reaction related to panitumumab, whichdid not result in discontinuation of panitumumab. There were no instances ofanaphylaxis. In the 107 patients for whom pre- and post-dose samples wereavailable for testing, no human antihuman antibodies (HAHAs) were observed.

*Colorectal cancer,combination of panitumumab with chemotherapy.*   Aseparate Phase 2 study is evaluating the effect of panitumumab administeredwith standard chemotherapy, as first-line treatment in patients with metastaticcolorectal cancer. Interim data of this study presented at the European Societyof Medical Oncology (ESMO) annual conference in October of 2004 showed anobjective response rate of 47% among 19 patients who have received panitumumabwith chemotherapy (irinotecan, fluorouracil and leucovorin, given according tothe “Saltz” regimen). Time to tumor progression was 8.2 months and medianoverall survival time was 16.4 months. The most common side effects were skinrash and diarrhea. Part 2 of this study evaluated the combination of theFOLFIRI chemotherapy regimen (a generally better tolerated regimen of administeringirinotecan, fluorouracil and leucovorin than the “Saltz” regimen) withpanitumumab (2.5 mg/kg/week) in 24 patients with metastatic colorectal canceras first-line treatment. Interim data of this part of the study were presentedat the European Cancer Conference  (ECCO)in November 2005. Panitumumab was generally well tolerated in combinationwith FOLFIRI chemotherapy. The combination was active with 33% partialresponses observed and a median duration of progression free survival of 10.9months.

*Colorectal cancer,combination of panitumumab with chemotherapy and other targeted therapy.**  *In April 2005, we and Amgenannounced the initiation of a randomized Phase 3b study in the first-linetreatment of patients with metastatic colorectal cancer, the “PanitumumabAdvanced Colorectal Cancer Evaluation,” or PACCE study. This study evaluatesthe effect of chemotherapy consisting of oxaliplatin-or irinotecan-containingregimens and bevacizumab (Avastin), with or without panitumumab. Enrollment inthis study is ongoing. As of December 2005, approximately 50% of theplanned total of 1000 patients have been enrolled in the study.

*The Initial Phase 1 Study.*   Webegan the clinical development of panitumumab with a Phase 1 dose-escalatingclinical trial in July 1999 examining the safety, pharmacokinetics andbiological activity of multiple doses of panitumumab as monotherapy in patientswith a variety of advanced cancers. On the basis of preliminary results fromthis study, a number of Phase 2 studies were initiated in 2001 and 2002. Wefirst reported data on this ongoing study in November 2001 and presentedupdated information at the annual meeting of the American Society for ClinicalOncology in May 2002 and at the American Society for Clinical Oncology in May 2005.Ninety-six patients had been recruited to this study. Panitumumab appeared tobe generally well tolerated at weekly doses ranging up to 5 mg/kg and at 6mg/kg given every other week and 9 mg/kg given every three weeks. There were nograde 3 or 4 infusion-related reactions reported and no de novo antibodyformation to panitumumab was observed. Panitumumab given weekly at a dose of2.5 mg/kg, every other week at 6 mg/kg and every third week at 9 mg/kg resultedin similar safety and drug exposure profiles. Anti-tumor activity was seen atall three doses and schedules with partial responses observed in patients withmetastatic colorectal cancer.

*Non-small Cell Lung Cancer.**  *We are also conducting a Phase 2study in patients with non-small cell lung cancer receiving either standardchemotherapy with carboplatin and paclitaxel alone or administered withpanitumumab. Interim data from Part 1of this Phase 2 study were presented at the conference of the American Societyof Clinical Oncology in June 2004 and demonstrated that frontline therapywith panitumumab was generally well tolerated when administered with paclitaxeland carboplatin in patients with advanced non-small cell lung cancer.Part 2 of this study, which is fully enrolled with 175 patients, comparedtime to progression for patients receiving panitumumab plus chemotherapy(carboplatin and paclitaxel) against time to progression for patients receivingthis chemotherapy alone as frontline therapy 

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foradvanced non-small cell lung cancer. A primary analysis of this study revealedthat when compared with chemotherapy alone, the panitumumab combination did notimprove time to disease progression, the study’s primary efficacy endpoint. Secondaryefficacy endpoints of the study, tumor response rate and overall survival, werealso not met. The combination of panitumumab and standard chemotherapy wasgenerally well tolerated. These data were presented at the European CancerConference in October 2005 and further analysis is ongoing.

In addition, an evaluation of panitumumab in non-smallcell lung cancer in combination with chemotherapy and AMG 706, Amgen’sproprietary multi-kinase inhibitor, is currently ongoing.

*Renal Cell Cancer.**  *This Phase 2 study is evaluatingthe effect of panitumumab monotherapy in patients with renal cell cancer. Aninterim analysis of this study was reported at the annual meeting of theAmerican Society of Clinical Oncology in May 2002. A total of 88 patientswith metastatic renal cell cancer had been treated in this panitumumabmonotherapy study at the time. Panitumumab was given weekly in doses of 1.0,1.5, 2.0, and 2.5 mg/kg to cohorts of approximately 20 patients each. Panitumumabwas administered for eight weeks or until patients demonstrated progressivedisease. Eighty-nine percent of patients included in this study hadreceived prior systemic therapy and the majority of patients had received morethan one prior systemic regimen. Panitumumab was generally well tolerated. Noallergic reactions, clinically significant infusion-related reactions, orhuman anti-human antibody formation were observed. A dose-relatedtypical EGFr mediated skin rash was observed with an incidence of 100% at adose level of 2.5 mg/kg. Single agent biological activity was seen in thisheavily pre-treated patient population with 3 partial responses, 2 minorresponses and 50% stable disease reported. A second part of this studyevaluated single agent panitumumab therapy (2.5 mg/kg/week) in 107 patientswith metastatic renal cell cancer who had either received only one priorsystemic biologic therapy or no prior systemic therapy. An analysis of this study was presented at the Fourth InternationalKidney Cancer Symposium in October 2005. In patients with metastatic renalcell cancer who had either not received any prior systemic therapy or hadreceived one prior biologic therapy, no objective tumor response was observed. Panitumumabwas generally well tolerated. Further analysis of the data is ongoing.

*Additional Studies.**  *Amgen has also initiated anadditional study to evaluate panitumumab in metastatic colorectal cancerpatients with tumors having low or undetectable levels of EGFr. Further Phase 1and 2 clinical studies evaluating panitumumab in different tumor types eitheras a single agent or in combination with different chemotherapeutic agents ortargeting agents have been initiated and are expected to be initiated from timeto time.

*ABX-10241(ABX-PTH)*

Secondary hyperparathyroidism (SHPT) is a chronicdisorder that is frequently observed in patients with chronic renal disease. Asrenal function declines, abnormal calcium and phosphorus metabolism andimpaired vitamin D synthesis combine to increase serum parathyroid hormone(PTH). Typically, thecondition begins to manifest before dialysis and worsens while on hemodialysisoften resulting in enlargedparathyroid glands that are refractory to treatment. SHPT can lead tosignificant morbidity including bone disease, soft tissue calcification andincreased cardiovascular disease.

According to the U.S. Renal Data System, in 2002,there were over 300,000 hemodialysis patients in the United States, asignificant proportion of whom suffer from SHPT. Currently available therapiesincluding calciumsupplements, nonabsorbable phosphate binders, cinacalcet HCI (Sensipar®)and vitamin D, can be associated with limited efficacy, poor compliance orsignificant toxicities.

Using our proprietary technology, we have generated anovel antibody known as ABX-10241, to target and neutralize the action ofparathyroid hormone. We are developing ABX-10241 as a potential treatmentfor secondary hyperparathyroidism. This fully human antibody has a novelmechanism of action that, in preclinical studies, neutralizes PTH by directlylowering serum levels of free PTH. We believe that ABX-10241could provide a significant therapeutic advance for the SHPT population bydirectly reducing bioactive PTH levels, rather than relying on the indirectmechanisms provided by current therapies.

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*Clinical Status.**  *In December 2003, we filed anIND and in February 2004 we initiated a Phase 1 single dose escalationclinical trial of ABX-10241 for the treatment of patients with SHPT. Preliminary results from an interim analysisof this ongoing study were presented during a poster presentation at the 26th Annual Meeting of the AmericanSociety for Bone and Mineral Research in October 2004. ABX-10241treatment resulted in dose related suppression of parathyroid hormone and adose related reduction in serum calcium. Intravenous bolus administration wasgenerally well tolerated. Enrollment in this study is complete. We initiated amulti-dose Phase 1 trial of ABX-10241 in September 2005 andenrollment in this trial is ongoing.

**Summary of Contractual Arrangements**

*Overview*

We have entered into a variety of contractualarrangements to use our XenoMouse and XenoMax technologies to generate and/ordevelop fully human antibodies against numerous antigens or to manufacturefully human antibodies. The following is a summary of these relationships.

*Amgen Collaboration*

In 2000, we entered into a joint development andcommercialization agreement with Immunex, now a wholly-owned subsidiary ofAmgen, for the co-development of ABX-EGF, now known as panitumumab. We amendedthis agreement in October 2003. Under the amended agreement, Amgen hasdecision-making authority for development and commercialization activities andwe have the right to co-promote panitumumab in the United States. In 2005, wedecided to pursue the co-promotion of panitumumab with Amgen in the UnitedStates. Under the joint development and commercialization agreement, we areobligated to pay 50% of the worldwide development and commercialization costsand we are entitled to receive 50% of any profits from sales of panitumumabworldwide. As of December 31, 2005, Amgen had advanced $60 million, theentire amount available under the agreement, which we have used to fund aportion of our share of development and commercialization costs forpanitumumab. The amount of any such advances, plus interest, may be repaid outof profits resulting from future product sales; however, we are generally notobligated to repay any portion of the outstanding balance if panitumumab doesnot reach commercialization. Under a separate agreement with Amgen, we aremanufacturing clinical supplies of panitumumab for the collaboration and willmanufacture commercial supplies for the first five years after commerciallaunch, with Amgen’s support and assistance. The costs of manufacturing clinicaland commercial supplies are also shared equally.

*AstraZeneca Collaboration*

*We entered into a collaboration andlicense agreement with AstraZeneca in October 2003 for the discovery,development and commercialization of fully human monoclonal antibodies to treatcancer.  This alliance involves the jointdiscovery and development of therapeutic antibodies for up to 36 cancer targetsto be commercialized worldwide by AstraZeneca exclusively.  We will conduct early stage preclinicalresearch on behalf of AstraZeneca with respect to some or all of these targets,and have initiated research programs for numerous targets.  To date, we and AstraZeneca have selected 28targets for inclusion in the collaboration, including several for which we hadpre-existing preclinical programs.  Forany resulting products, we may receive milestone payments at various stages ofdevelopment and royalties on future product sales.  AstraZeneca may make milestone payments to usof up to $51 million per candidate that is developed under the agreement, andfor any antibody we choose to develop to a target that is discontinued from thecollaboration, we may pay AstraZeneca up to $15 million.  In addition, we may conduct early clinicaltrials, process development and clinical manufacturing, as well as commercialmanufacturing during the first five years of commercial sales, and would becompensated for those activities at competitive market rates.  The collaboration also gives us the right toselect and develop an additional pool of antibodies against up to 18 targets,which the companies may elect to further codevelop on an equal cost and profitsharing basis.  Subject to a number ofexceptions, we will work exclusively with AstraZeneca to*

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*generate and develop antibodies fortherapeutic use in the field of oncology during a three-year target selectionperiod.  These exceptions include, amongothers, work on antibodies directed at antigens that are or become subject toexisting collaborations and antigens that we and AstraZeneca decide not topursue in the collaboration, and certain process development and manufacturingservices.  In connection with thiscollaboration, AstraZeneca made a $100 million investment in Abgenixsecurities.  Upon the achievement ofcertain milestones, we may require AstraZeneca to invest up to an additional$60 million in our convertible preferred stock. On February 28, 2006, pursuant to the terms of our merger agreement withAmgen, we redeemed all the issued and outstanding shares of our Series A-1Preferred Stock (50,000 shares), all of which were held by AstraZeneca, for $50million.  AstraZeneca still holds theconvertible subordinated note issued by the Company with a principal amount of$50 million.*

*Joint DevelopmentCollaborations*

We have entered into joint development andcommercialization arrangements for the development of fully human antibodytherapeutic products with a number of collaborators, including Microscience,Sosei, Dendreon, Chugai and U3 Pharma. Development activities under theseagreements are in various early stages. Pursuant to these arrangements we andour collaborators typically share equally the costs of development andcommercialization as well as any profits from the collaboration. We may enterinto additional joint development agreements for other product candidates.

*Technology Out-Licensing*

We have licensed our XenoMouse technology to thirdparties for the purpose of generating antibody product candidates to one ormore specific antigens provided by the customer. We may also use our XenoMaxtechnology on the customer’s behalf. Pursuant to these contracts, we and ourcustomers intend to generate antibodies for development as product candidatesfor the treatment of cancer, inflammation, autoimmune diseases, cardiovasculardisease, neurological diseases, metabolic diseases, infectious diseases andother diseases. The customer generally has an option for a period of time toacquire a product license for any antibody identified using XenoMousetechnology that the customer wishes to develop and commercialize. The financialterms of these agreements may include license fees, option fees and milestonepayments paid to us by the customers. Based on our agreements, these paymentsand fees would average from approximately $7.0 million to $10.0 millionper antibody if our customer takes the antibody into development and ultimatelyto commercialization. Generally, under these agreements, our collaborators areresponsible for the costs of product development, manufacturing andcommercialization. Additionally, these license agreements entitle us to receiveroyalties on any future product sales by the customer.

*Production Services*

We have entered into a limited number of contracts forprocess sciences and manufacturing services. We can offer a variety of processdevelopment, cell banking and clinical and commercial scale manufacturingservices for antibody product candidates to existing and new customers toabsorb production services capacity we are not using for our proprietaryproduct candidates. Pursuant to such arrangements we may receive fees and, insome circumstances, royalties from future product sales.

**Intellectual Property**

Proprietary protection for our products, processes andknow-how is important to our business. We rely on patents, trade secrets andproprietary know-how to protect our intellectual property rights. We plan toaggressively prosecute and defend our patents and proprietary technology.

Undera comprehensive patent cross-license and settlement agreement that we, CellGenesys, Xenotech and Japan Tobacco signed with GenPharm in March 1997, wehave licensed on a non-exclusive basis certain patents, patent applications,third-party licenses and inventions pertaining to the development 

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and use of certain transgenic rodents, including mice thatproduce fully human antibodies. We use our XenoMouse technology to generatefully human antibody products and believe that we do not use any transgenicrodents developed or used by GenPharm. All of our financial obligations inconnection with the cross-license were recorded in 1997.

In2000, the Japanese Patent Office granted a patent to Kirin Beer KabushikiKaisha, one of our competitors, relating to non-human transgenic mammals. In October 2003,the United States Patent and Trademark Office issued a corresponding patent toKirin. Kirin has filed corresponding patent applications in Europe andAustralia. Our licensee, Japan Tobacco, filed opposition proceedings againstthe Kirin patent in Japan and in July 2004 the Patent Appeals Board inJapan upheld the patent, subject to certain claim amendments. We use ourXenoMouse technology to generate fully human antibody products and believe thatwe do not use the Kirin technology.

Genentech,Johnson & Johnson, GlaxoSmithKline plc, Transkaryotic Therapies, Inc.and the Trustees of the Columbia University in the City of New York each ownsor controls a U.S. patent that relates to recombinant cell lines or methods ofgenerating recombinant cell lines for the production of antibodies. We do notbelieve that these patents would be successfully asserted against any of ourcurrent or planned activities. If a court determines that the claims of any ofthese patents cover our activities and are valid, such a decision may requireus to obtain a license or licenses. Under these circumstances, our failure toobtain a license at all or on commercially reasonable terms could impedecommercialization of one or more of our products.

ImClone Systems, Inc. owns or is licensed underpatents issued in the United States, Canada and Europe, relating to inhibitingthe growth of tumor cells that involves an anti-EGF receptor antibody incombination with an anti-neoplastic agent. Abgenix and others are opposing theEuropean patent in the European Patent Office. However, we do not believe thatany of the ImClone patents would be successfully asserted against any of ourcurrent or planned activities relating to panitumumab or future commercialsales of panitumumab. If a court determines that the claims of the ImClonepatents cover our activities with panitumumab and are valid, such a decisionmay require us to obtain a license to ImClone’s patents, in order for us tolabel and sell panitumumab for certain combination therapies. Our failure toobtain a license at all or on commercially reasonable terms could impede ourcommercialization of panitumumab.

**GovernmentRegulation**

Ourproduct candidates under development are subject to extensive and rigorousdomestic government regulation and will be subject to further regulation ifapproved for commercial sale. The FDA regulates, among other things, thedevelopment, testing, manufacture, safety, efficacy, record keeping, labeling,storage, approval, advertising, promotion, sale and distribution ofbiopharmaceutical products. If we market our products abroad, they will also besubject to extensive regulation by foreign governments. Non-compliance withapplicable requirements can result in fines, warning letters, recall or seizureof products, clinical study holds, total or partial suspension of production,refusal of the government to grant approvals, withdrawal of approval, and civiland criminal penalties.

We believe ourantibody therapeutic products will be classified by the FDA as “therapeuticbiologic products” as opposed to “drug products.”  On October 1, 2003, the FDA transferredcertain oversight responsibility for therapeutic biologic products from theCenter for Biologics Evaluation and Research (CBER) to the Center for DrugProducts Evaluation and Research (CDER). The FDA has stated that biologicproducts transferred to CDER will continue to be regulated as biologics. Thesteps ordinarily required before a biological product may be marketed in theUnited States include:

·       preclinical testing;

·       submission to the FDA of anIND which must become effective before clinical trials may commence;

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·       adequateand well-controlled clinical trials to establish the safety and efficacy of thebiologic;

·       submissionto the FDA of a Biologic License Application, or BLA, for the approval tomarket the product; and

·       FDAapproval of the application, which encompasses inspection and licensing of themanufacturing facility for commercial production of product and approval of allproduct labeling.

Preclinical testing includes laboratory evaluation ofproduct chemistry, formulation and stability, as well as animal studies toassess the potential safety and efficacy of each product. Laboratories thatconduct preclinical safety tests must comply with FDA regulations regardinggood laboratory practices. We submit the results of the preclinical tests,together with manufacturing information, analytical data and clinical studyplans, to the FDA as part of the IND and the FDA reviews those results beforethe commencement of clinical trials. Unless the FDA objects to an IND, the INDwill become effective 30 days following its receipt by the FDA. If wesubmit an IND, our submission may not result in FDA authorization to commenceclinical trials. Also, the lack of an objection by the FDA does not mean itwill ultimately approve an application for marketing approval. Furthermore, wemay encounter problems in clinical trials or in manufacturing clinical suppliesthat cause us or the FDA to delay, suspend or terminate our trials.

Clinical trials involve the administration of theinvestigational product to humans under the supervision of a qualifiedprincipal investigator. We must conduct clinical trials in accordance with GoodClinical Practice regulations under protocols submitted to the FDA as part ofthe IND. In addition, each clinical trial site must have approval from andconduct the trial under the auspices of an Institutional Review Board and withpatient informed consent. The Institutional Review Board will consider, amongother things, ethical factors, the safety of human subjects and the possibilityof liability of the institution conducting the trial.

We conduct clinical trials in three sequential phasesthat may overlap. Phase 1 clinical trials may be performed in healthy humansubjects or, depending on the disease, in patients. The goal of a Phase 1clinical trial is to establish initial data about safety and tolerability ofthe biologic agent in humans. In Phase 2 clinical trials, we seek preliminaryevidence of the desired therapeutic efficacy of a biologic agent in limitedstudies of patients with the target disease. We make efforts to evaluate theeffects of various dosages and to establish an optimal dosage level and dosingschedule. We also gather additional safety data from these studies. The Phase 3clinical trial program consists of expanded, large-scale, multi-centerstudies of persons who are susceptible to or have developed the disease. Apivotal study is designed to meet registration requirements. Phase 3 studiesthat are designed for registration purposes are considered pivotal studies andPhase 2 studies specifically designed for registration purposes also can bepivotal studies. The goal of these studies is to obtain clinically andstatistically significant evidence of the efficacy and relevant safety data ofthe proposed product and dosage regimen.

Antibodytherapeutic products must be manufactured by an appropriately validated processand in a facility that complies with FDA good manufacturing practiceregulations and other regulations. Good manufacturing  practice regulations include requirementsrelating to quality control and quality assurance as well as the correspondingmaintenance of records and documentation. In addition, the FDA and otherregulatory authorities will require us to register any manufacturing facilitiesin which our antibody therapeutic products are manufactured. These facilitieswill be subject to periodic and unannounced inspections to confirm continuedcompliance with FDA good manufacturing practices or other regulations. The FDAor foreign regulatory bodies will not grant pre-market approval of our productcandidates if the facilities in which they are manufactured cannot pass apre-license inspection. In addition, manufacturing facilities in California,including our facility, are also subject to the licensing requirements of andinspection by the California Department of Health Services.

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For clinical investigation and marketing outside theUnited States, we are subject to the regulatory requirements of othercountries, which vary from country to country. The regulatory approval processin other countries includes requirements similar to those associated with FDAapproval set forth above.

**Competition**

Thebiotechnology and pharmaceutical industries are highly competitive and subjectto significant and rapid technological change. We face competition in severaldifferent forms. Our antibody generation activities currently face competitionfrom several companies and technologies. In addition, the product candidatesthat we, our partners or customers are developing also face competition frombiologic and small molecule products as well as other treatment modalities.

Weare aware of several pharmaceutical and biotechnology companies that areactively engaged in research and development in areas related to antibodytherapy. Many of these companies have commenced clinical trials of antibodytherapeutic product candidates or have successfully commercialized antibodytherapeutic products. Many of these companies are addressing the same diseasesand disease indications as we or our customers are.

We compete with companies that offer the services ofgenerating monoclonal antibodies for antibody-based therapeutics. Many of thesecompetitors have specific expertise or technology related to antibody developmentand introduce new or modified technologies from time to time. One suchcompetitor is Medarex, through its wholly owned subsidiary GenPharm. Othercompanies are also developing or have developed technologies for generatinghuman or partially human antibodies, including Avanir Pharmaceuticals, XTLBiopharmaceuticals Ltd., Kirin Brewing Co. and GenMab. Several companies aredeveloping, or have developed, technologies, not involving animal immunization,that result in libraries composed of numerous human antibody sequences. CambridgeAntibody Technology Group, Dyax, MorphoSys and Alexion Pharmaceuticals, Inc.are using libraries of human antibody genes to develop therapeutic productscomprising human antibody sequences.

*Panitumumab*

Weare aware of several companies that have approved products or productcandidates in clinical testing that target the EGF receptor and therefore maycompete with panitumumab. These include, but are not limited to ImClone andBristol Myers Squibb with cetuximab (Erbitux®),OSI Pharmaceuticals, Inc. and Genentech, Inc. with erlotinib (TarcevaTM),and AstraZeneca with gefitinib (IressaTM). Other potential competitors includePfizer, GlaxoSmithKline, Novartis, Merck KGaA, Wyeth, Medarex, Genmab and YMBioscience Inc.

In February 2004,ImClone and Bristol-Myers Squibb received approval from the FDA to marketErbitux in the United States for use in combination with irinotecan in thetreatment of patients with metastatic colorectal cancer who are refractory toirinotecan-based chemotherapy and for use as a single agent in the treatment ofpatients with metastatic colorectal cancer who are intolerant toirinotecan-based chemotherapy. ImClone andBristol-Myers Squibb have also announced the submission of an application forapproval to market Erbitux in Canada in combination with irinotecan forthe treatment of patients with irinotecan-refractory metastatic colorectalcancer. In June 2004, Merck KGaA received approval to market Erbitux inthe European Union in combination with irinotecan for the treatment of patientswith metastatic colorectal cancer after failure of irinotecan-includingcytotoxic therapy. Merck KGaA has also gained approval for use of Erbitux incombination with irinotecan in patients with metastatic colorectal cancer whohave failed prior irinotecan therapy in Switzerland in December 2003. Erbituxwas also approved in Argentina and Mexico in May 2004 and in Chile in June 2004,for use in combination with irinotecan or as a single agent in patients withmetastatic colorectal cancer after failure of irinotecan-including cytotoxictherapy. Additionally, Erbitux has beenapproved for use in squamous cell carcinoma of the head and neck in the UnitedStates and Switzerland and has received a positive opinion from the 

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Committee for Medicinal Productsfor Human Use, the scientific committee of the European Medicines Agency, forits application to extend the use of Erbitux to the treatment of thisindication.

On February 26,2004, Genentech announced that the FDA approved bevacizumab (Avastin) fortreatment in first-line metastatic colorectal cancer. Avastin is an approvedtherapeutic antibody designed to inhibit vascular endothelial growth factor, aprotein that plays a role in tumor angiogenesis (the formation of new bloodvessels to the tumor) and maintenance of existing tumor blood vessels.

On May 5,2003, AstraZeneca received approval from the FDA to market Iressa, a smallmolecule product indicated as monotherapy for the treatment of patients withlocally advanced or metastatic advanced non-small cell lung cancer afterfailure of both platinum-based and docetaxel chemotherapies. AstraZeneca alsoreceived approval in many other markets in the world, including Japan,Australia and Canada, for the treatment of advanced non-small cell lung cancer.On January 4, 2005, AstraZeneca announced that it was withdrawing itsapplication for marketing authorization of Iressa in the European Union for thetreatment of non-small cell lung cancer in view of trial results that did notmeet the approval requirements for the application.

On November 18, 2004, Genentech and OSI announcedthat they received approval from the FDA to market Tarceva in the United Statesfor the treatment of patients with locally advanced or metastatic advancednon-small cell lung cancer after failure of at least one prior chemotherapy regimen.

*ABX-10241*

On March 8,2004, Amgen announced that it had received approval to market cinacalcet HC1(Sensipar®), a small molecule productthat may compete with ABX-10241, in the United States for the treatmentof secondary hyperparathyroidism in chronic kidney disease patients on dialysisand the treatment of elevated calcium levels in patients with parathyroidcarcinoma. Amgen received approval to market cinacalcet HC1 as Mimpara® in Europe andCanada and has applied for regulatory approval in Australia and New Zealand. Thereare several other approved products to treat secondary hyperparathyroidism andrelated metabolic conditions, including Abbott’s Zemplar, and Genzyme’sHectorol and Renagel products.

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

·       developing products;

·       undertaking preclinicaltesting and human clinical trials;

·       obtaining FDA and otherregulatory approvals of products; and

·       manufacturing and marketingproducts.

Accordingly,our competitors may succeed in obtaining patent protection, receiving FDAapproval or commercializing products before we do. If we commence commercialproduct sales, we will be competing against companies with greater marketingand manufacturing capabilities, areas in which we have limited or noexperience.

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

·       other drug development technologiesand methods of preventing or reducing the incidence of disease;

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·       newsmall molecules, antibodies or biologics; or

·       otherclasses of therapeutic agents.

Developments bycompetitors may render our product candidates or technologies obsolete ornon-competitive. We face and will continue to face intense competition from othercompanies for agreements with pharmaceutical and biotechnology companies, forestablishing relationships with academic and research institutions, and forlicenses to proprietary technology.

**Antibody Production**

Our antibody production activities, also referred toas production services, include closely integrated process sciences andmanufacturing capabilities for the manufacture of therapeutic productcandidates. We use this capability for the manufacture of our own proprietaryproducts candidates and also may offer these services to our collaborators andothers. We believe the close integration between process sciences andmanufacturing enables us to streamline the production process. Within our pilotplant, our process sciences services include cell line development,optimization and production scale up. The resulting process can be transitionedto our manufacturing facility.

Our manufacturing facility is designed to manufactureproduct candidates for clinical trials and to support the potential commerciallaunch of a limited number of products in compliance with FDA and European goodmanufacturing practices. In May 2000, we signed a long-term lease for thebuilding that contains this manufacturing facility. Construction has beencompleted and portions of the facility are operational and validated. In October 2003,following an inspection by the State Department of Health Services, we receiveda Drug Manufacturing License from the State of California. The license permitsus to manufacture and ship clinical material from our manufacturing facility. Thetotal cost of constructing the facility was approximately $150 million. Wecurrently have excess production services capacity; however, if the commerciallaunch of one of our product candidates proves successful, we may experiencecapacity shortages and may need to use one or more third-party facilities toproduce these products in sufficient commercial quantities.

Previously, we relied oncontract manufacturers to produce candidates under good manufacturing practiceregulations for use in our clinical trials. We continually evaluate our optionsfor commercial production of our product candidates, including use ofthird-party manufacturers or entering into a manufacturing joint venturerelationship with a collaborator or other third party. We are aware of only alimited number of companies on a worldwide basis that operate manufacturingfacilities in which our product candidates can be manufactured under goodmanufacturing practice regulations. It may take a substantial period of timefor a contract manufacturing facility that has not been producing antibodies tobegin producing antibodies in compliance with good manufacturing practiceregulations and we may not be able to contract with any of these companies onacceptable terms, if at all.

**Employees**

As of December 31, 2005, we employed 440 persons.We also use temporary contractor personnel to fill staffing needs from time totime.

Our success will depend inlarge part upon our ability to attract and retain employees. We facecompetition in this regard from other companies, research and academicinstitutions, government entities and other organizations. We believe that wemaintain good relations with our employees.

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**Executive Officers**

Thenames and ages of our executive officers are as follows:

| **Name**               | ** ** | ** ** | ** ** | **Age** | ** ** | **Position(s)**                                             | ** ** |
|------------------------|------------|------------|------------|---------|------------|-------------------------------------------------------------|------------|
| William R. Ringo       |       |       | 60         |    |       | President,  Chief Executive Officer and Director            |       |
| H. Ward Wolff          |       |       | 57         |    |       | Senior  Vice President, Finance and Chief Financial Officer |       |
| Donald R. Joseph       |       |       | 52         |    |       | Senior  Vice President, General Counsel and Secretary       |       |
| Jeffrey H. Knapp       |       |       | 40         |    |       | Senior  Vice President, Sales and Marketing                 |       |
| Kristen Metza          |       |       | 46         |    |       | Senior  Vice President, Human Resources                     |       |
| Gayle M. Mills         |       |       | 51         |    |       | Senior  Vice President, Business Development                |       |
| Gisela M. Schwab, M.D. |       |       | 49         |    |       | Chief Medical Officer                                       |       |

 

*WilliamR. Ringo* has served as our Chief Executive Officer andPresident and as a Director since August 2004. From 1973 to 2001, Mr. Ringoheld various commercial and product marketing positions at Eli Lilly and Company,including president of the company’s Oncology and Critical Care Product teams.Mr. Ringo also served as president of Eli Lilly’s Internal MedicineProducts unit and as president of its Infectious Diseases business unit. Previously,he was vice president of Sales and Marketing for Eli Lilly’s U.S.pharmaceutical operations, after holding a variety of positions in generalmanagement, marketing and business planning across Eli Lilly’s pharmaceuticaland devices businesses. Mr. Ringo is currently the non-executive chairmanof the board of directors of InterMune, Inc. and served as interim ChiefExecutive Officer from June to September 2003. He has served as adirector on a number of biotechnology company boards and he is currently adirector of Inspire Pharmaceuticals, Inc. Mr. Ringo received a B.S.degree in management and an M.B.A. degree from the University of Dayton.

*H.Ward Wolff***hasserved as our Chief Financial Officer and Senior Vice President, Finance, sinceSeptember 2004. From 2002 to 2003, Mr. Wolff served as ChiefFinancial Officer of QuantumShift. From 1998 to 2002, he was Senior VicePresident and Chief Financial Officer of DoubleTwist, Inc. and from 1992to 1998, he was Senior Vice President of Finance and Administration and ChiefFinancial Officer of Premenos Technology Corporation. From 1985 to 1992, Mr. Wolffwas an Executive Director of Russell Reynolds Associates, Inc. From 1974to 1985, Mr. Wolff held numerous positions with Price Waterhouse, as acertified public accountant, including Senior Audit Manager. Mr. Wolffreceived a B.A. degree in Economics from the University of California atBerkeley and an M.B.A. degree from Harvard Business School.

*DonaldR. Joseph* has served as our Senior Vice President,General Counsel and Secretary since March 2005. From 2004 to 2005, Mr. Josephwas a partner and co-founder of Alekta Group, LLC, a specialty pharmaceuticalconsulting group and development company. From 2001 to 2004, he served asExecutive Vice President, Commercial Development of Amarin Corporation, PLC andas Executive Vice President, Legal and Commercial Development of its U.S.subsidiary, Amarin Pharmaceuticals, Inc. From 1998 to 2001, Mr. Josephserved in a number of senior roles at Elan Pharmaceuticals, North America, mostrecently as Senior Vice President, Commercial and Legal Affairs and, from 1994to 1998, at Athena Neurosciences, Inc., most recently as Vice Presidentand General Counsel. Prior to joining Athena, Mr. Joseph was a partner atthe law firm of Baker & McKenzie. Mr. Joseph received a B.A.degree from the University of Oklahoma and a J.D. degree from the University ofTexas Law School.

*JeffreyH. Knapp* has served as our Senior Vice President,Sales and Marketing since November 2005. From October 2004 to July 2005,Mr. Knapp served as Vice President, Sales and Marketing, at PharmionCorporation, a global pharmaceutical company focused on hematology and oncology.From November 2001 to October 2004, he was Vice President, U.S. Salesand Marketing, at EMD Pharmaceuticals, an U.S. affiliate of Merck KGaA. Priorto joining EMD, Mr. Knapp held several 

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positions at Eli Lilly,including Global Marketing Director for the company’s oncology franchise.Mr. Knapp received a B.A. degree in Biology from Wittenberg University.

*KristenMetza***hasserved as our Senior Vice President, Human Resources since January 2005. Priorto joining Abgenix, Ms. Metza served from 2001 to 2004 as Vice Presidentof Human Resources at Applied Biosystems, a developer of innovative productsand services for life science research, pharmaceutical research anddevelopment, diagnostics and agriculture. From 1997 until 2001, Ms. Metzawas Vice President, Human Resources and Communications for the Digital LinearTape Group at Quantum Corporation, a diversified mass storage company withleadership positions in both fixed and removable storage markets. Prior to herwork at Quantum, Ms. Metza worked in human resources leadership positionsat Motorola, Inc. and Allied Signal Inc. Ms. Metza received her B.A.degree from and completed her graduate coursework in Industrial Relations andOrganizational Psychology at the University of Minnesota.

*GayleM. Mills* has served as our Senior Vice President,Business Development since June 2004 and from September 2000 to June 2004served as our Vice President, Business Development. From 1998 to September 2000,Ms. Mills was Vice President, Business Development at Eos Biotechnology, Inc.,a biopharmaceutical company. From 1995 to 1998, Ms. Mills was VicePresident, Business Development and Strategic Marketing for the NeurobiologyUnit at Roche Bioscience. Ms. Mills served as Director, BusinessDevelopment both at Affymax Technologies from 1993 to 1995 and at Syntex Corp.from 1991 to 1993. Ms. Mills received a B.S. degree in Business Administrationfrom the College of Notre Dame and an M.B.A. degree from Santa ClaraUniversity.

*Gisela M. Schwab, M.D.*has served as our Chief Medical Officer since January 2002 and from November 1999until December 2001 as our Vice President, Clinical Development. From September 1992to October 1999, Dr. Schwab held various positions at Amgen, abiotechnology company, most recently as Director, Clinical Research andTherapeutic Area Team Leader for Oncology/Hematology. Dr. Schwab receivedan M.D. degree from the University of Heidelberg in Germany. She is boardcertified in hematology and oncology and has performed research in molecularbiology at the National Cancer Institute in Bethesda, Maryland, and at theFrench National Institute for Health and Research in Paris.

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**Item 1A.   Risk Factors**

**Risks Related to our Finances**

*We are an earlystage company without commercial therapeutic products, and we cannot assure youthat we will develop sufficient revenues in the future to sustain our business.*

You must evaluate us inlight of the uncertainties and complexities present in an early stagebiopharmaceutical company. With the exception of panitumumab, all of ourproduct candidates are in early stages of development. We will need to makesignificant additional investments in research and development, preclinicaltesting, clinical trials, and regulatory, and sales and marketing activities,to commercialize current and future product candidates. Our product candidates,if successfully developed and approved for marketing, may not generate sufficientor sustainable revenues to enable us to be profitable.

*We have a historyof losses and we expect to continue to incur losses for the foreseeable future.*

We have incurred net losses since we were organized asan independent company, including in the last five years net losses of$60.9 million in 2001, $208.9 million in 2002, $196.4 million in2003, $187.5 million in 2004 and $207.0 million in 2005. As of December 31,2005, our accumulated deficit was $959.2 million. Our losses to date haveresulted principally from:

·       researchand development costs relating to the development of our XenoMouse and XenoMaxtechnologies and antibody product candidates, including panitumumab;

·       manufacturingstart-up costs related to our manufacturing facility including depreciation,costs of outside contractors and personnel for quality assurance and qualitycontrol activities;

·       generaland administrative costs relating to our operations;

·       impairmentcharges related to our strategic investments in CuraGen, ImmunoGen, and MDSProteomics; and

·       impairmentcharges relating to acquired technologies, including our SLAM technology andtechnologies in the fields of intrabodies and catalytic antibodies.

We expect to incuradditional losses for the foreseeable future as a result of our research anddevelopment costs and manufacturing start-up costs, including costs associatedwith conducting preclinical development and clinical trials, which willcontinue to be substantial. We intend to invest significantly in our productsprior to entering into licensing agreements. This will increase our need forcapital and will result in losses for at least the next several years. Weexpect that the amount of operating losses will fluctuate significantly fromquarter to quarter as a result of increases or decreases in our research anddevelopment efforts, the execution or termination of licensing, manufacturingand other contractual arrangements, the progress or lack of progress of productdevelopment candidates in our collaboration with AstraZeneca, the initiation,success or failure of clinical trials and whether any of our productcandidates, including panitumumab, achieve commercial success.

*We are currentlyunprofitable and may never be profitable, and our future revenues couldfluctuate significantly.*

Since our founding, we have funded our research anddevelopment activities primarily from private placements and public offeringsof our securities and from revenues generated by our licensing and othercontractual arrangements.

Prior to anymarketing approval of panitumumab, we expect that substantially all of ourrevenues for the foreseeable future will result from payments under licensingand other contractual arrangements. To date, payments under licensing and otheragreements have been in the form of license fees, milestone 

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payments,reimbursement for research and development expenses, option fees, and paymentsfor manufacturing services. Payments under our existing and any future customeragreements will be subject to significant fluctuation in both timing andamount. Our revenues may not be indicative of our future performance or of ourability to continue to achieve contractual milestones. Our revenues and resultsof operations for any period may also not be comparable to the revenues orresults of operations for any other period. Our revenues for any period may notbe sufficient to cover our operating costs, including the costs of operatingour manufacturing plant. We may not be able to:

·       enterinto further co-development, licensing, manufacturing or other agreements;

·       successfullycomplete preclinical development or clinical trials;

·       obtainrequired regulatory approvals;

·       successfullymanufacture or market product candidates; or

·       generateadditional revenues or profitability.

Our failure to achieve anyof the above goals would materially harm our business, financial condition andresults of operations.

*We may requireadditional financing, and an inability to raise the necessary capital or to doso on acceptable terms would threaten the continued success of our business.*

We will continue toexpend substantial resources to support research and development and operateour manufacturing facility, including costs associated with preclinicaldevelopment and clinical trials. In the years ended December 31, 2005,2004 and 2003, we incurred expenses of $137.0 million, $124.4 million and $94.3million, respectively, on research and development. For the year ended December 31,2005, our manufacturing start-up costs were $18.3 million. Regulatory andbusiness factors will require us to expend substantial funds in the course ofcompleting required additional development, preclinical testing and clinicaltrials of, and attaining regulatory approvals for, product candidates. Theamounts of expenditures that will be necessary to execute our business plan aresubject to numerous uncertainties that may adversely affect our liquidity andcapital resources. Our future liquidity and capital requirements will depend onmany factors, including:

·       thescope and results of preclinical development and clinical trials;

·       theretention of existing and establishment of further co-development, licensing,manufacturing and other agreements, if any;

·       thedecisions of our collaborator, Amgen, under our co-development agreement forpanitumumab, which provides Amgen decision-making authority fordevelopment and commercialization activities and obligates us to share 50% ofthe development and commercialization costs;

·       continuedscientific progress in our research and development programs and the size andcomplexity of these programs;

·       thecost of operating our manufacturing facility, validating our processes andcomplying with good manufacturing practice regulations;

·       thecost of conducting commercialization activities and arrangements;

·       thetime and expense involved in seeking regulatory approvals;

·       competingtechnological and market developments;

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·       thetime and expense of filing and prosecuting patent applications, and enforcingand defending against patent claims;

·       ourinvestment in, or acquisition of, other companies;

·       theamount of product or technology in-licensing in which we engage;

·       theextent and duration of market exclusivity we can command for our products,through patent and regulatory laws; and

·       otherfactors not within our control.

We believe that ourcurrent cash balances, cash equivalents, marketable securities, and the cashgenerated from our licensing and other contractual arrangements, will besufficient to meet our operating and capital requirements for at least oneyear. However, because of the uncertainties in our business, including theuncertainties listed above, we cannot assure you that this will be the case. Inaddition, we may choose to obtain additional financing from time to time. We maychoose to raise additional funds through public or private equity or debtfinancing, licensing and other agreements, a bank line of credit, sale-leaseback financing, mortgage financing, asset sales or other arrangements. Wecannot be sure that any additional funding, if needed, will be available onterms favorable to us or at all. Furthermore, any additional equity or equity-relatedfinancing may be dilutive to our stockholders, and debt financing, ifavailable, may subject us to restrictive covenants and significant interestcosts. We may also choose to obtain funding through licensing and othercontractual arrangements. Such agreements may require us to relinquish ourrights to certain of our technologies, products or marketing territories. Ourfailure to raise capital when needed would harm our business, financialcondition and results of operations.

*Our indebtednessmay harm our financial condition and results of operations.*

AtDecember 31, 2005, we had $450.0 million principal amount of outstandingnotes, including $100.0 million of convertible subordinated notes dueMarch 15, 2007, $300.0 million of outstanding convertible senior notes dueDecember 15, 2011 and a $50.0 million note held by AstraZeneca due in2013. In addition, at December 31, 2005, we had accrued approximately$65.7 million in long-term liabilities to Amgen pursuant to our co-developmentagreement. We may incur additional indebtedness in the future. Our level ofindebtedness will have several important effects on our future operations, including,without limitation:

·       wewill have additional cash requirements in order to support the payment ofinterest on our outstanding indebtedness;

·       increasesin our outstanding indebtedness and leverage will increase our vulnerability toadverse changes in general economic and industry conditions, as well as tocompetitive pressure; and

·       dependingon the levels of our outstanding debt, our ability to obtain additionalfinancing for working capital, capital expenditures, general corporate andother purposes may be limited.

Our ability to make payments of principal and intereston our indebtedness depends upon our future performance, which will be subjectto general economic conditions, industry cycles and financial, business andother factors affecting our operations, many of which are beyond our control.If we are unable to generate sufficient cash flow from operations in the futureto service our debt, we may be required, among other things:

·       toseek additional financing in the debt or equity markets;

·       torefinance or restructure all or a portion of our indebtedness, including thenotes;

·       tosell selected assets;

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·       toreduce or delay planned capital expenditures; or

·       toreduce or delay planned operating expenditures, such as clinical trials.

Such measures might not besufficient to enable us to service our debt. In addition, any such financing,refinancing or sale of assets might not be available on economically favorableterms.

*Failure to completeour proposed acquisition by Amgen could adversely affect our stock price andfuture business and operations.*

On December 14,2005, we announced that we had entered into a definitive agreement to mergewith Amgen in an all-cash transaction. The proposed acquisition by Amgen issubject to the satisfaction of customary closing conditions, including approvalby Abgenix stockholders and other conditions described in the merger agreement.We cannot assure you that these conditions will be satisfied or that the mergerwill be successfully completed. In the event that the merger is not completed:

·       management’sattention may be diverted from our day-to-day business, we may lose keyemployees and our ongoing business and prospects, as well as relationships withcustomers and partners, may be disrupted by resulting uncertainties;

·       themarket price of shares of our common stock may decline to the extent that thecurrent market price of those shares reflects a market assumption that themerger will be completed; and

·       wewill be required to pay significant costs related to the merger, such as legal,accounting and advisory fees.

Any such events couldadversely affect our stock price and harm our business, financial condition andresults of operations.

*The restrictivecovenants of the merger agreement have placed, and will continue to place,significant restrictions on our business operations until the completion of themerger with Amgen.*

Pursuant to themerger agreement between the Company and Amgen, until the completion of themerger with Amgen, the Company is required to conduct its business in theordinary and usual course consistent with past practice. In addition, theCompany shall not, among other things, agree to do any of the following withoutthe prior written consent of Amgen:

·       acquireany corporation, partnership or other business organization or make any capitalexpenditure above certain threshold amounts;

·       issue,sell, pledge or dispose of any shares of the Company or stock options,warrants, calls, commitments or rights of the Company’s capital stock; or

·       enter into, modify, amendor terminate any contract relating to research, development, clinical trial,distribution, supply, manufacturing, marketing or co-promotion of, orcollaboration with respect to, any product or product candidate relating to theCompany’s current research and development.

**RisksRelated to the Development and Commercialization of our Products**

*Our XenoMouse andXenoMax technologies may not produce safe, efficacious or commercially viableproducts, which will be critical to our ability to generate revenues from ourproducts.*

Our XenoMouse and XenoMaxtechnologies are novel approaches to developing antibodies as products for thetreatment of diseases and medical disorders. To date, neither we nor ourcustomers have commercialized any antibody therapeutic products based on ourtechnologies. Moreover, we are not aware of any commercialized, fully humanantibody therapeutic products that have been generated from any 

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technologiessimilar to ours. Our antibody therapeutic product candidates are still invarious stages of development and many are in an early development stage. Todate, we have only initiated clinical trials with respect to fourXenoMouse-derived antibody therapeutic product candidates, and ourcollaborators have initiated clinical trials with respect to twelve otherXenoMouse-derived antibody therapeutic product candidates. We cannot be certainthat our technologies will generate antibodies against every antigen to whichthey are exposed in an efficient and timely manner, if at all. Furthermore, ourtechnologies may not result in any meaningful benefits to our current orpotential customers or in product candidates that are safe and efficacious forpatients. Our failure to generate commercial products with our technology wouldmaterially harm our business, financial condition and results of operations.

*If we do notsuccessfully develop our products, or if they do not achieve commercialsuccess, our business will be materially harmed.*

Our development ofcurrent and future product candidates, either alone or in conjunction withcollaborators, is subject to the risks of failure inherent in the developmentof new pharmaceutical products and products based on new technologies. Theserisks include:

·       delaysin product development, clinical testing or manufacturing;

·       unplannedexpenditures in product development, clinical testing or manufacturing;

·       failurein clinical trials or failure to receive regulatory approvals;

·       emergenceof superior or equivalent product development technologies or products;

·       disruptionin the available supply of our animal colony;

·       inabilityto manufacture on our own, or through others, product candidates on a clinicalor commercial scale;

·       inabilityto market products due to third party proprietary rights;

·       electionby our customers not to pursue product development;

·       failureby our customers to develop products successfully; and

·       failureto achieve market acceptance.

In certain instances, we have terminated the clinicaldevelopment of product candidates when the results of clinical trials did notwarrant continued development. We hope to be able to make up for the loss of diversityin our product pipeline through the number and variety of potential new productcandidates we have in preclinical development. However, to the extent that weare unable to maintain a broad and diverse range of product candidates, oursuccess would depend more heavily on one or a few product candidates.

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

*Before wecommercialize and sell any of our product candidates, we must conduct clinicaltrials, which are expensive and have uncertain outcomes.*

Conducting clinical trials is a lengthy,time-consuming and expensive process. Before obtaining regulatory approvals forthe commercial sale of any products, we must demonstrate through preclinicaltesting and clinical trials that our product candidates are safe and effectivefor use in humans. We have 

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incurred and will continueto incur substantial expense for, and we have devoted and expect to continue todevote a significant amount of time to, preclinical testing and clinicaltrials.

Completion of clinical trials may take several yearsor more. The length of time generally varies substantially according to thetype, complexity, novelty and intended use of the product candidate.

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

·       thenumber of patients that ultimately participate in the trial, which may beaffected by the availability of competing therapeutic alternatives;

·       thelength of time required to enroll suitable subjects;

·       theduration of patient follow-up that seems appropriate in view of the results;

·       thenumber of clinical sites included in the trials;

·       changesin regulatory requirements for clinical trials or any governmental orregulatory delays or clinical holds requiring suspension or termination of thetrials;

·       delays,suspensions or termination of the clinical trials due to the institutionalreview board responsible for overseeing the study at a particular study site;

·       regulatorypolicies regarding expedited approval procedures;

·       unforeseensafety issues; and

·       inabilityto manufacture on our own, or through others, adequate supplies of the productcandidate being tested.

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

In addition, we have ongoing research projects thatmay lead to product candidates, but we have not submitted INDs, nor begunclinical trials for these projects. Our ability to file additional INDs, and tobuild diversity and scale in our product portfolio, depends to a significantextent on our ability to identify additional potential product candidatesthrough our preclinical research and to conduct preclinical researchefficiently. Our preclinical or clinical development efforts may not besuccessfully completed, we may not file further INDs and clinical trials maynot commence as planned.

Two of our proprietary product candidates, panitumumaband ABX-10241, are in various stages of clinical trials. We havediscontinued clinical trials of three proprietary product candidates, ABX-MA1,ABX-CBL and ABX-IL8. To date, data obtained from these clinical trials havebeen insufficient to demonstrate safety and efficacy under applicable FDAguidelines. As a result, these data will not support an application forregulatory approval without further clinical trials. Clinical trials that weconduct or that third parties conduct on our behalf may not demonstrate sufficientsafety and efficacy to obtain the requisite regulatory approvals for any of ourproduct candidates. We expect to commence new clinical trials from time to timein the course of our business as our product development work continues.However, regulatory authorities may not permit us to undertake any additionalclinical trials for our product candidates. In addition, the FDA, otherregulatory authorities, our partners, the institutional review boards forclinical trial sites or we may suspend or terminate clinical trials at anytime.

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Our product candidates mayfail to demonstrate safety or efficacy in clinical trials. Failures of clinicaltrials of any product candidate could delay the development of other productcandidates or hinder our ability to obtain additional financing. In addition,failures in our clinical trials can lead to additional research and developmentexpenses. Any delays in, or termination of, our clinical trials could impedeour ability to commercialize our product candidates and materially harm ourbusiness, financial condition and results of operations.

*Success in early clinical trials may not be indicativeof results obtained in subsequent trials.*

Results from our earlystage clinical trials and those of our collaborators are based on a limitednumber of patients and may, upon review, be revised or negated by authoritiesor by later stage clinical trials. Historically, the results from preclinicaltesting and early clinical trials have often not been predictive of resultsobtained in later clinical trials. A number of new drugs and biologics haveshown promising results in clinical trials, but subsequently failed toestablish sufficient safety and efficacy data to obtain necessary regulatoryapprovals. Data obtained from preclinical and clinical activities are susceptibleto varying interpretations, which may delay, limit or prevent regulatoryapproval. In addition, we may encounter regulatory delays or rejections as aresult of many factors, including: changes in regulatory policy during the period of product development;delays in obtaining regulatory approvals to commence a study; lack of efficacyduring clinical trials; or unforeseen safety issues.

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

We have limited experiencemanufacturing antibody therapeutic product candidates in our manufacturingfacility. We intend to use our manufacturing facility for the manufacture ofproduct candidates for clinical trials and to support the potential early commerciallaunch of a limited number of products, in each case, in compliance with FDAand European good manufacturing practices. We have yet to manufacture acommercial product in our facility. In May 2000, we signed a long-termlease for the building that contains this manufacturing facility. Constructionhas been completed and the facility is operational, although portions of thefacility are still to be validated. In October 2003, following aninspection by the California State Department of Health Services, we received aState Drug Manufacturing License. The license permits us to manufacture andship clinical material from our manufacturing facility. The total cost of thefacility was approximately $150 million. The costs of completingvalidation of this facility and qualifying the facility for regulatorycompliance may be higher than expected. We currently have excess productionservices capacity and this condition may persist for an extended period.However, if the commercial launch of one or more of our product candidatesproves successful, we will likely experience capacity shortages and may need touse one or more third party facilities to produce these products in sufficientquantities.

The process ofmanufacturing antibody therapeutic products is complex. While the managers ofthe facility have gained extensive manufacturing experience in prior positionswith other companies, we have limited experience in the clinical or commercialscale manufacturing of our existing product candidates, or any other antibodytherapeutic products, in our facility. We will need to hire, train and retainadditional qualified manufacturing, quality control and quality assurancepersonnel. Also, we will need to manufacture such antibody therapeutic productsin a facility and by an appropriately validated process that comply with FDA,European and other regulations. Our manufacturing operations will be subject toongoing, periodic unannounced inspections by the FDA, European and otherforeign regulatory agencies and state regulatory agencies to ensure compliancewith good manufacturing practices and applicable health and safety regulations.If we are unable to manufacture product or product candidates in accordancewith FDA and European good manufacturing practices we may not be able to obtainregulatory approval for our products. Any significant manufacturing changes forthe production of our product candidates could result in delays in developmentor regulatory approval or in the reduction or 

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interruptionof commercial sales of our product candidates. Our inability to manufactureclinical or commercial supplies or to maintain our manufacturing operations incompliance with applicable regulations within our planned time and costparameters could materially harm our business, financial condition and resultsof operations.

Wealso may encounter problems with the following:

·       productionyields;

·       qualitycontrol and assurance;

·       availabilityof qualified personnel;

·       availabilityof raw materials;

·       adequatetraining of new and existing personnel;

·       ongoingcompliance with our standard operating procedures;

·       ongoingcompliance with FDA and other health authority regulations;

·       productioncosts; and

·       developmentof advanced manufacturing techniques and process controls.

In addition, the FDA andother regulatory authorities will require us to register any manufacturingfacilities in which our antibody therapeutic products are manufactured. Thesefacilities will be subject to periodic and unannounced inspections to confirmcompliance with FDA good manufacturing practices or other equivalentregulations. The FDA or foreign regulatory bodies will not grant pre-marketapproval of our product candidates, including panitumumab, if our facilitiescannot pass a pre-license inspection. Therefore, both the filing and approvalof a BLA for panitumumab could be delayed if we are unable to meet the relevantpre-license requirements and or if our facilities and operating systems do notpass a pre-license inspection. In complying with FDA regulations and foreignregulatory requirements, we will be obligated to expend time, money and effortin production, record keeping and quality control in an effort to ensure thatour product candidates meet applicable specifications and other requirements.Our failure to maintain regulatory compliance would materially harm ourbusiness, financial condition and results of operations.

*We may rely on third party manufacturers, and we mayhave difficulty conducting clinical trials or commercializing productcandidates if a manufacturer does not perform in accordance with ourexpectations.*

Previously, we relied oncontract manufacturers to produce candidates under good manufacturing practiceregulations for use in our clinical trials. While we have established our own manufacturingfacility, we cannot assure you that we will be able to qualify this facilityfor compliance with FDA and European good manufacturing practices ormanufacture sufficient quantities of our product candidates for clinical trialsor a potential early commercial launch. We continually evaluate our options forcommercial production of our product candidates, including third partymanufacturers.

Third party manufacturersmay encounter difficulties in scaling up production, including problemsinvolving production yields, quality control and assurance, shortage ofqualified personnel, shortage of capacity, compliance with FDA and otherapplicable regulations, production costs, and development of advancedmanufacturing techniques and process controls. They may not perform as agreedor may not remain in the contract manufacturing business for the time requiredby us to successfully produce and market our product candidates. Also, thirdparty manufacturers may have difficulty maintaining compliance with FDA goodmanufacturing practices or equivalent regulations, or having their facilitiespass a pre-license or routine inspection. Any failure of third partymanufacturers to deliver the required quantities of our product candidates forclinical use on a timely basis and at commercially reasonable 

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prices,and our failure to find replacement manufacturers or successfully implement ourown manufacturing capabilities, would materially harm our business, financialcondition and results of operations.

*The successful growth of revenues from ourmanufacturing services may depend on our ability to find third parties whoagree to use our services and our ability to provide those servicessuccessfully.*

We may enhance ourcontract revenues by entering into agreements to provide antibody productionservices to third parties. Potential third parties include our existingcollaborators, as well as other pharmaceutical and biotechnology companies,technology companies, academic institutions and other entities. We must enterinto these agreements to successfully develop this aspect of our business. Todate, we have entered into only a few production services agreements and wecannot assure you that we will be able to enter into additional agreements.

We may not be able tosecure manufacturing agreements on favorable terms. If we do obtain suchagreements, we may encounter difficulties in performing as agreed. We mayencounter difficulties in scaling up production, including problems involvingproduction yields, quality control and assurance, shortage of qualifiedpersonnel, training of personnel, compliance with FDA good manufacturingpractices and other applicable regulations, production costs, and developmentof advanced manufacturing techniques and process controls. The failure to deliverrequired quantities of product on a timely basis and at commercially reasonableprices could materially harm our business, financial condition and results ofoperations.

*The successful growth of our business depends in parton our ability to find third party collaborators to assist or share in thecosts of product development.*

Ourstrategy for the development and commercialization of antibody therapeuticproducts depends, in part, upon the formation of collaboration agreements withthird parties. Potential third parties include pharmaceutical and biotechnologycompanies, technology companies, academic institutions and other entities. Wemust enter into these agreements to successfully develop and commercializeproduct candidates. These agreements are necessary in order for us to:

·       accessproprietary antigens for which we can generate fully human antibody products;

·       fundresearch, preclinical development, clinical trials and manufacturing;

·       seekand obtain regulatory approvals; and

·       successfullycommercialize existing and future product candidates.

Our ability to continueour current collaborations and to enter into additional third partycollaborations is dependent in large part on our ability to successfullydemonstrate that our XenoMouse technology is an attractive method of developingantibody therapeutic products. We have generated only a limited number of fullyhuman antibody therapeutic product candidates pursuant to our collaborationagreements that have advanced to the clinical stage. Our failure to maintainour existing collaboration agreements or to enter into additional agreementscould materially harm our business, financial condition and results ofoperations.

Our dependence onlicensing, collaboration, manufacturing and other agreements with third partiessubjects us to a number of risks. These agreements may not be on terms thatprove favorable to us, and we typically afford our collaborators significantdiscretion in electing whether to pursue any of the planned activities.Licensing and other contractual arrangements may require us to relinquish ourrights to certain of our technologies, products or marketing territories. Tothe extent we agree to work exclusively with one collaborator in a giventherapeutic area, our opportunities to collaborate with other entities could becurtailed. For example, our collaboration with AstraZeneca for theidentification and development of 

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therapeuticantibodies in oncology contains exclusivity provisions that significantlyrestrict our ability, during a three-year target selection period, to enterinto arrangements with third parties in the field of oncology as well as ourability to conduct research and development activities in that field. To theextent that our collaboration with AstraZeneca is not successful, our abilityto develop antibodies for use in oncology applications through othercollaborations will be severely curtailed. Our collaboration with AstraZenecaalso limits our ability to develop such antibodies through our own independentdevelopment.

Wecannot control the amount or timing of resources our collaborators may devoteto a collaboration, and collaborators may not perform their obligations asexpected. Additionally, business combinations or significant changes in acollaborator’s business strategy may adversely affect a collaborator’swillingness or ability to complete its obligations under the arrangement. Evenif we fulfill our obligations under an agreement, typically our collaboratorscan terminate the agreement at any time following proper written notice. Thetermination or breach of agreements by our collaborators, or the failure of ourcollaborators to complete their obligations in a timely manner, couldmaterially harm our business, financial condition and results of operations. Ifwe are not able to establish further collaboration agreements or any or all ofour existing agreements are terminated, we may be required to seek newcollaborators or to undertake product development and commercialization at ourown expense. Such an undertaking may:

·       limitthe number of product candidates that we will be able to develop and reduce thelikelihood of successful product introduction;

·       significantlyincrease our capital requirements; and

·       placeadditional strain on our management’s time.

Existing or potentialcollaborators may pursue alternative technologies, including those of ourcompetitors, or enter into other transactions that could make a collaborationwith us less attractive to them. For example, if an existing collaboratorpurchases a company that is one of our competitors, that company could be lesswilling to continue its collaboration with us. Moreover, disputes may arisewith respect to the ownership of rights to any technology or products developedwith any current or future collaborator. Lengthy negotiations with potentialnew collaborators or disagreements between us and our collaborators may lead todelays in or termination of the research, development or commercialization ofproduct candidates or result in time-consuming and expensive litigation orarbitration. The decision by our collaborators to pursue alternativetechnologies or the failure of our collaborators to develop or commercializesuccessfully any product candidate to which they have obtained rights from uscould materially harm our business, financial condition and results ofoperations.

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

Our product candidatesunder development are subject to extensive and rigorous domestic governmentregulation. The FDA regulates, among other things, the development, testing,manufacture, safety, efficacy, record-keeping, labeling, storage,approval, advertising, promotion, sale and distribution of biopharmaceuticalproducts. If we market our products abroad, they will also be subject toextensive regulation by foreign governments. Neither the FDA nor any otherregulatory agency has approved any of our product candidates for sale in theUnited States or any foreign market. The regulatory review and approvalprocess, which includes preclinical studies and clinical trials of each productcandidate, is lengthy, expensive and uncertain. The recent withdrawal ofcertain approved products from the market may lead to longer review periods bythe FDA, particularly for product candidates being reviewed under anaccelerated approval process, or may result in requests for more extensivetrials or data.

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Securing FDAapproval requires the submission of extensive preclinical and clinical data,manufacturing data and supporting information to the FDA for each indication toestablish the product candidate’s safety and efficacy. The generation of datasupporting the approval process takes many years, requires the expenditure ofsubstantial resources, and may involve post-marketing surveillance andrequirements for post-marketing studies. As we conduct clinical trials for agiven product candidate, we may decide or the FDA may require us to makechanges in our plans and protocols. Such changes may relate to, for example,changes in the standard of care for a particular disease indication,comparability of efficacy and toxicity of materials where a change in materialsis proposed, or competitive developments foreclosing the availability ofexpedited approval procedures. We may be required to support proposed changeswith additional preclinical or clinical testing, which could delay the expectedtime line for concluding clinical trials. The approval of a product candidatemay depend on the acceptability to the FDA of data from clinical trialsconducted outside the United States. Regulatory requirements are subject tofrequent change. Delays in obtaining regulatory approvals may:

·       adverselyaffect the successful commercialization of any drugs that we or our customersdevelop;

·       imposecostly procedures on us or our customers;

·       diminishany competitive advantages that we or our customers may attain; and

·       adverselyaffect our receipt of revenues or royalties.

Our productcandidates may not be approved or may be approved with limitations or forindications that differ from those we initially target. Even if marketingapproval from the FDA is received, the FDA may impose post-marketingrequirements, such as:

·       labelingand advertising requirements, restrictions or limitations, such as theinclusion of warnings, precautions, contra-indications or use limitationsthat could have a material impact on the future profitability of our productcandidates;

·       testingand surveillance to monitor our future products and their continued compliancewith regulatory requirements; and

·       inspectionof products and manufacturing operations and, if any inspection reveals thatthe product or operation is not in compliance, prohibiting the sale of allproducts, suspending manufacturing or withdrawing market clearance.

The discovery of previously unknown problems with ourfuture products may result in restrictions of the products, including withdrawalfrom manufacture. Additionally, certain material changes affecting an approvedproduct such as manufacturing changes or additional labeling claims are subjectto further FDA review and approval. The FDA may revisit and change its priordetermination with regard to the safety or efficacy of our products andwithdraw any required approvals after we obtain them. Even prior to any formalregulatory action requiring labeling changes or affecting manufacturing, wecould voluntarily decide to cease the distribution and sale or recall any ofour future products if concerns about their safety and efficacy develop.

In their regulation of advertising, the FDA and theFederal Trade Commission (“FTC”) may issue correspondence alleging thatparticular advertising or promotional practices are false, misleading ordeceptive. The FDA or FTC may impose a wide array of sanctions on companies forsuch advertising practices. Additionally, physicians may prescribepharmaceutical or biologic products for uses that are not described in aproduct’s labeling or differ from those tested by us and approved by the FDA.While such “off-label” uses are common and the FDA does not regulatephysicians’ choice of treatments, the FDA does restrict a manufacturer’scommunications on the subject of “off-label” use. Companies cannot promoteFDA-approved pharmaceutical or biologic products for off-label uses. If ouradvertising or 

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promotional activitiesfail to comply with the FDA’s or FTC’s regulations or guidelines, we may besubject to warnings from, or enforcement action by, the FDA or FTC.

If we fail tocomply with applicable FDA and other regulatory requirements at any stageduring the regulatory process, we or our third party manufacturers may besubject to sanctions, including:

·       delays;

·       warningletters;

·       fines;

·       clinicalholds;

·       consentdecrees;

·       productrecalls or seizures;

·       changesto advertising;

·       injunctions;

·       refusalof the FDA to review pending market approval applications or supplements toapproval applications;

·       totalor partial suspension of product manufacturing, distribution, marketing andsales;

·       civilpenalties;

·       withdrawalsof previously approved marketing applications; and

·       criminalprosecutions.

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

*If we are unable tomanufacture our product candidates in compliance with current goodmanufacturing practices requirements and applicable regulations, we will not beable to commercialize our product candidates.*

We are required to complywith the applicable FDA current good manufacturing practice, or “cGMP”regulations and the requirements of other regulatory authorities. Goodmanufacturing practice regulations include requirements relating to qualitycontrol and quality assurance as well as the corresponding maintenance ofrecords and documentation. Manufacturing facilities, including our facility,must pass a pre-license inspection by the FDA before initiating commercialmanufacturing of any product such as panitumumab. Our failure to pass apre-license inspection by the FDA could delay or prevent the approval of ourproduct candidates. In addition, the FDA enforces post-marketing regulatoryrequirements such as cGMP requirements, through periodic unannouncedinspections. We do not know whether we will pass any future FDA inspections.Failure to pass an inspection could disrupt, delay or shut down ourmanufacturing operations. In addition, cGMP requirements are constantlyevolving and new or different requirements may apply in the future. Manufacturingfacilities in California, including our facility, are also subject to thelicensing requirements of and inspection by the State of California Departmentof Health 

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Services.In October 2003, following an inspection, we received a Drug ManufacturingLicense from the State of California. The license, which must be renewedannually, permits us to manufacture and ship clinical material. We areresponsible for manufacturing clinical and, for the first five years afterlaunch, commercial supplies for panitumumab with Amgen’s support and assistance.We may not be able to comply with applicable cGMP requirements and otherregulatory requirements. Our failure to comply with these requirements coulddelay or prevent the approval of our product candidates and would materiallyharm our business, financial condition and results of operations.

*If our products donot gain market acceptance among the medical community, our revenues wouldgreatly decline and might not be sufficient to support our operations.*

Our productcandidates may not gain market acceptance among physicians, patients, thirdparty payors and the medical community. We may not achieve market acceptanceeven if clinical trials demonstrate safety and efficacy, and the necessaryregulatory and reimbursement approvals are obtained. The degree of marketacceptance of any product candidates that we develop will depend on a number offactors, including:

·       establishmentand demonstration of clinical efficacy and safety;

·       cost-effectivenessof our product candidates;

·       theirpotential advantage over alternative treatment methods;

·       reimbursementpolicies of government and third party payors; and

·       marketingand distribution support for our product candidates, including the efforts ofour collaborators where they have marketing and distribution responsibilities.

Physicians will notrecommend therapies using our products until such time as clinical data orother factors demonstrate the safety and efficacy of such procedures ascompared to conventional drug and other treatments. Even if we establish theclinical safety and efficacy of therapies using our antibody productcandidates, physicians may elect not to recommend the therapies for any numberof other reasons, including whether the mode of administration of our antibodyproducts is effective for certain indications. Antibody products, including ourproduct candidates as they would be used for certain disease indications, aretypically administered by infusion or injection, which requires substantialcost and inconvenience to patients. Our product candidates, if successfullydeveloped, will compete with a number of drugs and therapies manufactured andmarketed by major pharmaceutical and other biotechnology companies. Ourproducts may also compete with new products currently under development byothers. Physicians, patients, third party payors and the medical community maynot accept or utilize any product candidates that we or our customers develop.The failure of our products to achieve significant market acceptance wouldmaterially harm our business, financial condition and results of operations.

*We do not havemarketing and sales experience, which may require us to rely on others tomarket and sell our products and may make it more challenging for us tocommercialize our product candidates.*

Although we have beenmarketing our XenoMouse technology to potential customers and collaborators forseveral years, we do not have marketing, sales or distribution experience orcapability with respect to our therapeutic product candidates. We intend toenter into arrangements with third parties to market and sell most of ourtherapeutic product candidates when we commercialize them. For example,pursuant to our amended joint development agreement for panitumumab, Amgen hasdecision-making authority for development and commercializationactivities relating to any products developed under the collaboration, and wehave the right to co-promote any products in the United States. We have electedto pursue the co-promotion of panitumumab in the United States. Should thisproduct candidate proceed to commercialization, it will take significantresources to develop the appropriate sales 

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capabilitiesand there can be no assurance that we will be able to do this successfully. Regardingother product candidates, to the extent that we enter into marketing and salesarrangements with other companies, our revenues, if any, will depend on theefforts of others. These efforts may not be successful. If we choose not to, orare unable to, enter into third party arrangements, we will need to developsufficient marketing and sales capabilities, which may need to be substantial,in order to achieve commercial success for any product candidate approved bythe FDA. We may not successfully develop marketing and sales capabilities orhave sufficient resources to do so. If we do develop such capabilities, we willcompete with other companies that have experienced and well-funded marketingand sales operations. Our failure to enter into successful marketingarrangements with third parties and our inability to conduct such activitiesourselves would materially harm our business, financial condition and resultsof operations.

**RisksRelated to Intellectual Property**

*Our ability toprotect our intellectual property rights will be critically important to thesuccess of our business, and we may not be able to protect these rights in theUnited States or abroad.*

Our success dependsin part on our ability to:

·       obtainpatents;

·       protecttrade secrets;

·       operatewithout infringing the proprietary rights of others and defend ourselves fromany allegation that we have done so; and

·       preventothers from infringing our proprietary rights.

We will be able to protect our proprietary rights fromunauthorized use by third parties only to the extent that our proprietaryrights are covered by valid and enforceable patents or are effectivelymaintained as trade secrets. We attempt to protect our proprietary position byfiling U.S. and foreign patent applications related to our proprietarytechnology, inventions and improvements that are important to the developmentof our business. However, the patent position of biopharmaceutical companiesinvolves complex legal and factual questions, and, therefore, we cannot predictwith certainty whether our patent applications will be approved or anyresulting patents will be enforced. In addition, third parties may challenge,seek to invalidate or circumvent any of our patents, once they are issued.Thus, any patents that we own or license from third parties may not provide anyprotection against competitors. Our pending patent applications, those we mayfile in the future, or those we may license from third parties, may not resultin patents being issued. Also, patent rights may not provide us with adequateproprietary protection or competitive advantages against competitors withsimilar technologies. The laws of certain foreign countries do not protect ourintellectual property rights to the same extent as do the laws of the UnitedStates.

In addition to patents, werely on trade secrets and proprietary know-how. We seek protection, in part,through confidentiality and proprietary information agreements. Theseagreements may not provide meaningful protection for our technology or adequateremedies in the event of unauthorized use or disclosure of confidential andproprietary information, and, in addition, the parties may breach suchagreements. Also, our trade secrets may otherwise become known to, or beindependently developed by, our competitors. Furthermore, others mayindependently develop similar technologies or duplicate any technology that wehave developed.

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*We may facechallenges from third parties regarding the validity of our patents andproprietary rights, or from third parties asserting that we are infringingtheir patents or proprietary rights, which could result in litigation thatwould be costly to defend and could deprive us of valuable rights.*

Parties have conducted research for many years in theantibody and transgenic animal fields. The term “transgenic”, when applied toan animal, such as a mouse, refers to an animal that has chromosomes into whichhuman genes have been incorporated. This research has resulted in a substantialnumber of issued patents and an even larger number of pending patent applications.The publication of discoveries in the scientific or patent literaturefrequently occurs substantially later than the date on which the underlyingdiscoveries were made. Our commercial success depends significantly on ourability to operate without infringing the patents and other proprietary rightsof third parties. Our technologies may unintentionally infringe the patents orviolate other proprietary rights of third parties. Such infringement orviolation may prevent us and our customers from pursuing product development orcommercialization. Such a result could materially harm our business, financialcondition and results of operations.

Extensivelitigation regarding patents and other intellectual property rights has beencommon in the biotechnology and pharmaceutical industries. The defense andprosecution of intellectual property suits, United States Patent and TrademarkOffice interference proceedings, and related legal and administrativeproceedings in the United States and internationally involve complex legal andfactual questions. As a result, such proceedings are costly and time-consumingto pursue and their outcome is uncertain. Litigation may be necessary to:

·       enforcepatents that we own or license;

·       protecttrade secrets or know-how that we own or license; or

·       determinethe enforceability, scope and validity of the proprietary rights of others.

Our involvement in anylitigation, interference or other administrative proceedings could cause us toincur substantial expense and could significantly divert the efforts of ourtechnical and management personnel. An adverse determination may subject us toloss of our proprietary position or to significant liabilities, or require usto seek licenses that may not be available from third parties. An adversedetermination in a judicial or administrative proceeding, or a failure toobtain necessary licenses, may restrict or prevent us from manufacturing andselling our products, if any. Costs associated with these arrangements may besubstantial and may include ongoing royalties. Furthermore, we may not be ableto obtain the necessary licenses on satisfactory terms, if at all. Theseoutcomes could materially harm our business, financial condition and results ofoperations.

**Risks Related to Our Industry**

*We face intensecompetition and rapid technological change, and if we fail to develop productsthat keep pace with new technologies and that gain market acceptance, ourproduct candidates or technologies could become obsolete.*

The biotechnology and pharmaceutical industries arehighly competitive and subject to significant and rapid technological change. Weface competition in several different forms. Our antibody generation activitiescurrently face competition from several companies and technologies. In addition,the product candidates that we or our customers are developing also facecompetition. Finally, we compete with companies that currently offer antibodyproduction services, and may compete with companies that currently onlymanufacture their own antibodies but could offer antibody production servicesto third parties.

We are aware of several pharmaceutical andbiotechnology companies that are actively engaged in research and developmentin areas related to antibody therapy. Many of these companies have 

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commenced clinical trialsof antibody therapeutic product candidates or have successfully commercializedantibody therapeutic products for use on their own or in combination therapies.Many of these companies are addressing the same diseases and disease indicationsas we or our customers are.

We compete with companies that offer the services ofgenerating monoclonal antibodies for antibody-based therapeutics. Thesecompetitors have specific expertise or technology related to antibodydevelopment and introduce new or modified technologies from time to time.

Many of thesecompanies and institutions, either alone or together with their customers orcollaborators, have substantially greater financial resources and largerresearch and development staffs than we do. In addition, many of thesecompetitors, either alone or together with their customers or collaborators,have significantly greater experience than we do in:

·       developingproducts;

·       undertakingpreclinical testing and human clinical trials;

·       obtainingFDA and other regulatory approvals of products; and

·       manufacturingand marketing products.

Accordingly, our competitors may succeed in obtainingpatent protection, receiving FDA approval or commercializing products before wedo. If we commence commercial product sales, we will be competing againstcompanies with greater marketing and manufacturing capabilities, areas in whichwe have limited experience.

We also face, andwill continue to face, competition from academic institutions, governmentagencies and research institutions. There are numerous competitors working onproducts to treat each of the diseases for which we are seeking to developtherapeutic products. In addition, any product candidate that we successfullydevelop may compete with existing therapies that have long histories of safeand effective use. Competition may also arise from:

·       otherdrug development technologies and methods of preventing or reducing theincidence of disease;

·       newsmall molecules; or

·       otherclasses of therapeutic agents.

Developments by competitors may render our productcandidates or technologies obsolete or non-competitive. We face and willcontinue to face intense competition from other companies for agreements withpharmaceutical and biotechnology companies, for establishing relationships withacademic and research institutions, and for licenses to proprietary technology.These competitors, either alone or with their customers, may succeed indeveloping technologies or products that are more effective than ours.

We also face competition from companies that provideproduction services. These include contract manufacturers, such as Lonza, AvidBioservices, Inc., Diosynth Biotechnology, DSM N.V., Cangene Corporationand Goodwin Biotechnology Inc., and other pharmaceutical and biotechnologycompanies that manufacture their own product candidates but can make extracapacity available to collaborators and customers, such as Boehringer IngelheimGmbH, Biogen Idec Inc., ICOS Corporation, Abbott and Novartis AG.

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

In both domestic andforeign markets, sales of our product candidates will depend in part upon theavailability of reimbursement from third party payors, such as governmenthealth administration authorities, managed care providers and private healthinsurers. Third party payors are increasingly challenging the price andexamining the cost effectiveness of medical products and services. In addition,significant uncertainty exists as to the reimbursement status of newly approvedhealthcare products. Adequate third party reimbursement may not be available toenable us to maintain price levels sufficient to realize an appropriate returnon our investment in product development. In addition, domestic and foreigngovernments continue to propose and pass legislation designed to reduce thecost of healthcare, which could further limit reimbursement for pharmaceuticals.The failure of government and third party payors to provide adequate coverageand reimbursement rates for our product candidates could adversely affect themarket acceptance of our products. The failure of our products to receivemarket acceptance would materially harm our business, financial condition andresults of operations.

*We may experiencepressure to lower the prices of any prescription pharmaceutical products we areable to obtain approval for because of new and/or proposed federal legislation.*

Federal legislation,enacted in December 2003, has added an outpatient prescription drugbenefit to Medicare, effective January 2006. In the interim, Congress hasestablished a discount drug card program for Medicare beneficiaries. Bothbenefits will be provided primarily through private entities, which willattempt to negotiate price concessions from pharmaceutical manufacturers. Thesenegotiations may increase pressures to lower prices. While the new lawspecifically prohibits the United States government from interfering in pricenegotiations between manufacturers and Medicare drug plan sponsors, somemembers of Congress are pursuing legislation that would permit the UnitedStates government to use its enormous purchasing power to demand discounts frompharmaceutical companies, thereby creating de facto price controls onprescription drugs. In addition, the new law contains triggers forCongressional consideration of cost containment measures for Medicare in theevent Medicare cost increases exceed a certain level. These cost containmentmeasures could include some sorts of limitations on prescription drug prices. Thenew legislation also modified the methodology used for reimbursement ofphysician administered and certain other drugs already covered under Medicare Part B.This new methodology would likely apply to certain of our products if and whencommercialized. Experience with new reimbursement methodology is limited, andcould be subject to change in the future. Our results of operations could bematerially harmed by the different features of the Medicare prescription drugcoverage legislation, by the potential effect of such legislation on amountsthat private insurers will pay for our products and by other healthcare reformsthat may be enacted or adopted in the future.

**Other Risks Related to Our Company**

*The future growthand success of our business will depend on our ability to continue to attractand retain our employees and consultants.*

For us to pursue our product development, manufacturing,marketing and commercialization plans, we will need to hire additionalqualified scientific, manufacturing, quality control, quality assurance, sales,marketing and key management personnel. We may also need to hire personnel withexpertise in clinical testing, government regulation, law 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 giventhe competition for such personnel among biotechnology, pharmaceutical andhealthcare companies, universities and non-profit research institutions. Theinability to attract and retain qualified personnel could materially harm ourbusiness, financial condition and results of operations.

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We grant stock options as a method of attracting andretaining employees, to motivate performance and to align the interests ofmanagement with those of our stockholders. Due to fluctuations in the tradingprice of our common stock in recent years, a substantial portion of the stockoptions held by our employees have an exercise price that is higher than thecurrent trading price of our common stock. We may elect to grant additionalstock options at the current lower market price, pay higher cash compensation,or provide some combination of these alternatives to retain and attractqualified employees, but we cannot be sure that any of these actions would besuccessful. In addition, the issuance of additional stock options may bedilutive to existing stockholders. While we will continue to utilize ourexisting equity compensation plans to compensate employees, we may havedifficulty attracting and retaining qualified personnel if we are unable toobtain stockholder approval for any new plan as may be required to keep equitycompensation available. In addition, the expensing of stock options and otherstock-based awards, which will be required commencing on January 1, 2006,will increase any net losses or decrease any net income recorded in any givenperiod and could affect the price that investors might be willing to pay in thefuture for shares of our common stock.

As a result of thesefactors, we may have difficulty attracting and retaining qualified personnel,which could materially harm our business, financial condition and results ofoperations.

*We may experiencedifficulty in the integration of any future acquisition with the operations ofour business.*

We may from time totime seek to expand our business through corporate acquisitions. Ouracquisition of companies and businesses and expansion of operations, involverisks such as the following:

·       thepotential inability to identify target companies best suited to our businessplan;

·       thepotential inability to successfully integrate acquired operations andbusinesses and to realize anticipated synergies, economies of scale or otherexpected value;

·       incurrenceof expenses attendant to transactions that may or may not be consummated; and

·       difficultiesin managing and coordinating operations at multiple venues, which, among other things,could divert our management’s attention from other important business matters.

In addition, our past andfuture acquisitions of companies and businesses and expansion of operations mayresult in dilutive issuances of equity securities, the incurrence of additionaldebt, U.S. or foreign tax liabilities, large one-time write-offs and thecreation of goodwill or other intangible assets that could result inamortization expense or other charges to expense. For example, we had recordedimpairment charges totaling $25.0 million in the quarter ended June 30,2005 and $17.2 million in the quarter ended June 30, 2004, related totechnologies acquired through our acquisitions, respectively, of AbgenixBiopharma and IntraImmune in 2000 and Hesed Biomed in 2001.

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

In June 1999,our board of directors adopted a stockholder rights plan, which we amended andrestated in November 1999 and May 2002, and amended in October 2003and December 2005. The stockholder rights plan and certain provisions ofour amended and restated certificate of incorporation and amended and restatedbylaws may have the effect of making it more difficult for a third party toacquire, or of discouraging a third party from attempting to acquire, controlof us. This could affect the price that certain investors might be willing topay in the future for our common stock. Certain provisions of our amended andrestated certificate of incorporation and amended and restated bylaws allow usto:

·       issuepreferred stock without any vote or further action by the stockholders;

·       eliminatethe right of stockholders to act by written consent without a meeting;

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·       specifyprocedures for director nominations by stockholders and submission of otherproposals for consideration at stockholder meetings; and

·       eliminatecumulative voting in the election of directors.

In October 2003, we entered into a collaborationand license agreement with AstraZeneca for the purpose of identifying anddeveloping antibody products for use in oncology therapeutics. Thecollaboration agreement includes provisions that would allow AstraZeneca toaccelerate its selection of target antigens and, in certain situations,terminate the collaboration agreement, or specific programs or activitiesconducted under it, in the event of a change in control in us, particularly ifwe were acquired by a competitor of AstraZeneca. In the event of a change incontrol of us, AstraZeneca could also acquire control over the developmentprograms and various intellectual property rights in respect of antigens thatare the subject of the collaboration agreement. This would result in areduction in the royalties and milestones to be paid by AstraZeneca to us underthe collaboration agreement and the release of AstraZeneca from certainexclusivity provisions. In addition, certain exclusivity provisions containedin the collaboration agreement would apply to an acquirer of our company andwould restrict the acquirer’s ability to operate its business in the oncologyfield after the acquisition, except with respect to pre-existing developmentprograms. These and other provisions of the collaboration agreement could makeour company less attractive to a potential acquirer, particularly an acquirerthat conducts or expects to conduct significant operations in the field ofoncology therapeutics.

We are also subject tocertain provisions of Delaware law which could also delay or make moredifficult a merger, tender offer or proxy contest involving us. In particular, Section 203of the Delaware General Corporation Law prohibits a Delaware corporation fromengaging in any business combination with any interested stockholder for aperiod of three years unless the transaction meets certain conditions. Thestockholder rights plan, the possible issuance of preferred stock, theprocedures required for director nominations and stockholder proposals, ourcollaboration agreement with AstraZeneca and Delaware law could have the effectof delaying, deferring or preventing a change in control of us, including,without limitation, discouraging a proxy contest or making more difficult theacquisition of a substantial block of our common stock. The provisions alsocould limit the price that investors might be willing to pay in the future forshares of our common stock. Inaddition, under the terms of the merger agreement, we will be required to pay atermination fee of $75,000,000 to Amgen if, among other things, our board ofdirectors receives and accepts a superior proposal from a third party, solicitsor encourages an acquisition proposal from a third party, fails to hold astockholders’ meeting or the vote of our stockholders pursuant to the mergeragreement or fails to recommend stockholder approval of the merger agreement,withdraws its recommendation, or after terminating the merger agreement theboard of directors recommends that our stockholders approve any acquisitionproposal other than the merger with Amgen if a bona fide acquisition proposalhas been publicly announced and is consummated within twelve months oftermination of the merger agreement.

*We face productliability risks and may not be able to obtain adequate insurance, and if we areheld liable for an uninsured claim or a claim in excess of our insurancelimits, our business, financial condition and results of operations may beharmed.*

The use of any of ourproduct candidates, or of any products manufactured in our facility, inclinical trials, and the sale of any approved products, may expose us toliability claims resulting from such use or sale. Consumers, healthcareproviders, pharmaceutical companies or others selling such products might makeclaims of this kind. We may experience financial losses in the future due toproduct liability claims. We have obtained limited product liability insurancecoverage for our clinical trials and production services activities, underwhich the coverage limits are $15.0 million per occurrence and$15.0 million in the aggregate. We may not be able to maintain insurancecoverage at a reasonable cost or in sufficient amounts to protect us againstlosses. If third parties bring a successful product liability claim or seriesof 

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claimsagainst us for uninsured liabilities or in excess of insured liabilities, ourbusiness, financial condition and results of operations may be materiallyharmed.

*Our operationsinvolve hazardous materials, and we could be held responsible for any damagescaused by such materials.*

Our research andmanufacturing activities involve the controlled use of hazardous materials. Inaddition, although we maintain insurance for harm to employees and to ourfacilities caused by hazardous materials, we do not insure against any otherharm (including harm to the environment) caused by the use of hazardousmaterials on our premises. We cannot eliminate the risk of accidentalcontamination or injury from these materials. In the event of an accident orenvironmental discharge, we may be held liable for any resulting damages, whichmay exceed our financial resources and may materially harm our business,financial condition and results of operations.

*We do not intend topay cash dividends on our common stock.*

We intend to retain anyfuture earnings to finance the growth and development of our business and we donot plan to pay cash dividends on our common stock in the foreseeable future.

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

The market priceand trading volume of our common stock are volatile, and may continue to bevolatile for the foreseeable future. For example, during the period between December 31,2004 and December 31, 2005, our common stock closed as high as $21.68 pershare and as low as $6.54 per share. This may impact your decision to buy orsell our common stock. Factors affecting our stock price include:

·       developmentsin our clinical trials and in clinical trials for potentially competitiveproduct candidates;

·       ourfinancial results;

·       fluctuationsin our operating results;

·       announcementsof technological innovations or new commercial therapeutic products by us orour competitors;

·       publishedreports by securities analysts;

·       governmentregulation;

·       changesin reimbursement policies;

·       developmentsin patent or other proprietary rights;

·       announcementsthat we have entered into new collaboration, licensing or similar arrangementswith new collaborators, or amendments of the terms of our existingcollaborations;

·       developmentsin our relationship with customers;

·       publicconcern as to the safety and efficacy of our products;

·       generalmarket conditions; and

·       the merger agreement withAmgen.

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**Available Information**

Our Internet address is *http://www.abgenix.com*. We make availablefree of charge on or through our Internet website our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Exchange Act as soon as reasonably practicable after weelectronically file such material with, or furnish it to, the SEC. Other thanthe information expressly set forth in this annual report, the informationcontained, or referred to, on our website is not incorporated into this annualreport.

**Item 1B.   Unresolved Staff Comments**

Not applicable.

**Item 2.   Properties**

We currently leaseapproximately 516,000 square feet of office, laboratory and manufacturingfacilities in Fremont, California and British Columbia, Canada. In connectionwith our restructuring plan implemented in June 2005, we made availablefor sublease approximately 82,000 square feet of office and laboratory spacesin Fremont, California. Our leases expire in the years 2010 through 2015 andeach includes an option to extend, other than the leases for our facilities inCanada. We believe that our current facilities are adequate for our needs forthe foreseeable future and that, should it be needed, suitable additional spacewill be available to accommodate expansion of our operations on commerciallyreasonable terms.

**Item 3.   Legal Proceedings**

On December 15, 2005, a putative class actionlawsuit entitled *Carter v. Abgenix, Inc., et al.*,Case No. RG05246834 (Dec. 15, 2005), was filed against Abgenix, itsdirectors and Amgen Inc. in the Superior Court of the State of California,Alameda County. The complaint, which purported to be brought on behalf of allAbgenix stockholders (excluding the defendants and their affiliates), allegedthat the $22.50 per share in cash to be paid to stockholders in connection withthe proposed merger with Amgen is inadequate and that Abgenix’s directorsviolated their fiduciary obligations to stockholders in negotiating andapproving the merger agreement. The complaint also purported to assert claimsagainst Abgenix and Amgen in connection with these matters.

On January 17, 2006Abgenix and its directors filed a demurrer to the complaint seeking to dismissall claims asserted against them. On January 18, 2006, Amgen filed ademurrer to the complaint seeking to dismiss all claims asserted against it. OnFebruary 13, 2006, plaintiff filed an amended complaint, which, inaddition to the allegations set forth above, alleges that Abgenix’s proxystatement, filed on February 9, 2006, failed to disclose certainpurportedly material information relating to the process leading to theapproval of the proposed merger with Amgen. The amended complaint seeks variousforms of relief, including injunctive relief that would, if granted, preventthe completion of the merger. On March 6, 2006, the defendants fileddemurrers to the amended complaint seeking to dismiss all claims assertedtherein. Those motionsare currently pending. While the outcome of this matter cannot be determined atthis time, Abgenix believes that this lawsuit is without merit andintends to vigorously defend the action.

**Item 4.   Submission of Matters to a Vote ofSecurity** Holders

No matters were submitted to a vote of ourstockholders, either through the solicitation of proxies or otherwise, duringthe quarter ended December 31, 2005.

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**PART II**

**Item 5.   Market for Registrant’s Common Equityand Related Stockholder Matters**

Ourcommon stock trades on the Nasdaq National Market under the symbol “ABGX.” Thefollowing table lists quarterly information on the price range of our commonstock based on the high and low reported closing prices for our common stock asreported on the Nasdaq National Market for the periods indicated below. Theseprices do not include retail markups, markdowns or commissions. As of February 6,2006, there were approximately 554 holders of record of our common stock.

| ** **        | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------|------------|----------|------------|---------|------------|
| **Fiscal 2004:**  |       |     |       |    |       |
| First Quarter     |       | $        | 16.53      |    | $          | 12.42 |   |
| Second Quarter    |       | 18.55    |       | 11.22   |       |
| Third Quarter     |       | 11.36    |       | 7.77    |       |
| Fourth Quarter    |       | 10.83    |       | 8.25    |       |
| **Fiscal  2005:** |       |     |       |    |       |
| First Quarter     |       | $        | 10.23      |    | $          | 7.00 |   |
| Second Quarter    |       | 9.29     |       | 6.54    |       |
| Third Quarter     |       | 12.68    |       | 8.51    |       |
| Fourth Quarter    |       | 21.68    |       | 9.37    |       |

 

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**Item6.   Selected Financial Data**

| ** **                                                                         | ** ** | **Year Ended December 31,**                         | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                         | ** ** | **(in thousands, except per share data)** | ** ** |
| **Consolidated Statement of  Operations Data*:**                                   |       |                                                               |       |   |   |   |   |   |   |   |   |
| Revenues:                                                                          |       |                                                               |       |   |   |   |   |   |   |   |   |
| Contract revenue                                                                   |       | $                                                                  | 18,346     |   | $ | 15,752 |   | $ | 13,014 |   | $ | 14,068 |   | $ | 27,288 |   |
| Contract manufacturing revenue                                                     |       | —                                                             |       | 1,695 |   | — |   | — |   | — |   |
| Total revenues                                                                     |       | 18,346                                                             |       | 17,447 |   | 13,014 |   | 14,068 |   | 27,288 |   |
| Operating  expenses:                                                               |       |                                                               |       |   |   |   |   |   |   |   |   |
| Cost of goods manufactured                                                         |       | —                                                             |       | 2,227 |   | — |   | — |   | — |   |
| Research and development                                                           |       | 137,016                                                            |       | 124,440 |   | 94,321 |   | 123,269 |   | 89,458 |   |
| Manufacturing start-up costs                                                       |       | 18,339                                                             |       | 25,430 |   | 72,473 |   | — |   | — |   |
| Amortization of identified intangible assets,  related to research and development |       | 4,573                                                              |       | 6,465 |   | 7,190 |   | 7,251 |   | 8,602 |   |
| General and administrative                                                         |       | 22,287                                                             |       | 27,271 |   | 30,209 |   | 31,625 |   | 19,367 |   |
| Impairment of identified intangible assets                                         |       | 25,000                                                             |       | 17,241 |   | 1,443 |   | — |   | — |   |
| Restructuring and other                                                            |       | 15,506                                                             |       | — |   | — |   | 1,751 |   | — |   |
| Total operating expenses                                                           |       | 222,721                                                            |       | 203,074 |   | 205,636 |   | 163,896 |   | 117,427 |   |
| Loss from operations                                                               |       | (204,375                                                           | )          | (185,627 | ) | (192,622 | ) | (149,828 | ) | (90,139 | ) |
| Other income (expenses):                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Interest and other income (expenses), net                                          |       | 14,241                                                             |       | 5,382 |   | 9,953 |   | 20,145 |   | 29,542 |   |
| Interest expense                                                                   |       | (15,205                                                            | )          | (7,233 | ) | (5,784 | ) | (4,830 | ) | (259 | ) |
| Impairment of investments                                                          |       | (1,616                                                             | )          | — |   | (7,892 | ) | (74,385 | ) | — |   |
| Total other income (expenses)                                                      |       | (2,580                                                             | )          | (1,851 | ) | (3,723 | ) | (59,070 | ) | 29,283 |   |
| Loss before  income tax expense                                                    |       | (206,955                                                           | )          | (187,478 | ) | (196,345 | ) | (208,898 | ) | (60,856 | ) |
| Foreign income tax expense                                                         |       | —                                                             |       | — |   | 84 |   | — |   | — |   |
| Net loss                                                                           |       | $                                                                  | (206,955   | ) | $ | (187,478 | ) | $ | (196,429 | ) | $ | (208,898 | ) | $ | (60,856 | ) |
| Basic and diluted net loss per share                                               |       | $                                                                  | (2.30      | ) | $ | (2.11 | ) | $ | (2.23 | ) | $ | (2.39 | ) | $ | (0.71 | ) |
| Shares used in computing basic and diluted net loss  per share                     |       | 89,887                                                             |       | 88,710 |   | 87,930 |   | 87,237 |   | 86,111 |   |

 

| ** **                                        | ** ** | **December 31,**   | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                        | ** ** | **(in thousands)** | ** ** |
| **Consolidated Balance Sheet  Data*:**            |       |                    |       |   |   |   |   |   |   |   |   |
| Cash, cash equivalents  and marketable securities |       | $                       | 332,822    |   | $ | 416,329 |   | $ | 347,763 |   | $ | 396,549 |   | $ | 493,733 |   |
| Working capital                                   |       | 312,754                 |       | 406,476 |   | 310,276 |   | 382,568 |   | 472,578 |   |
| Total assets                                      |       | 650,278                 |       | 812,718 |   | 780,193 |   | 841,997 |   | 837,876 |   |
| Long-term debt                                    |       | 515,570                 |       | 489,256 |   | 200,000 |   | 200,000 |   | — |   |
| Redeemable convertible  preferred stock           |       | 49,869                  |       | 49,869 |   | 99,737 |   | — |   | — |   |
| Accumulated deficit                               |       | (959,209                | )          | (752,254 | ) | (564,776 | ) | (368,347 | ) | (159,449 | ) |
| Total stockholders’  equity                  |       | 26,707                  |       | 231,125 |   | 413,016 |   | 601,639 |   | 790,970 |   |
|                                                   |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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*                    Certainprior-year balances have been reclassified to conform to the current-yearpresentation.

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**Item 7.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

*The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contains forward*-looking statements based upon currentexpectations that involve risks and uncertainties. When used in this AnnualReport on Form 10-K, the words “intend,” “anticipate,” “believe,” “estimate,”“plan” and “expect” and similar expressions as they relate to Abgenix areincluded to identify forward-lookingstatements. Our actual results and the timing of certain events could differmaterially from those anticipated in these forward-looking statements as a result of certain factors, includingthose set forth below and under “Risk Factors” set forth in Item 1A of Part Iof this Annual Report on Form 10-K and elsewhere in this AnnualReport on Form 10-K.

**Overview**

The following Management’sDiscussion and Analysis of Financial Condition and Results of Operations isintended to help the reader understand our company.  Unless otherwise indicated, the discussions inthis section relate to Abgenix as a stand-alone entity and do not reflect theimpact of the proposed acquisition by Amgen.

***Our Business***

We are a biopharmaceutical company that is focused onthe discovery, development and manufacture of human therapeutic antibodies forthe treatment of a variety of diseases. We intend to use our proprietarytechnologies to build a diversified product portfolio that we expect to developand commercialize internally or through joint development and commercializationarrangements with pharmaceutical and biotechnology companies.

We are co-developing our most advanced proprietaryproduct candidate, panitumumab, with Amgen. In late 2005, we and Amgen initiatedthe rolling submission of a BLA filing with the FDA for panitumumab in patientswith metastatic colorectal cancer who have failed prior standard chemotherapy,including oxaliplatin and irinotecan. We expect this filing to be completed inthe first quarter of 2006. ABX-10241, another of our proprietary productcandidates, is in early stage clinical trials. In addition, we have enteredinto a variety of contractual arrangements with multiple pharmaceutical andbiotechnology companies to jointlydevelop and commercialize products or to enable these companies to use ourXenoMouse technology in the development of their products. We may also use ourXenoMax technology on our customers’ behalf. Six of our licensing partners,Pfizer, Amgen, Chiron, CuraGen, Human Genome Sciences and Agensys, haveinitiated clinical trials or submitted regulatory applications for such trialsfor antibodies generated from our technologies. We also use our closelyintegrated process sciences and manufacturing capabilities for the manufactureof our own proprietary product candidates and also offer these services to ourcollaborators and others.

We have entered into joint development arrangementswith companies such as Chugai Pharmaceuticals, U3 Pharma and Dendreon. We generallyexpect to self-fund preclinical and certain clinical activities to determinepreliminary safety and efficacy before deciding whether to conduct furtherproduct development internally or enter into joint development andcommercialization agreements.

We also have a broad collaboration in oncology withAstraZeneca UK Limited. Pursuant to this collaboration we are providingpreclinical and clinical research support and process development fortherapeutic antibodies against up to 36 targets to be developed by AstraZeneca,and have the opportunity to co-develop therapeutic antibodies against up to 18additional targets with AstraZeneca. We also may conduct clinicalmanufacturing, as well as commercial manufacturing during the first five yearsof commercial sales for products arising out of our collaboration.

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On December 14, 2005,we entered into an agreement and plan of merger with Amgen and Athletics Merger Sub, Inc., awholly-owned subsidiary of Amgen, pursuant to which Amgen is expected toacquire Abgenix for approximately $2.2 billion in cash plus the assumption of our debt. Under theterms of the agreement, our shareholders will receive $22.50 in cash per commonshare, less any applicable withholding tax. The boards of directors ofAmgen and Abgenix have approved the transaction, which remains subject to theapproval of our stockholders at a special meeting to be held on March 29,2006, and other customary closing conditions. If shareholder approval isobtained at the special meeting, the merger is expected to close in late March orearly April 2006.

***Our Financial Position and Liquidity***

To date, we have derived our revenues primarily fromour technology out-licensing contracts and our production services contracts. Unlessand until panitumumab is commercialized, we expect that substantially all ofour revenues for the foreseeable future will result from payments under theseand similar arrangements, our joint development arrangements and ourcollaboration with AstraZeneca. The payments we receive under thesearrangements will continue to be subject to significant fluctuation in bothtiming and amount.

We have incurred and expect to continue to incursubstantial expenses in connection with our product development activities,both under contractual arrangements with third parties and related to ourindependent research and development efforts. Regulatory and business factorswill require us to expend substantial funds in the course of completingrequired additional research, preclinical testing and clinical trials of, andattaining regulatory approvals for, product candidates. The amounts of theexpenditures that will be necessary to execute our business plan are subject tonumerous uncertainties that may adversely affect our liquidity and capitalresources.

We have incurred net losses since we were organized asan independent company, including a net loss of $207.0 million in 2005. Weexpect to incur additional losses for the foreseeable future as a result of ourresearch and development costs, including costs associated with conductingpreclinical development and clinical trials, manufacturing start-up costs andcosts associated with preparations for the potential commercialization ofpanitumumab, such as costs associated with co-promotion and other commercial activities.We expect that the amount of our operating losses will fluctuate significantlyfrom quarter to quarter.

As of December 31,2005, we had cash, cash equivalents and marketable securities of $332.8million.

**Results of Operations**

*Years Ended December 31,2005, 2004 and 2003*

***Contract Revenues***

Contract revenues totaled $18.3 million, $15.8 millionand $13.0 million in 2005, 2004 and 2003, respectively. Because contractrevenues depend to a large extent on the success or failure of research anddevelopment efforts undertaken by our collaborators and licensees, ouryear-to-year contract revenues can fluctuate significantly and are inherentlydifficult to predict.

The primarycomponents of contract revenues for all periods were as follows:

·       TechnologyLicensing

We recognized a total of $18.3 million, $14.4 millionand $11.8 million in 2005, 2004 and 2003, respectively, from licensing ourproprietary technologies. Revenues consisted primarily of various fees, such asproduct license fees, research license and service fees, product developmentand research milestone payments and option fees, under agreements related tothe licensing of our XenoMouse 

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technology. These revenues were generated from severalcollaborators, but were primarily from Pfizer, Amgen and Agensys in 2005, fromPfizer, Amgen, Abbott, Chiron and CuraGen in 2004 and from Pfizer, Chugai andAmgen in 2003.

·       Non-manufacturingProduction Services

We recognized a total of$5,000, $1.4 million and $1.2 million in 2005, 2004 and 2003, respectively, forproduction services. These revenues consisted primarily of process sciencesservices and were generated from a customer under a product services agreement.

***Contract Manufacturing Revenues***

Contract manufacturingrevenues totaled $1.7 million in 2004 and were related to the manufacture of anantibody product for a customer under a production services agreement. In 2005and 2003, we did not recognize any revenues from manufacturing services.

***Cost of Goods Manufactured***

Cost of goods manufacturedwas $2.2 million in 2004. Cost of goods manufactured included material, directlabor, outside testing and overhead costs associated with manufacturing anantibody product for a customer under a production services agreement. In 2005and 2003, we did not manufacture any products for customers and, therefore, didnot have any cost of goods manufactured.

***Research andDevelopment Expenses***

Themajor components of research and development expenses for 2005, 2004 and 2003were as follows (in thousands):

| ** **           | ** ** | **Year Ended December 31,** | ** ** |
|----------------------|------------|--------------------------------------------|------------|
| ** **           | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Product  development |       | $                                          | 111,538    |   | $ | 88,805 |   | $ | 59,695 |   |
| Research             |       | 25,478                                     |       | 35,635 |   | 34,626 |   |
| Total                |       | $                                          | 137,016    |   | $ | 124,440 |   | $ | 94,321 |   |

 

Product development costs include costs of preclinicaldevelopment, cell line development and conducting clinical trials for ourproprietary product candidates. Product development costs relate both toprograms we are developing jointly with collaborators pursuant to jointdevelopment arrangements and to programs that we are developing independently. Thecosts of our joint development programs represented the majority of our productdevelopment costs. Product development costs also include costs related to cellline and process development work performed in connection with productionservices arrangements. Typically, our joint development arrangements providethat we and our collaborator share the costs of development andcommercialization. We bear the entire cost of programs we are developingindependently. Our product development costs increased in 2005 and 2004,primarily due to a significant increase in costs associated with our jointdevelopment programs, the substantial majority of which was related to thepanitumumab program. To a lesser extent, the change was due to an increase inproduct development costs related to our independent programs, including ABX-10241.The increase in 2005 was partially offset by a decrease in cell line andprocess development activities under a production services contract.

The increase in product development costs for thepanitumumab program in 2005 from 2004 was primarily attributed to an increasein the amount we reimbursed our joint development partner, Amgen. Under thejoint development and commercialization agreement with Amgen, we are obligatedto pay 50% of the total development and commercialization costs of panitumumab.We reimburse Amgen when we 

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incur less than 50% of thetotal development costs incurred by both parties in the given period. In aperiod where we incur more than 50% of the total development costs, we wouldrecord such excess amount, which would be reimbursed to us by Amgen, as areduction of our product development costs. The amount of our netreimbursements to Amgen was $37.9 million, $11.4 million and $2.5 million in2005, 2004 and 2003, respectively. The increase in our net reimbursements toAmgen in 2005 and 2004 reflected an increase in development activitiesperformed by Amgen for panitumumab. Partially offsetting the increase inproduct development costs for panitumumab in 2005 from 2004 was a decrease indrug supply costs due to the timing of manufacturing the conformance lots and adecrease in clinical research fees to third parties due to the completion ofpatient enrollment for all panitumumab clinical trials that we manage. Clinicalresearch fees consist of clinical investigator site fees, monitoring costs anddata management costs. The increase in product development costs forpanitumumab in 2004 from 2003 was also attributed to increased facility andother overhead related expenses as there was an increased use of ourmanufacturing facility for process validation activities related to themanufacturing of the conformance lots.

Product development costs for ABX-10241increased by $1.6 million in 2005 from 2004 and $1.7 million in 2004 from 2003.The increase in 2005 from 2004 was primarily attributed to increased processdevelopment activities in preparation for large scale production of clinicalmaterials. The increase in 2004 from 2003 was primarily due to increasedclinical and process development activities, as we initiated a single dosePhase 1 study in February 2004, partially offset by decreased spending intoxicology studies.

Product development costs can vary significantly fromperiod to period depending on the progress of the development activities in theperiod. Overall, we expect costs associated with product development toincrease in 2006 as we and Amgen continue to expand our development efforts onthe panitumumab program. In addition, we expect product development costs relatedto ABX-10241 to increase in 2006, as we have initiated and continue toenroll patients in the multiple-dose Phase 1 study.

Researchcosts include costs associated with research and testing of antibodieswe generate, whether for ourselves or for our customers, prior to thedevelopment stage which begins with the commencement of preclinical activities.Research costs also include the costs of research relating to proprietarytechnologies, including enhancements to those technologies. The primary componentsof research costs include the costs of Abgenix personnel, facilities, includingdepreciation, and lab supplies. The decrease in research costs in 2005 comparedto 2004 was primarily due to decreased spending on lab supplies and reducedcompensation, depreciation and facilities expenses as well as a reduction incosts associated with licensing charges from arrangements with researchinstitutions and others. The reductions in compensation, depreciation andfacilities expenses were partially attributable to the implementation of ourrestructuring plan. Our research costs generally remained at the same level in2004 as compared to 2003. Research costs may decrease in 2006 from the 2005level, as cost reduction resulting from the restructuring in 2005 is expectedto have a full-year effect in 2006.

***Manufacturing Start-up Costs***

Manufacturing start-upcosts were $18.3 million, $25.4 million and $72.5 million in 2005, 2004 and2003, respectively. We began manufacturing antibody therapeutic candidates inportions of our manufacturing facility in the second quarter of 2003, at whichtime we began to depreciate the portions of the facility that were placed intoservice. Manufacturing start-up costs include certain costs associated with ourmanufacturing facility, including depreciation, outside contractor costs andpersonnel costs for activities such as quality assurance and quality control. Theprimary component of this cost in 2003 was a fee of approximately $28.0 millionfor the negotiated cancellation of a manufacturing supply agreement with anoutside contractor, Lonza Biologics plc. The manufacturing agreement was for aproduction suite held exclusively for us that, following the opening of ourmanufacturing facility, we determined we no longer needed. In connection withthis cancellation arrangement, Lonza was obligated to repay us a portion of thecancellation fee if, prior to December 31, 2005, it completedmanufacturing products for 

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othercustomers in the production suite that we had previously reserved. In 2005, werecorded a reduction to manufacturing start-up costs of $2.4 million for therepayment of a portion of the cancellation fee from Lonza under thisarrangement. Excluding the effect of the $2.4 million credit in 2005 and $28.0million expense in 2003 related to the Lonza cancellation arrangement,manufacturing start-up costs decreased in 2005 and 2004, primarily due to anincreased use of our manufacturing facility for the manufacture of panitumumabconformance lots and other development activities, including processvalidation.

***Amortization of Identified Intangible Assets***

Amortization of identifiedintangible assets totaled $4.6 million, $6.5 million and $7.2 million in 2005,2004 and 2003, respectively. The decrease in 2005 and 2004 reflected areduction in intangible assets that resulted from impairments of intangibleassets in the second quarters of 2005 and 2004.

***General and Administrative Expenses***

General and administrativeexpenses include compensation, professional services, consulting and otherexpenses related to information systems, legal, finance, human resources and anallocation of facility costs. General and administrative expenses totaled $22.3million, $27.3 million and $30.2 million in 2005, 2004 and 2003, respectively.The decrease in 2005 from 2004, which reflected our efforts to reduce generaland administrative expenses, was primarily due to a reduction in legal,recruiting, consulting and temporary personnel expenses. The decrease in 2004from 2003 was primarily due to a charge of $2.1 million in 2003 related to thesublease of one of our facilities.

***Impairment of Intangible Assets***

In the quarter ended June 30, 2005, we determined that an impairment of our SLAMtechnology had occurred and that the estimated fair value had declined to $2.0million. This technology, which includes intellectual property, was acquired in2000 through the acquisition of Abgenix Biopharma Inc., formerly known asImmGenics Pharmaceuticals, Inc. In the second quarter of 2005, wecompleted a strategic review process, which included an assessment of ourtechnologies. After assessing the SLAM technology, we determined that our useof the SLAM technology had declined and would continue to decline substantiallybecause of significant improvements in the use of other technologies andprocesses. Because of this impairment indicator, we tested the SLAM technologyfor recoverability and found that the undiscounted future cash flows estimatedto be generated from the use of the SLAM technology were less than the carryingvalue of the SLAM technology. As a result, we determined that an impairment ofthe SLAM technology had occurred and recorded an impairment charge of $23.1 millionin the second quarter of 2005 to adjust the carrying value of SLAM technologyto its estimated fair value, which is based on the estimated discounted futurecash flows to be generated from the SLAM technology.

Also in the quarter ended June 30, 2005, wedetermined that an impairment of the acquired technology in the field ofintrabodies (antibodies that can access intracellular targets) had occurred andthat the estimated value had declined to zero. This technology, which includesintellectual property, was acquired in 2000 through the acquisition ofIntraImmune, Inc. We decided to discontinue the development of theintrabody program and performed an assessment of the associated patent positionand the likelihood of sale or license of the technology to a third party. Wedetermined that the possibility of generating positive future cash flows fromthe technology was remote. As a result, we recorded an impairment charge of$1.9 million in the second quarter of 2005.

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In June 2004, we determined that an impairment ofthe Company’s acquired technology in the field of catalytic antibodies hadoccurred and that the estimated value had declined to zero. This technology,which includes intellectual property, was acquired in 2001 through theacquisition of Hesed Biomed, Inc. We decided to focus our resources onother research and development projects and to wind down our catalytic antibodyprogram. Additionally, after assessing the associated patent position and thelikelihood of sale or license of the technology to a third party, we furtherdetermined in 2004 that the possibility of generating positive future cashflows from the technology was remote. As a result of this determination, werecorded an impairment charge of $17.2 million in 2004.

In 2003, we decided todiscontinue the development of anti-properdin antibodies. As a result, werecorded an impairment charge of $1.4 million for previously capitalized costsrelated to licenses and research funding for the development of therapeuticantibodies to the complement protein properdin, which we licensed from Gliatech, Inc.

***Restructuring and Other***

In June 2005, we implemented a restructuring planin which we decided to consolidate our research and certain pre-clinicalactivities into the facility located in Burnaby, British Columbia, and to reduceour workforce by approximately 15%. As a result of the reduction in workforceand an evaluation of our future needs, we determined that we would not occupyand would sublease, to the extent possible, certain of our research facilities.The restructuring plan was designed to focus resources on our developmentpipeline and particularly the potential commercial opportunity of our leadproduct candidate, panitumumab.

In connection with the restructuring plan, we recordedrestructuring charges of $15.5 million in 2005, including $2.8 million oftermination benefits, $6.8 million of lease obligations, $5.7 million for theimpairment of leasehold improvements, equipment and other assets, and $215,000of facilities and employee relocation expenses. Termination benefits primarilyconsisted of severance pay, retention bonuses and non-cash, stock-basedcompensation expense. The substantial majority of the severance pay andretention bonuses were paid in full as of December 31, 2005.

The lease obligations represent the fair value offuture lease commitment costs, net of projected sublease rental income, for theresearch facilities that we decided not to occupy as a result of therestructuring plan. We will continue to review the sublease assumptions on aquarterly basis, and we may adjust the lease obligations as appropriate forchanges in the sublease assumptions. Additionally, we recorded an impairmentcharge to adjust the carrying value of the related long-lived assets to theirestimated fair values based on our impairment evaluation in connection with therestructuring. The majority of the impairment charge was related to leaseholdimprovements, and the fair value of these leasehold improvements was estimatedbased upon anticipated future cash flows associated with the relatedfacilities, discounted at an interest rate commensurate with the risks involved.A portion of the impairment charge was also related to certain lab and computerequipment and furniture and fixtures that currently do not have any anticipatedfuture use due to the restructuring plan.

As a result of therestructuring, certain research and development expenses, includingcompensation, facilities and depreciation of property and equipment, are lower,starting in the third quarter of 2005, as compared to the periods prior to therestructuring. Compared to the amounts incurred in the first half of 2005,these expenses decreased by approximately $5 million in total in the secondhalf of 2005. However, the decrease in theseexpenses was offset by an increase in product development expenses in thesecond half of 2005, in particular joint development expenses as discussedabove.

***Interest and Other Income (Expenses), Net***

Interest and other income(expenses), net, totaled $14.2 million, $5.4 million and $10.0 million in 2005,2004 and 2003, respectively. The increase in 2005 from 2004 was primarily dueto higher interest 

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ratesand a higher average balance of cash, cash equivalents and marketablesecurities, as well as a $2.0 million gain on sale of marketable equitysecurities. The decrease in 2004 from 2003 was primarily due to a loss of $1.0million from early extinguishment of debt related to the repurchase of $86.2million of our convertible subordinated notes due 2007 and a lower averagebalance of cash, marketable securities and cash equivalents.

***Interest Expense***

Interest expense wasprimarily related to interest and amortization of issuance costs on ourconvertible notes and interest on the Amgen credit facility. Interest expensetotaled $15.2 million, $7.2 million and $5.8 million in 2005, 2004 and 2003,respectively. The increase in 2005 from 2004 was primarily due to the interestrelated to the convertible senior notes due 2011 that we issued in December 2004and the interest related to the credit facility with Amgen, which was notavailable for advances in the first six months of 2004. A portion of theincrease was offset by a reduction of interest expense due to the repurchasesof $13.8 million and $86.2 million in principal amount of the convertiblesubordinated notes due 2007 in September 2005 and December 2004,respectively. The increase in 2004 from 2003 was primarily due to the interestrelated to the credit facility with Amgen and a decrease in the amount ofcapitalized interest. Interest expense in the amount of $1.1 million, $1.7million and $2.5 million related to the convertible notes was capitalized in2005, 2004 and 2003, respectively. Capitalized interest decreased in 2005 from2004 primarily due to a decrease in the weighted average interest rate relatedto our convertible notes; capitalized interest also decreased in 2004 from 2003because we placed into service a portion of our manufacturing facility in 2003when we began manufacturing antibody therapeutic candidates in that portion ofthe facility. If the aggregate outstanding principal amount of our convertiblenotes remains unchanged at $400.0 million, we expect to record approximately$8.8 million in aggregate of interest expense related to these notes in 2006. Additionally,we record interest at 12% on the amounts we have drawn on our credit facilitywith Amgen until we repay the balance in full. Interest recorded under theAmgen arrangement was $5.2 million and $0.5 million in 2005 and 2004,respectively. The amount of any such advances, plus interest, may be repaid outof profits from future product sales; however, we are generally not obligatedto repay any portion of the outstanding balance if panitumumab does not reachcommercialization.

***Impairment of Investments***

In the fourth quarter of 2005, we sold the majority ofour strategic investments in the common stock of two publicly tradedbiotechnology companies. As of December 31, 2005, the remaininginvestments had a market value of $2.9 million and an unrealized loss of $1.5million. We determined that the unrealized loss was other-than-temporarybecause of our intent to sell the remaining securities in the near term. Accordingly,we recorded an impairment charge of $1.5 million related to these investmentsas of December 31, 2005. We completed the sale of these investments inearly 2006.

As of December 31, 2005, we also determined thatapproximately $152,000 of unrealized loss related to our marketable debtsecurities was other-than-temporary, as a portion of these securities isexpected to be liquidated prior to their maturities in 2006 due to ourforecasted cash flow requirements and such unrealized loss may not be fullyrecovered. Accordingly, we recorded animpairment charge of $152,000 related to these securities as of December 31,2005.

The Company had alsoinvested in the equity securities of a privately held company in connectionwith its collaboration with that company. As of December 31, 2003, theCompany determined that an impairment had occurred and estimated that the valueof the investment had declined to zero. Accordingly, the Company recorded animpairment charge of $7.9 million in the fourth quarter of 2003. The impairmentcharge was based on the difference between the estimated fair value asdetermined by management and the adjusted cost basis of the investment.

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***Foreign Income Tax Expense***

Foreign income tax expensewas recorded reflecting an income tax provision on foreign contract research projectsof approximately $84,000 in the year ended December 31, 2003.

**Liquidity and Capital Resources**

At December 31, 2005, we had cash, cashequivalents and marketable securities of $332.8 million. We invest ourcash equivalents and marketable securities primarily in highly liquid, interestbearing, investment grade and government securities in order to preserveprincipal.

*Cash Used in OperatingActivities.**  *Netcash used in operating activities was $87.6 million, $130.8 million and $118.2million in 2005, 2004 and 2003, respectively. This reflects a decrease of $43.2million in 2005 from 2004 and an increase of $12.6 million in 2004 from 2003. Themajor components of the changes in cash used in operating activities wereprimarily the following:

·       Anincrease of $14.4 million in 2005 and $25.6 million in 2004 in our liability toAmgen under the joint development agreement.

·       Paymentsof $23.4 million in 2004 and $7.0 million in 2003 pursuant to the Lonzacontract cancellation obligation. We made no such payment in 2005 as thisobligation was settled as of December 31, 2004.

·       Adecrease of $18.2 million in 2005 and $769,000 in 2004 in the change inaccounts payable and accrued liabilities, net.

·       Anincrease of $4.3 million in 2005 and a decrease of $1.3 million in 2004 inreceipts of interest income.

·       Anincrease of $8.3 million in both 2005 and 2004 in research and development andmanufacturing start-up costs, not including the Lonza contract cancellationcharge in 2003, amortization of identified intangible assets and depreciationrelated to the development of new products.

·       Paymentsof $2.2 million in 2005 for termination benefits, facilities and employee relocationexpenses in connection with the restructuring plan implemented in June 2005.

·       Anincrease of $2.2 million in costs of goods manufactured in 2004. There was nocost of goods manufactured in 2005 and 2003.

·       Anincrease of $396,000 in 2005 and a decrease of $6.3 million in 2004 in customerpayments. Changes in 2005 and 2004 were affected by the timing of paymentsreceived under our contracts.

*Cash Provided by (Used in)Investing Activities.**  *Netcash used in investing activities was $28.0 million in 2005 and $173.5 millionin 2003. Net cash provided by investing activities was $50.5 million in2004. Net cash provided by and used in investing activities primarily consistedof the following:

·       Capitalexpenditures of $6.8 million, $8.6 million and $30.5 million in2005, 2004 and 2003, respectively, which primarily represented investments inconstruction in progress and equipment for our manufacturing facility as wellas investments in lab equipment and software.

·       Purchases,net of sales and maturities, of marketable securities of $21.2 million and$143.0 million in 2005 and 2003, respectively, and sales and maturities, net of purchases, of marketablesecurities of $59.2 million in 2004,

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*Cash Provided by (Used In)Financing Activities.**  *Netcash used in financing activities was $1.8 million in 2005. Net cashprovided by financing activities was $210.1 million and $102.8 millionin 2004 and 2003, respectively. Net cash provided by and used in financingactivities consisted of the following:

·       $13.5 millionand $86.0 million used in 2005 and 2004, respectively, to repurchase aportion of our 3.5% convertible subordinated notes due 2007.

·       $291.0 millionreceived in 2004 for the issuance of the 1.75% convertible senior notes due2011.

·       $10.0 million,$5.1 million, $3.1 million received in 2005, 2004 and 2003,respectively, for the issuance of common stock upon the exercise of stockoptions and under our employee stock purchase plans. We also received $1.7 millionin 2005 for the issuance of common stock in connection with an extension of atechnology licensing agreement by Genentech.

·       $99.7 millionreceived in 2003 for the issuance of Series A-1 and A-2redeemable convertible preferred stock to AstraZeneca.

*FinancingUncertainties Related to Our Business Plan.**  *We plan to continue to makesignificant expenditures to staff and operate our own manufacturing facilityand support our research and development activities, including preclinicalproduct development and clinical trials. We may also look for opportunities toacquire new technology through in-licensing, collaborations or acquisitions. Wemay spend additional amounts to support new production services contracts.

We currently intend to use our available cash on handto finance these projects and business developments; however, we may choose to,or business conditions may require us to, pursue other financing alternatives,such as equity, equity-linked debt or debt financing, a bank line of credit,sale-lease back financing, asset sales, funding by one or more collaborators ora mortgage financing, that may become available to us from time to time. Wehave filed with the Securities and Exchange Commission a currently effectiveshelf registration statement through which we may offer for sale from time totime up to $250 million in equity or debt securities. Whether we use cashon hand or choose to obtain financing will depend on, among other things, thefuture success of our business, the prevailing interest rate environment andthe condition of financial markets generally.

In October 2003, weentered into an amendment of our joint development and commercializationagreement with Amgen for the co-development of panitumumab. We areobligated to pay 50% of the development and commercialization costs and we areentitled to receive 50% of any profits from sales of panitumumab. As of December 31,2005, Amgen had advanced $60.0 million, the entire amount available underthe agreement, which we have used to fund a portion of our share of developmentand commercialization costs for panitumumab.

The amounts of the expenditures that will be necessaryto execute our business plan are subject to numerous uncertainties that mayadversely affect our liquidity and capital resources to a significant extent. Asof December 31, 2005, two of our proprietary product candidates,panitumumab and ABX-10241, were in various stages of clinical trials. Theclinical trials of panitumumab and ABX-10241 are expected to requiresignificant expenditures in the foreseeable future. Completion of clinicaltrials may take several years or more, but the length of time generally variessubstantially according to the phase of the trial, and the type, complexity,novelty and intended use of a product candidate. In order to proceed tosubsequent clinical trial stages and to achieve regulatory approval, the FDAmust conclude that our clinical data establish safety and efficacy. Theduration and the cost of clinical trials may vary significantly over the lifeof a project.

We test our potential product candidates in numerouspreclinical studies to identify disease indications for possible therapeuticapplication. We may conduct multiple clinical trials on our own or with ourcollaborators to cover a variety of indications for each product candidate. Aswe obtain results from 

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trials, we may elect todiscontinue clinical trials for certain product candidates or for one or moreindications for a given product candidate in order to focus our resources onmore promising product candidates or indications.

We may enter into joint development agreements,similar to our agreement with Amgen for panitumumab, and may enter intoadditional joint development agreements earlier in the development life cycleof product candidates. Ourstrategy is designed to diversify the risks associated with our research anddevelopment spending.

In the event that third parties take over the clinicaltrial process for one of our product candidates, the estimated completion datewould largely be under the control of that third party rather than us. Wecannot forecast with any degree of certainty which proprietary products orindications, if any, will be subject to future collaborative arrangements, inwhole or in part, or the extent to which third parties may control clinicaltrials pursuant to such arrangements, and how such arrangements would affectour capital requirements.

As a result of the uncertainties discussed above,among others, the duration and completion costs of our research and developmentprojects are difficult to estimate and are subject to considerable variation.Our inability to complete our research and development projects in a timelymanner or our failure to enter into collaborative agreements when appropriate,could significantly increase our capital requirements and could adverselyimpact our liquidity. We also may be required to make further substantialexpenditures if unforeseen difficulties arise in other parts of our business.These uncertainties could force us to seek additional sources of financing fromtime to time in order to continue with our business strategy. Our inability toraise additional capital, or to do so on terms reasonably acceptable to us,would jeopardize the future success of our business.

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

*History of Net Losses.**  *We have incurred net losses sinceour organization as an independent company, including in the last five yearsnet losses of $60.9 million in 2001, $208.9 million in 2002, $196.4 millionin 2003, $187.5 million in 2004 and $207.0 million in 2005. As of December 31,2005, our accumulated deficit was $959.2 million. Our losses to date haveresulted principally from:

·       researchand development costs relating to the development of our XenoMouse and XenoMaxtechnologies and antibody therapeutic product candidates;

·       generaland administrative costs relating to our operations;

·       manufacturingstart-up costs relating to our new manufacturing facility includingdepreciation, costs of outside contractor and personnel costs for qualityassurance and quality control activities;

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·       impairmentcharges relating to our strategic investments in CuraGen, ImmunoGen, Inc. andMDS Proteomics Inc.; and

·       impairmentcharges relating to acquired technologies, including our SLAM technology andtechnologies in the fields of intrabodies and catalytic antibodies.

We expect to incur additional losses for theforeseeable future as a result of our research and development costs, includingcosts associated with conducting preclinical development and clinical trials,which will continue to be substantial, charges related to purchases oftechnology or other assets, and costs associated with establishing andoperating our manufacturing facilities. We intend to invest significantly inour products prior to entering into licensing agreements. This will increaseour need for capital and will result in losses for at least the next severalyears. We expect that the amount of operating losses will fluctuatesignificantly from quarter to quarter as a result of increases or decreases inour research and development efforts, the execution or termination of licensingand other agreements, and the initiation, and success or failure, of clinicaltrials.

*Net Operating LossCarryforwards.**  *Asof December 31, 2005, we had net operating loss carryforwards for federaland state income tax purposes of approximately $849.0 million and $261.0 million,respectively. Our net operating loss carryforwards exclude losses incurredprior to our formation in July 1996. Further, we have capitalized theamounts associated with the 1997 patent cross-license and settlement agreementwith GenPharm, which we have expensed for financial statement accountingpurposes and we are amortizing those amounts over a period of approximately15 years for tax purposes. The federal and state net operating loss andcredit carryforwards will expire in the years 2006 through 2025, if notutilized. Utilization of the net operating losses and credits may be subject toa substantial annual limitation due to the “change in ownership” provisions ofthe Internal Revenue Code of 1986 and similar state provisions. The annuallimitation may result in the expiration of net operating losses and creditsbefore utilization.

**Critical Accounting Estimates**

Several estimates andjudgments involved in the application of accounting principles impact thefinancial results that we report. We are required to estimate the effect ofmatters that are inherently uncertain. Changes in our estimates or judgmentscould materially impact our results of operations, financial condition and cashflows in future years. We believe our most critical accounting estimatesinclude those associated with revenue recognition, accounting for marketablesecurities, goodwill and identified intangible assets, restructuring charges,income taxes and stock option valuation.

***Revenue Recognition***

We derive our contract revenue from license, option,service and milestone fees received from customers. Services include thoseperformed under our technology out-licensing and production services agreements.As described below, within the framework of generally accepted accountingprinciples, significant management judgments and estimates must be made andapplied in connection with the revenue recognized in any accounting period. Ifour management made different judgments or utilized different estimates,material differences could result in the amount and timing of our revenue inany period.

We enter into revenuearrangements with multiple deliverables in order to meet our customer’s needs.For example, the arrangements may include a combination of up-front fees,license payments, research and development services, milestone payments, futureroyalties, and manufacturing arrangements. Multiple element revenue agreementsentered into on or after July 1, 2003 are evaluated under Emerging IssuesTask Force No. 00-21, “Revenue Arrangements with MultipleDeliverables,” or EITF 00-21, to determine whether the delivered item hasvalue to the customer on a stand-alone basis and whether objective and reliableevidence of the fair value of the undelivered item exists. Deliverables in anarrangement that do 

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not meetthe separation criteria in EITF 00-21 must be treated as one unit ofaccounting for purposes of revenue recognition. Generally, the revenuerecognition guidance applicable to the final deliverable is followed for thecombined unit of accounting. For certain arrangements, the period of time overwhich certain deliverables will be provided is not contractually defined.Accordingly, management is required to make estimates and assumptions thataffect the amounts reported in the financial statements and accompanying notes.For example, we recognized revenue of approximately $312,000, $526,000 and$196,000 in 2005, 2004 and 2003, respectively, related to arrangements for whichthe period of time over which the research will be performed was notcontractually defined. For these arrangements, we are amortizing up-front feesover the 15- to 20-month period of time defined in the researchplan established by us and our customer. As of December 31, 2005,approximately $33,000 remained in deferred revenue related to thesearrangements. In addition, we recognized revenue of approximately $656,000,$698,000 and $116,000 in 2005, 2004 and 2003, respectively, related to anarrangement for which the period of time of continuing obligation is dependentupon the timing of the commercialization of a product. The length of timenecessary to complete preclinical and clinical testing, and to obtain marketingapproval to commercialize a product, varies substantially according to thetype, complexity, novelty and intended use of the product candidate, and manyfactors may delay commercialization. For this arrangement, if the date of theproduct commercialization were delayed by one year, the amount of revenue to berecognized in the next 12 months would be approximately $523,000, as opposed to$614,000 under our current estimate. As of December 31, 2005,approximately $3.5 million remained in deferred revenue related to thisarrangement. To date, there has not been a change in an estimate or assumptionin the past that had a material impact on revenue recognition.

***Accounting for Marketable Securities***

Unrealized holding gainsand losses related to our marketable securities are reported as a component ofstockholders’ equity. We recognize an impairment charge when the declines inthe fair values of these securities below their cost basis are deemed to beother-than-temporary. We consider various factors in determining whether torecognize an impairment charge, including the length of time and the extent towhich the fair value has been below the cost basis, the current financialcondition of the investee or issuer and our intent and ability to hold theinvestment for a period of time sufficient to allow for any anticipatedrecovery in market value. As of December 31, 2005, we determined that anunrealized loss of approximately $1.6 million in total wasother-than-temporary. The actual loss ultimately realized may be different fromthis estimate as our marketable securities are subject to market price andinterest rate volatilities until they are sold. In addition, our intent andability to hold an investment may change over time depending on, among others,our working capital and strategic requirements, and such change could result inadditional impairment charges in future periods.

***Accounting for Goodwill and Identified IntangibleAssets***

As a result of the adoption of SFAS No. 142, “Goodwilland Other Intangible Assets,” in 2002, we no longer amortize goodwill butinstead review goodwill for impairment on an annual basis, or more frequentlyif indications of impairment exist. Under our accounting policy, we haveadopted the beginning of the fourth quarter as an annual goodwill impairmenttest date. Following this approach, we compare the carrying values available asof September 30 with the estimated fair value of the reporting unit toassess if there has been a potential impairment, and, if impairment is indicated,complete the measurement of impairment under the procedures established by SFASNo. 142. Because we have determined that we have one reporting unit underSFAS No. 142, our market capitalization is considered to be a reasonableproxy for the fair value of the reporting unit. We also consider whether current business andgeneral market conditions suggest that the fair value of the reporting unit haslikely declined below its carrying value. As of December 31, 2005,no impairment has occurred.

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If we were to determine in a future period that animpairment of goodwill existed, the impairment measurement procedures couldresult in a charge for the impairment of goodwill. Furthermore, a change in ourdetermination of reporting units could result in a charge for the impairment ofgoodwill in future periods. A change in the determination of reporting unitscould occur should we reorganize into reporting units such that each unitconstitutes a business for which discrete financial information is availablethat is regularly reviewed by management to evaluate the performance of thatunit. As of December 31, 2005, the carrying value of our goodwill was $34.8 million.

Under SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets,” identified intangible assets heldand used must be tested for impairment when events or changes in circumstancesindicate that its carrying amount may not be recoverable. The carrying amountis determined to be not recoverable when the sum of the undiscounted futurecash flows expected to result from the use and eventual disposition of theasset is less than the carrying amount. Factors that are considered importantin determining whether impairment might exist include a significant change inthe manner in which an asset is being used, a significant adverse change inlegal factors or the business climate that could affect the value of an asset,including an adverse action or assessment by a regulator, or a currentexpectation that, more likely that not, an asset will be sold or otherwisedisposed of before the end of its previously estimated useful life. If it isdetermined that an impairment indicator exists and the asset is notrecoverable, an impairment charge is recognized for the excess of the carryingamount over the fair value of the asset.

In the second quarter of 2005, we determined thatimpairment indicators existed with respect to our SLAM and intrabodytechnologies. We then estimated the undiscounted future cash flows from the useof the SLAM technology and found that the carrying value was not recoverable. Becauseneither quoted market prices or comparables were available, we estimated thefair value of the SLAM technology based on the net present value of its futurecash flows, or $2.0 million. As a result, we recorded an impairment chargeof $23.1 million. Future cash flows associated with the SLAM technologyare estimated based on future cost savings from using the SLAM technology. Significantassumptions used in this estimate include the number of programs that would usethe SLAM technology, cost savings per each program, the life of the SLAMtechnology, the discount rate and the income tax effect. If one or more ofthese assumptions changes significantly in a future period and it is determinedat that time that the carrying value of the SLAM technology is not recoverable,further impairment charge may be recognized. Because future cash flowsestimated to be generated from the intrabody technology were determined to beremote, the fair value was determined to be zero and the remaining carryingvalue of $1.9 million was written off.

In the second quarter of 2004, we determined that animpairment of our catalytic antibody technology had occurred. Because futurecash flows estimated to be generated from the catalytic antibody technologywere determined to be remote, the fair value was determined to be zero, and theremaining carrying value of $17.2 million was written off.

If we were to determine ina future period that an impairment of intangible assets has occurred, theimpairment measurement procedures could result in a charge for the impairmentof long-lived assets. As of December 31, 2005, the carrying value of ouridentified intangible assets was $30.4 million, consisting primarily ofour XenoMouse technology.

***Restructuring Charges***

In June 2005, we implemented a restructuring planin which we decided to consolidate our research and certain pre-clinicalactivities into our facility located in Burnaby, British Columbia, and reduceour workforce by approximately 15%. As a result of the reduction in workforceand an evaluation of our future needs, we determined that we would not occupyand would sublease, to the extent possible, certain of our research facilities.The restructuring plan was designed to focus resources on our developmentpipeline and particularly the potential commercial opportunity of our leadproduct candidate, panitumumab.

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In accordance with SFAS No. 146,we recorded restructuring charges of $15.5 million in 2005,including $2.8 million of termination benefits, $6.8 million of leaseobligations, $5.7 million for the impairment of leasehold improvements,equipment and other assets, and $215,000 of facilities and employee relocationexpenses. The lease obligations represent the fair value of future leasecommitment costs, net of projected sublease rental income, for the researchfacilities that we decided not to occupy as a result of the restructuring. Theestimated future cash flows used in the fair value calculation are based oncertain estimates and assumptions by management, including the projectedsublease rental income, the amount of time the space will be unoccupied priorto sublease and the length of any subleases.

It is possible that ourestimates and assumptions may change in the future, resulting in adjustments tothe estimated sublease income, and the effect of any adjustments could besignificant. If the sublease rental rates would differ from our assumptions byapproximately 10% in either direction, the liability related to lease obligationsas of December 31, 2005 would be increased and decreased by approximately$0.9 million and $1.0 million, respectively. If our estimatedsublease timetable were delayed by six months, it would result in an additionalliability of approximately $1.3 million, or more, if there were a furtherdelay. We will continue to review our estimates and assumptions on a quarterlybasis and modify these estimates as necessary to reflect any changes incircumstances.

***Income Taxes***

Significant managementjudgment is required in developing our provision for income taxes, includingthe calculation of tax liabilities, the determination of deferred tax assetsand liabilities and any valuation allowances that might be required against thedeferred tax assets. Results of operations in each jurisdiction involveintercompany agreements between us and our Canadian subsidiary. Such agreementscould be unfavorably interpreted by the applicable taxing authorities, causingan increase in the income tax provision and a negative impact on our results ofoperations. The assessment of the income tax implications of this intercompanyrelationship requires significant management judgment.

***Stock Option Valuation***

The preparation of the notes to our consolidatedfinancial statements requires us to estimate the fair value of stock optionsgranted to employees. While fair value may be readily determinable for awardsof stock, market quotes are not available for long-term, nontransferable stockoptions because these instruments are not traded. We currently use theBlack-Scholes option pricing model to estimate the fair value of employee stockoptions. However, the Black-Scholes option pricing model was developed for usein estimating the fair value of traded options, which have no vesting restrictionsand are fully transferable. In addition, option valuation models require theinput of highly subjective assumptions, including the expected stock pricevolatility. Because our employee stock options have characteristicssignificantly different from those of traded options and because changes to thesubjective input assumptions can materially affect the fair value estimate, inmanagement’s opinion, the existing models do not provide a reliable singlemeasure of the fair value of our employee stock options.

Our estimate ofcompensation expense requires a number of complex and subjective assumptionsincluding our stock price volatility and employee exercise patterns. The valueof a stock option is derived from its potential for appreciation. The more volatilethe underlying stock, the more valuable the option becomes because of thegreater possibility of significant changes in stock price. Because there is amarket for options on our common stock, we have considered implied volatilitiesas well as our historical realized volatilities when developing an estimate ofexpected volatility. The expected option term also has a significant effect onthe value of the option. The longer the term, the more time the option holderhas to allow the stock price to increase without a cash investment and thus,the more valuable the option. Further, lengthier option terms provide moreopportunity to exploit market highs. However, empirical data shows thatemployees, for a variety of reasons, typically do not wait until the end of thecontractual 

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term ofa nontransferable option to exercise. Accordingly, companies are required toestimate the expected term of the option for input to an option-pricing model. Whenestablishing an estimate of the expected term, we consider the vesting periodfor the award, our historical experience of employee stock option exercises,the expected volatility, and a comparison to relevant peer group data. Asrequired under the accounting rules, we review our valuation assumptions ateach grant date and, as a result, we are likely to change our valuationassumptions used to value stock based awards granted in future periods. Changesto the subjective input assumptions could materially affect the estimated fairvalue of our stock-based payments.

**ContractualObligations and Commercial Commitments**

As of December 31,2005, future minimum payments for certain contractual obligations for yearssubsequent to December 31, 2005 were as follows (in thousands):

| ** **                                      | ** ** | **Total** | ** ** | **Less than  1 year** | ** ** | **1 - 3  years** | ** ** | **4 - 5  years** | ** ** | **After  5 years(1)** | ** ** |
|-------------------------------------------------|------------|-----------|------------|---------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Operating leases(2)                             |       | $         | 117,128    |                            |       | $                          | 14,340     |                       |       | $                          | 30,268     |   | $ | 31,189 |   | $ | 41,331 |   |
| Convertible notes  due 2007 & interest |       | 105,250   |       |                            | 3,500      |                       |       | 101,750                    |       | —                     |       | — |   |
| Convertible notes  due 2011 & interest |       | 331,529   |       |                            | 5,250      |                       |       | 10,500                     |       | 10,500                     |       | 305,279 |   |
| Convertible note  due 2013                      |       | 50,000    |       |                            | —     |                       |       | —                     |       | —                     |       | 50,000 |   |
| Redeemable  convertible preferred stock(3)      |       | 50,000    |       |                            | —     |                       |       | —                     |       | 50,000                     |       | — |   |
| Amgen(4)                                        |       | 65,677    |       |                            | —     |                       |       | —                     |       | —                     |       | — |   |
| Purchase orders                                 |       | 691       |       |                            | 691        |                       |       | —                     |       | —                     |       | — |   |
| Total                                           |       | $         | 720,275    |                            |       | $                          | 23,781     |                       |       | $                          | 142,518    |   | $ | 91,689 |   | $ | 396,610 |   |

----

(1)          Amounts represent totalof minimum payments for the entire period.

(2)          Amounts includeapproximately $22.2 million of operating lease payments related tofacilities impacted by the restructuring plan implemented in 2005. Thediscounted operating lease payments, net of estimated sublease rental income,related to these facilities were included as a liability on our consolidatedbalance sheet as of December 31, 2005.

(3)          OnFebruary 28, 2006, pursuant to the terms of the merger agreement with Amgen,we redeemed the $50 million of our redeemable convertible preferred stock.

(4)          The $65.7 millionlong-term obligation to Amgen consists of $60.0 million in advances underthe credit facility and $5.7 million of accrued interest. The timing offuture minimum payments is uncertain as this obligation may be repaid out ofprofits resulting from future product sales.

We have a commitmentto share equally all development and commercialization costs for panitumumabpursuant to our development and commercialization agreement with Amgen. Asamended in October 2003, that agreement provides that Amgen has decision-makingauthority for development and commercialization activities. As provided in theamended agreement, Amgen advanced $60.0 million that we used to fund aportion of our share of development and commercialization costs for panitumumab.As of December 31, 2005, we had a carrying balance of $65.7 millionunder this facility consisting of $60.0 million in advances, the maximumamount available, and $5.7 million of interest accrued at the contractrate of 12% per annum. The amount of any such advances, plus interest, may berepaid out of profits resulting from future product sales and we are generallynot obligated to repay any portion of the loan if panitumumab does not reachcommercialization.

In March 2000 and February 2001,we obtained stand-byletters of credit for $2.0 million and $3.0 million, respectively,from a commercial bank as security for our obligations under two facilityleases. These were increased in January 2002to $2.5 million and $3.2 million, respectively, in connection withamendments to our facility leases. In December 2003, the $3.2 millionstand-by letter of credit increased to 

62

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$3.5 million. The outstanding stand-byletters of credit are secured by an investment account, in which we maintain abalance of approximately $7.0 million.

**Recent Accounting Pronouncements**

We will adopt Statement of Financial AccountingStandards (SFAS) No. 123(R), “Share-Based Payment” on January 1, 2006.SFAS No. 123(R) requires that all share-based payments to employees,including grants of employee stock options, be recognized in the financialstatements based on their fair values. Pro forma disclosure previouslypermitted under SFAS No. 123 will no longer be an alternative. We willrecognize stock-based compensation expense on all awards on a straight-linebasis over the requisite service period using the modified prospective methodfor all options issued after January 1, 2006. We will continue to use theBlack-Scholes option pricing model to value stock-based payments under SFAS No. 123(R).

As permitted by SFAS No. 123, we currentlyaccount for our share-based payments to employees using APB Opinion No. 25’sintrinsic value method and do not recognize compensation costs for our employeestock options. Accordingly, we expect that the adoption of SFAS No. 123(R)’sfair value method will have a significant impact on our result of operations,although it will have no impact on our overall financial position. The impactof adopting SFAS No. 123(R) cannot be predicted at this time becauseit will depend on levels of share-based payments granted in the future. However,had we adopted SFAS No. 123(R) in prior periods, the impact wouldapproximate the impact of SFAS No. 123 as shown in Note 1 of ourconsolidated financial statements under the heading of “Stock-BasedCompensation.”

In accordance with SFAS No. 123(R), deferredcompensation and related common stock on our balance sheet as of December 31,2005 (which totals approximately $2.6 million as of December 31,2005) will be reversed and future charges for deferred compensation from ourrestricted stock will be recorded to common stock directly as the relatedservices are performed.

In November 2005, theFinancial Accounting Standards Board issued FASB Staff Position (FSP) No. FAS115-1, “The Meaning of Other-Than-Temporary Impairment and itsApplication to Certain Investments.”  FSPNo. FAS 115-1 provides additional guidance on the determination asto when an investment is considered impaired, whether that impairment isother-than-temporary, and the measurement of the loss. Although FSP No. FAS115-1 is effective for fiscal years beginning after December 15,2005, we believe the FSP’s clarification to the guidance regarding when another-than-temporary impairment should be recognized is consistent with otherexisting literature, such as Staff Accounting Bulletin No. 59, Accountingfor Noncurrent Marketable Equity Securities, and has been applied as of December 31,2005. Accordingly, we recorded a non-cash impairment charge of approximately$1.6 million for the year ended December 31, 2005.

**Item7A.   Quantitative and Qualitative Disclosures About Market Risk**

*InterestRate Risk.**  *We are exposed to interest ratesensitivity on our investments in debt securities and our outstanding fixedrate debt. The objective of ourinvestment activities is to preserve principal, while at the same timemaximizing yields without significantly increasing risk. To achieve thisobjective, we invest in highly liquid, investment grade and government debtsecurities. Our investments in debt securities are subject to interest raterisk. To minimize the exposure due to an adverse shift in interest rates, weinvest in short-term securities and our goal is to maintain an average maturityof approximately one year. In addition, as of December 31, 2005, wehad $100.0 million of outstanding 3.5% convertible subordinated notes duein 2007, and $300.0 million of outstanding 1.75% convertible senior notesdue in 2011. The fair value of these convertible notes may fluctuate withchanges in market interest rates, as well as changes in the market price of ourcommon stock. A hypothetical 1.0% perannum decrease in interest rates would result in an adverse net changein the fair value of our interest rate sensitive assets and liabilities of approximately $16.4 million and $16.6 millionat December 31, 2005 and 2004, respectively.

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**Item 8.        FinancialStatements and Supplementary Data**

**INDEXTO FINANCIAL STATEMENTS**

|                                                                                                                 | ** ** | **Page** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Abgenix, Inc.,  Audited Consolidated Financial Statements                                                  |       |     |       |   |   |
| Report of Independent Registered Public Accounting  Firm                                                        |       |     | 65         |   |   |
| Consolidated Balance Sheets as of December 31,  2005 and 2004                                              |       |     | 66         |   |   |
| Consolidated  Statements of Operations for the Years Ended December 31, 2005, 2004 and  2003               |       |     | 67         |   |   |
| Consolidated Statements of Stockholders’ Equity for  the Years Ended December 31, 2005, 2004 and 2003 |       |     | 68         |   |   |
| Consolidated Statements of Cash Flows for the Years  Ended December 31, 2005, 2004 and 2003                |       |     | 69         |   |   |
| Notes to Consolidated Financial Statements                                                                      |       |     | 70         |   |   |

 

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**Reportof Independent Registered Public Accounting FirmOn Consolidated Financial Statements**

*The Board ofDirectors and Stockholders of Abgenix, Inc.*

We have audited the accompanying consolidated balancesheets of Abgenix, Inc. as of December 31, 2005 and 2004, and therelated consolidated statements of operations, stockholders’ equity and cashflows for each of the three years in the period ended December 31, 2005. Thesefinancial statements are the responsibility of Abgenix, Inc.’s management.Our responsibility is to express an opinion on these financial statements basedon our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Abgenix, Inc. at December 31, 2005 and 2004, and theconsolidated results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2005, in conformity with U.S.generally accepted accounting principles.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of Abgenix, Inc.’sinternal control over financial reporting as of December 31, 2005, basedon criteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated March 3, 2006 expressed an unqualified opinion thereon.

|                  | /s/ Ernst & Young  LLP |
|-----------------------|---------------------------------|
| Palo Alto, California |                            |
| March 3, 2006    |                            |

 

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

| ** **                                                                                                                                                                    | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **2005**              | ** ** | **2004** | ** ** |
| **ASSETS**                                                                                                                                                                    |       |
| Current assets:                                                                                                                                                               |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                     |       | $                     | 31,447     |   | $ | 148,929 |   |
| Marketable securities                                                                                                                                                         |       | 301,375               |       | 267,400 |   |
| Interest receivable                                                                                                                                                           |       | 3,037                 |       | 2,370 |   |
| Accounts receivable                                                                                                                                                           |       | 4,831                 |       | 5,729 |   |
| Prepaid expenses and other current assets                                                                                                                                     |       | 12,837                |       | 11,088 |   |
| Total current assets                                                                                                                                                          |       | 353,527               |       | 435,516 |   |
| Property and  equipment, net                                                                                                                                                  |       | 197,598               |       | 223,004 |   |
| Long-term  investments                                                                                                                                                        |       | —                |       | 23,300 |   |
| Goodwill                                                                                                                                                                      |       | 34,780                |       | 34,780 |   |
| Identified  intangible assets, net                                                                                                                                            |       | 30,437                |       | 60,010 |   |
| Deposits and  other assets                                                                                                                                                    |       | 33,936                |       | 36,108 |   |
|                                                                                                                                                                          |       | $                     | 650,278    |   | $ | 812,718 |   |
| **LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED  STOCK  AND STOCKHOLDERS’ EQUITY**                                                                                       |       |
| Current liabilities:                                                                                                                                                          |       |                  |       |   |   |
| Accounts payable                                                                                                                                                              |       | $                     | 6,419      |   | $ | 6,635 |   |
| Deferred revenue                                                                                                                                                              |       | 2,600                 |       | 5,783 |   |
| Accrued liabilities                                                                                                                                                           |       | 30,328                |       | 16,622 |   |
| Accrued restructuring charges                                                                                                                                                 |       | 1,426                 |       | — |   |
| Total current liabilities                                                                                                                                                     |       | 40,773                |       | 29,040 |   |
| Non-current  portion of deferred revenue                                                                                                                                      |       | 4,909                 |       | 5,909 |   |
| Non-current  portion of accrued restructuring charges                                                                                                                         |       | 5,104                 |       | — |   |
| Deferred rent                                                                                                                                                                 |       | 7,346                 |       | 7,519 |   |
| Convertible notes                                                                                                                                                             |       | 449,893               |       | 463,630 |   |
| Other long-term  liabilities                                                                                                                                                  |       | 65,677                |       | 25,626 |   |
| Redeemable  convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized;  Series A-1 50,000 shares issued and outstanding; redemption amount of  $50,000 |       | 49,869                |       | 49,869 |   |
| Commitments and  contingencies                                                                                                                                                |       |                  |       |   |   |
| Stockholders’ equity:                                                                                                                                                    |       |                  |       |   |   |
| Common stock, $0.0001 par value; 220,000,000 shares  authorized; 91,261,624 and 89,146,380 shares issued and outstanding at  December 31, 2005 and 2004, respectively    |       | 9                     |       | 9 |   |
| Additional paid-in capital                                                                                                                                                    |       | 990,004               |       | 973,979 |   |
| Deferred stock-based compensation                                                                                                                                             |       | (2,590                | )          | — |   |
| Accumulated other comprehensive income (loss)                                                                                                                                 |       | (1,507                | )          | 9,391 |   |
| Accumulated deficit                                                                                                                                                           |       | (959,209              | )          | (752,254 | ) |
| Total stockholders’ equity                                                                                                                                               |       | 26,707                |       | 231,125 |   |
|                                                                                                                                                                          |       | $                     | 650,278    |   | $ | 812,718 |   |

** **

See accompanying notes

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**ABGENIX, INC.CONSOLIDATED STATEMENTSOF OPERATIONS(in thousands, except per share data)**

| ** **                                                                         | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues:                                                                          |       |                                       |       |   |   |   |   |
| Contract revenue                                                                   |       | $                                          | 18,346     |   | $ | 15,752 |   | $ | 13,014 |   |
| Contract manufacturing revenue                                                     |       | —                                     |       | 1,695 |   | — |   |
| Total revenues                                                                     |       | 18,346                                     |       | 17,447 |   | 13,014 |   |
| Operating  expenses:                                                               |       |                                       |       |   |   |   |   |
| Cost of goods manufactured                                                         |       | —                                     |       | 2,227 |   | — |   |
| Research and development                                                           |       | 137,016                                    |       | 124,440 |   | 94,321 |   |
| Manufacturing start-up costs                                                       |       | 18,339                                     |       | 25,430 |   | 72,473 |   |
| Amortization of identified intangible assets,  related to research and development |       | 4,573                                      |       | 6,465 |   | 7,190 |   |
| General and administrative                                                         |       | 22,287                                     |       | 27,271 |   | 30,209 |   |
| Impairment of identified intangible assets                                         |       | 25,000                                     |       | 17,241 |   | 1,443 |   |
| Restructuring and other                                                            |       | 15,506                                     |       | — |   | — |   |
| Total operating expenses                                                           |       | 222,721                                    |       | 203,074 |   | 205,636 |   |
| Loss from operations                                                               |       | (204,375                                   | )          | (185,627 | ) | (192,622 | ) |
| Other income  (expenses):                                                          |       |                                       |       |   |   |   |   |
| Interest and other income (expense), net                                           |       | 14,241                                     |       | 5,382 |   | 9,953 |   |
| Interest expense                                                                   |       | (15,205                                    | )          | (7,233 | ) | (5,784 | ) |
| Impairment of investments                                                          |       | (1,616                                     | )          | — |   | (7,892 | ) |
| Total other expenses                                                               |       | (2,580                                     | )          | (1,851 | ) | (3,723 | ) |
| Loss before  income tax expense                                                    |       | (206,955                                   | )          | (187,478 | ) | (196,345 | ) |
| Foreign income tax expense                                                         |       | —                                     |       | — |   | 84 |   |
| Net loss                                                                           |       | $                                          | (206,955   | ) | $ | (187,478 | ) | $ | (196,429 | ) |
| Basic and diluted net loss per share                                               |       | $                                          | (2.30      | ) | $ | (2.11 | ) | $ | (2.23 | ) |
| Shares used in  computing basic and diluted net loss per share                     |       | 89,887                                     |       | 88,710 |   | 87,930 |   |

 

See accompanying notes

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**ABGENIX, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share data)**

| ** **                                                                    | ** ** | **Common Stock**            | ** ** | **Additional** | ** ** | **Deferred**         | ** ** | **Accumulated  Other**        | ** ** | ** **                            | ** ** | **Total**                | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------|------------|----------------------|------------|-------------------------------|------------|---------------------------------------|------------|--------------------------|------------|
| ** **                                                                    | ** ** | **Number of   Shares** | ** ** | **Amount**     | ** ** | **Paid-in  Capital** | ** ** | **Stock-Based  Compensation** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Accumulated  Deficit** | ** ** | **Stockholders’  Equity** | ** ** |
| Balance at  December 31, 2002                                            |       |                             | 87,655,342 |           |       |                 | $          | 9                             |       |                                  |       | $                        | 965,821    |   |   |   | $ | — |   |   |   | $ | 4,156 |   |   |   | $ | (368,347 | ) |   |   | $ | 601,639 |   |   |
| Change in  unrealized gains on available-for-sale securities                  |       |                             | —     |           |       |                 | —     |                          |       |                                  | —     |                     |       |   | — |   |   |   | 4,705 |   |   |   | — |   |   |   | 4,705 |   |   |
| Net loss                                                                      |       |                             | —     |           |       |                 | —     |                          |       |                                  | —     |                     |       |   | — |   |   |   | — |   |   |   | (196,429 | ) |   |   | (196,429 | ) |   |
| Comprehensive loss                                                            |       |                             |       |           |       |                 |       |                          |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (191,724 | ) |   |
| Issuance of common  stock upon exercise of stock options                      |       |                             | 280,844    |           |       |                 | —     |                          |       |                                  | 1,052      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1,052 |   |   |
| Issuance of common  stock pursuant to employee stock purchase plans           |       |                             | 326,271    |           |       |                 | —     |                          |       |                                  | 2,049      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,049 |   |   |
| Balance at  December 31, 2003                                            |       |                             | 88,262,457 |           |       |                 | 9          |                          |       |                                  | 968,922    |                     |       |   | — |   |   |   | 8,861 |   |   |   | (564,776 | ) |   |   | 413,016 |   |   |
| Change in  unrealized gains on available-for-sale securities                  |       |                             | —     |           |       |                 | —     |                          |       |                                  | —     |                     |       |   | — |   |   |   | 530 |   |   |   | — |   |   |   | 530 |   |   |
| Net loss                                                                      |       |                             | —     |           |       |                 | —     |                          |       |                                  | —     |                     |       |   | — |   |   |   | — |   |   |   | (187,478 | ) |   |   | (187,478 | ) |   |
| Comprehensive loss                                                            |       |                             |       |           |       |                 |       |                          |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (186,948 | ) |   |
| Issuance of common  stock upon exercise of stock options                      |       |                             | 437,267    |           |       |                 | —     |                          |       |                                  | 2,103      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,103 |   |   |
| Issuance of common  stock pursuant to employee stock purchase plans           |       |                             | 446,656    |           |       |                 | —     |                          |       |                                  | 2,954      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,954 |   |   |
| Balance at  December 31, 2004                                            |       |                             | 89,146,380 |           |       |                 | 9          |                          |       |                                  | 973,979    |                     |       |   | — |   |   |   | 9,391 |   |   |   | (752,254 | ) |   |   | 231,125 |   |   |
| Change in  unrealized losses on available-for-sale securities                 |       |                             | —     |           |       |                 | —     |                          |       |                                  | —     |                     |       |   | — |   |   |   | (10,898 | ) |   |   | — |   |   |   | (10,898 | ) |   |
| Net loss                                                                      |       |                             | —     |           |       |                 | —     |                          |       |                                  | —     |                     |       |   | — |   |   |   | — |   |   |   | (206,955 | ) |   |   | (206,955 | ) |   |
| Comprehensive loss                                                            |       |                             |       |           |       |                 |       |                          |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (217,853 | ) |   |
| Issuance of common  stock upon exercise of stock options                      |       |                             | 1,300,129  |           |       |                 | —     |                          |       |                                  | 7,137      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 7,137 |   |   |
| Issuance of common  stock pursuant to employee stock purchase plans           |       |                             | 475,834    |           |       |                 | —     |                          |       |                                  | 2,819      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,819 |   |   |
| Issuance of common  stock in connection with a technology licensing agreement |       |                             | 163,031    |           |       |                 | —     |                          |       |                                  | 1,667      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1,667 |   |   |
| Issuance of  restricted common stock subject to repurchase                    |       |                             | 176,250    |           |       |                 | —     |                          |       |                                  | 3,110      |                     |       |   | (3,110 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Amortization of  deferred  stock-based  compensation                          |       |                             | —     |           |       |                 | —     |                          |       |                                  | —     |                     |       |   | 520 |   |   |   | — |   |   |   | — |   |   |   | 520 |   |   |
| Other stock-based  compensation                                               |       |                             | —     |           |       |                 | —     |                          |       |                                  | 1,292      |                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1,292 |   |   |
| Balance at  December 31, 2005                                            |       |                             | 91,261,624 |           |       |                 | $          | 9                             |       |                                  |       | $                        | 990,004    |   |   |   | $ | (2,590 | ) |   |   | $ | (1,507 | ) |   |   | $ | (959,209 | ) |   |   | $ | 26,707 |   |   |

 

See accompanying notes

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

| ** **                                                                                                                              | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Operating activities**                                                                                                                |       |                                       |       |   |   |   |   |
| Net loss                                                                                                                                |       | $                                          | (206,955   | ) | $ | (187,478 | ) | $ | (196,429 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities:                                                            |       |                                       |       |   |   |   |   |
| Non-cash portion of restructuring and other                                                                                             |       | 6,047                                      |       | — |   | — |   |
| Amortization of deferred stock-based compensation                                                                                       |       | 520                                        |       | — |   | — |   |
| Other stock-based compensation related to  non-employees                                                                                |       | 677                                        |       | — |   | — |   |
| Depreciation                                                                                                                            |       | 25,954                                     |       | 30,540 |   | 28,492 |   |
| Amortization of identified intangible assets                                                                                            |       | 4,573                                      |       | 6,465 |   | 7,190 |   |
| Impairment of identified intangible assets                                                                                              |       | 25,000                                     |       | 17,241 |   | 1,443 |   |
| Impairment of investments                                                                                                               |       | 1,616                                      |       | — |   | 7,892 |   |
| Gain on sale of investments                                                                                                             |       | (2,005                                     | )          | — |   | — |   |
| Amortization of debt issuance costs                                                                                                     |       | 1,997                                      |       | 1,288 |   | 1,202 |   |
| Loss on sale and disposal of equipment                                                                                                  |       | 17                                         |       | 1,065 |   | 29 |   |
| (Gain) loss on early extinguishment of debt                                                                                             |       | (152                                       | )          | 1,016 |   | — |   |
| Changes  for certain assets and liabilities:                                                                                            |       |                                       |       |   |   |   |   |
| Interest receivable                                                                                                                     |       | (667                                       | )          | 726 |   | (1,092 | ) |
| Accounts receivable                                                                                                                     |       | 898                                        |       | (3,555 | ) | 466 |   |
| Prepaid expenses and other current assets                                                                                               |       | (2,073                                     | )          | 1,458 |   | 3,992 |   |
| Deposits and other assets                                                                                                               |       | 44                                         |       | (564 | ) | 1,435 |   |
| Accounts payable                                                                                                                        |       | (216                                       | )          | (4,949 | ) | (9,973 | ) |
| Deferred revenue                                                                                                                        |       | (4,183                                     | )          | 773 |   | 7,503 |   |
| Accrued liabilities                                                                                                                     |       | 14,310                                     |       | 889 |   | 5,144 |   |
| Accrued restructuring charges                                                                                                           |       | 6,530                                      |       | — |   | — |   |
| Contract cancellation obligation                                                                                                        |       | —                                     |       | (22,749 | ) | 22,749 |   |
| Deferred rent                                                                                                                           |       | 386                                        |       | 1,366 |   | 1,736 |   |
| Other long-term liabilities                                                                                                             |       | 40,051                                     |       | 25,626 |   | — |   |
| Net cash used in operating activities                                                                                                   |       | (87,631                                    | )          | (130,842 | ) | (118,221 | ) |
| **Investing  activities**                                                                                                               |       |                                       |       |   |   |   |   |
| Purchases of marketable securities                                                                                                      |       | (191,802                                   | )          | (287,857 | ) | (467,794 | ) |
| Maturities of marketable securities                                                                                                     |       | 130,659                                    |       | 49,342 |   | 43,525 |   |
| Sales of marketable securities                                                                                                          |       | 39,963                                     |       | 297,696 |   | 281,275 |   |
| Purchases of property and equipment                                                                                                     |       | (6,836                                     | )          | (8,633 | ) | (30,456 | ) |
| Net cash provided by (used in) investing activities                                                                                     |       | (28,016                                    | )          | 50,548 |   | (173,450 | ) |
| **Financing  activities**                                                                                                               |       |                                       |       |   |   |   |   |
| Repurchase of convertible subordinated notes                                                                                            |       | (13,458                                    | )          | (85,975 | ) | — |   |
| Net proceeds from issuance of convertible senior  notes                                                                                 |       | —                                     |       | 291,000 |   | — |   |
| Net proceeds from issuance of common stock                                                                                              |       | 11,623                                     |       | 5,057 |   | 3,101 |   |
| Net proceeds from issuance of series A-1  redeemable convertible preferred stock                                                        |       | —                                     |       | — |   | 49,869 |   |
| Net proceeds from issuance of series A-2  redeemable convertible preferred stock                                                        |       | —                                     |       | — |   | 49,868 |   |
| Net cash provided by (used in) financing activities                                                                                     |       | (1,835                                     | )          | 210,082 |   | 102,838 |   |
| Net increase (decrease) in cash and cash equivalents                                                                                    |       | (117,482                                   | )          | 129,788 |   | (188,833 | ) |
| Cash and cash equivalents at the beginning of the  year                                                                                 |       | 148,929                                    |       | 19,141 |   | 207,974 |   |
| Cash and cash equivalents at the end of the year                                                                                        |       | $                                          | 31,447     |   | $ | 148,929 |   | $ | 19,141 |   |
| **Supplemental  disclosures of cash flow information**                                                                                  |       |                                       |       |   |   |   |   |
| Cash paid during  the year for interest, net of capitalized interest of $1,070, $1,687 and  $2,470 in 2005, 2004 and 2003, respectively |       | $                                          | 8,076      |   | $ | 6,164 |   | $ | 4,583 |   |

 

See accompanying notes

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**ABGENIX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.   ORGANIZATIONAND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Business and Organization**

Abgenix, Inc. (Abgenix or the Company) is abiopharmaceutical company that focuses on discovery, development andmanufacturing of human therapeutic antibody products for the treatment of avariety of disease conditions. The Company has proprietary technologies that facilitate rapidgeneration of highly specific, fully human antibody therapeutic productcandidates that bind to disease targets appropriate for antibody therapy.

The consolidated financialstatements include the accounts of Abgenix and its wholly-owned subsidiaries. Significantintercompany accounts and transactions have been eliminated. Accounts denominatedin foreign currencyhave been remeasured using the U.S. dollar as the functional currency. Theaggregate foreign exchange loss included in determining net loss was $0.2million, $0.8 million and $1.7 million in 2005, 2004 and 2003, respectively.

**Recent Accounting Pronouncements**

The Company will adopt Financial Accounting StandardsBoard issued Statement of Financial Accounting Standards (SFAS) No. 123(R),“Share-Based Payment” on January 1, 2006. SFAS No. 123(R) requiresthat all share-based payments to employees, including grants of employee stockoptions, be recognized in the financial statements based on their fair values. Proforma disclosure previously permitted under SFAS No. 123 will no longer bean alternative. The Company will recognize stock-based compensation expense onall awards on a straight-line basis over the requisite service period using themodified prospective method for all options issued after January 1, 2006. TheCompany will continue to use the Black-Scholes option pricing model to valuestock-based payments under SFAS No. 123(R).

As permitted by SFAS No. 123, the Companycurrently accounts for its share-based payments to employees using APB Opinion No. 25’sintrinsic value method and does not recognize compensation costs for its employeestock options. Accordingly, the Company expects that the adoption of SFAS No. 123(R)’sfair value method will have a significant impact on the Company’s result ofoperations, although it will have no impact on the Company’s overall financialposition. The impact of adopting SFAS No. 123(R) cannot be predictedat this time because it will depend on levels of share-based payments grantedin the future. However, had the Company adopted SFAS No. 123(R) inprior periods, the impact would approximate the impact of SFAS No. 123 asshown in the table below under the heading of “Stock-Based Compensation.”

In accordance with SFAS No. 123(R), deferredcompensation and related common stock on the Company’s consolidated balancesheet as of December 31, 2005 (which totals approximately $2.6 million asof December 31, 2005) will be reversed and future charges for deferredcompensation from the restricted stock will be recorded to common stockdirectly as the related services are performed.

In November 2005, theFinancial Accounting Standards Board issued FASB Staff Position (FSP) No. FAS115-1, “The Meaning of Other-Than-Temporary Impairment and itsApplication to Certain Investments.” FSP No. FAS 115-1 providesadditional guidance on the determination as to when an investment is consideredimpaired, whether that impairment is other-than-temporary, and the measurementof the loss. Although FSP No. FAS 115-1 is effective for fiscalyears beginning after December 15, 2005, the Company believes the FSP’sclarification to the guidance regarding when an 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

other-than-temporaryimpairment should be recognized is consistent with other existing literature,such as Staff Accounting Bulletin No. 59, “Accounting for NoncurrentMarketable Equity Securities,” and has been applied as of December 31,2005. Accordingly, the Company recorded a non-cash impairment charge ofapproximately $1.6 million for the year ended December 31, 2005.

**CashEquivalents, Marketable Securities and Long**-Term Investments

The Company considers all highly liquid investmentswith a maturity date of three months or less when purchased to be cashequivalents.

Marketable securitiesconsist of highly liquid debt securities with a maturity of greater than threemonths when purchased and marketable equity securities. The Company’smarketable securities have been classified as “available-for-sale” and are carried at fair value based on quoted marketprices. The Company considers its investments in marketable debt securities asavailable for use in current operations. Accordingly, the Company hasclassified these investments as short-term, even though the stated maturitydate may be one year or more beyond the current balance sheet date. Unrealizedgains and losses are reported as accumulated other comprehensive income (loss),which is a separate component of stockholders’ equity. Unrealized losses onavailable-for-sale securities that are deemed to be other-than-temporary areincluded in earnings. The Company uses the specific identification method todetermine the cost basis of its marketable securities sold.

**Concentrations of Credit Risk**

Financial instruments thatpotentially subject the Company to concentrations of credit risk areprincipally cash equivalents, marketable securities and accounts receivable. TheCompany has established investment policies to limit its credit risk exposureby investing in highly liquid, high credit quality investment grade debtsecurities and maintaining a diversified portfolio. The Company’s customers areprimarily pharmaceutical and biotechnology companies, and the Company has notexperienced any significant credit losses and does not generally requirecollateral on receivables.

**Property and Equipment**

The Company recordsproperty and equipment at cost and provides depreciation using the straight-line method over the estimated usefullives of the assets. Leasehold improvements are depreciated over the remaininglife of the facility lease, manufacturing equipment is depreciated over 15years, and all other assets are generally depreciated over three to five years.

**Goodwill and Intangible Assets**

As a result of its adoption of SFAS No. 142, “Goodwilland Other Intangible Assets,” in 2002, the Company no longer amortizes goodwillbut instead reviews goodwill for impairment on an annual basis, or morefrequently if indications of impairment exist. Under the Company’s accountingpolicy, the Company has adopted the beginning of the fourth quarter as itsannual goodwill impairment test date. Following this approach, the Company comparesthe carrying values as of September 30 with the estimated fair value ofthe reporting unit to assess if there has been a potential impairment, and, ifimpairment is indicated, complete the measurement of impairment under theprocedures established by SFAS No. 142. Because the Company has determinedthat it has one reporting unit under SFAS No. 142, its marketcapitalization is considered to be a reasonable proxy for the fair value of thereporting unit. TheCompany also considers 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

whethercurrent business and general market conditions suggest that the fair value ofthe reporting unit has likely declined below its carrying value.

Intangible assets held and used must be tested forimpairment when events or changes in circumstances indicate that its carryingamount may not be recoverable. Factors that are considered important indetermining whether impairment might exist include a significant change in themanner in which an asset is being used, a significant adverse change in legalfactors or the business climate that could affect the value of an asset,including and adverse action or assessment by a regulator, and a currentexpectation that, more likely that not, an asset will be sold or otherwisedisposed of before the end of its previously estimated useful life.

As of December 31,2005, the Company has determined that no changes in circumstances have occurredthat would indicate that an additional impairment of an intangible asset hadoccurred. If the Company were to determine in a future period that animpairment of intangible assets had occurred, the impairment measurementprocedures could result in a charge for the impairment of long-lived assets. Asof December 31, 2005, the carrying value of the Company’s intangibleassets was $30.4 million.

**Long**-Lived Assets

The carrying value of theCompany’s long-livedassets is reviewed for impairment whenever events or changes in circumstancesindicate that the asset may not be recoverable. An impairment loss would berecognized when estimated discounted cash flows expected to result from the useof the asset and its eventual disposition is less than its carrying amount.Long-lived assets includeproperty and equipment, and identified intangible assets.

**Revenue Recognition**

The Companyreceives payments from customers for license, option, service and milestonefees, as well as for contract manufacturing the Company performs. Thesepayments, which are generally non-refundable, are recognized as revenue orreported as deferred revenue until they meet the criteria for revenuerecognition. The Company recognizes revenue when (1) persuasive evidenceof the arrangement exists; (2) delivery has occurred or services have beenrendered; (3) the price is fixed or determinable and (4) thecollectibility is reasonably assured, in accordance with Securities andExchange Commission Staff Accounting Bulletin No. 104, “RevenueRecognition”. In addition, the Company has followed the following principles inrecognizing revenue:

·       Abgenixenters into revenue arrangements with multiple deliverables in order to meetits customer’s needs. For example, the arrangements may include a combinationof up-front fees, license payments, research services, milestone payments,future royalties and manufacturing arrangements. Multiple element revenueagreements entered into on or after July 1, 2003 are evaluated underEmerging Issues Task Force No. 00-21, “Revenue Arrangements withMultiple Deliverables,” to determine whether the delivered item has value tothe customer on a stand-alone basis and whether objective and reliable evidenceof the fair value of the undelivered item exists. Deliverables in anarrangement that do not meet the separation criteria in Issue 00-21 mustbe treated as one unit of accounting for purposes of revenue recognition. Generally,the revenue recognition guidance applicable to the last deliverable is followedfor the combined unit of accounting.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

·       Researchand product license fees are recognized only after both the license period hascommenced and the technology has been delivered.

·       Optionfees for granting options to obtain product licenses to develop a product arerecognized when the option is exercised or when the option period expires,whichever occurs first. Option fees are paid in cash, are non-refundable, andrequire the Company to reserve rights to the therapeutic target during theoption period for the customer.

·       Feesthe Company receives for research services the Company performs under itstechnology out-licensing agreements are generally recognized ratably over theentire period the Company performs these services. Research services includeprocess sciences services the Company performs under its production servicesagreements, such as cell line development.

·       Incentivemilestone payments are recognized as revenue when the specified milestone isachieved. Incentive milestone payments are triggered either by the results ofthe Company’s research efforts or by events external to Abgenix, such asregulatory approval to market a product. Incentive milestone payments aresubstantially at risk at the inception of the contract, and the values assignedthereto are commensurate with the type of milestone achieved. The Company hasno future performance obligations related to an incentive milestone that hasbeen achieved.

·       Contract manufacturing feesthe Company receives under its production services agreements are recognizedwhen the manufacture of an antibody product candidate is complete, and theantibody product candidate is released and delivered, as defined in therelevant agreement.

**Research and Development**

Research and developmentexpenses consist primarily of compensation and other expenses related toresearch and development personnel; costs associated with preclinical testingand clinical trials of the Company’s product candidates, including the costs ofmanufacturing the product candidates; expenses, net of reimbursements, forresearch services rendered under joint development agreements; and facilitiesexpenses. Generally, a joint development agreement provides that the Companyand the collaborator share the costs of developing and commercializing aproduct candidate. In a period where the Company incurs more than 50% of thetotal costs incurred by both parties under the agreement, the Company recordsthe excess amount, which is to be reimbursed by the collaborator, as areduction of expenses. In a period where the collaborator incurs more coststhan the Company, the Company records the difference as an expense and acorresponding payable to the collaborator. All research and development costsare charged to expense when incurred.

**Manufacturing Start-up Costs**

Manufacturing start-upcosts include certain costs associated with the Company’s manufacturingfacility, including depreciation, outside contractor costs and personnel costsfor activities such as quality assurance and quality control. In 2003, themanufacturing start-up costs included a cancellation fee of $28.0 million forthe negotiated cancellation of an agreement with an outside contractor, LonzaBiologics plc (Lonza). Effective June 30, 2003, the Company canceled the November 2000agreement with Lonza for the exclusive use of a cell culture production suitebecause the Company determined that with the opening of its manufacturingfacility, the Company no longer needed access to the Lonza facility. Inconnection with this cancellation arrangement, Lonza was obligated to repay theCompany a portion of the 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

cancellationfee if, prior to December 31, 2005, it completed manufacturing of productsfor other customers in the production suite that was previously reserved forthe Company. In 2005, the manufacturing start-up costs included a credit of$2.4 million for the repayment of a portion of the cancellation fee from Lonzaunder this arrangement.

**Stock-Based Compensation**

TheCompany accounts for stock-basedawards to employees and directors using the intrinsic value method inaccordance with Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees.” Accordingly, the Company does not recognizecompensation expense for employee stock options granted at fair market value. For purposes of disclosures pursuant to SFAS No. 123as amended by SFAS No. 148, the estimated fair value of options isamortized to expense on a straight-line basis over the options’ vesting period.The following table illustrateswhat net loss would have been had the Company accounted for its stock-basedawards under the provisions of SFAS No. 123. Pro forma amounts maynot be representative of future years.

| ** **                                                                                                                                                            | ** ** | **Year Ended December 31,**                            | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                                                                            | ** ** | **2005**                                                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                                                                            | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Net loss                                                                                                                                                              |       | $                                                                     | (206,955   | ) | $ | (187,478 | ) | $ | (196,429 | ) |
| Stock-based  employee compensation costs included in the determination of net loss                                                                                    |       | 615                                                                   |       | — |   | — |   |
| Stock-based  employee compensation cost that would have been included in the determination  of net loss if the fair value based method had been applied to all awards |       | (16,041                                                               | )          | (41,980 | ) | (61,022 | ) |
| Pro forma net loss as if the fair value based method  had been applied to all awards                                                                                  |       | $                                                                     | (222,381   | ) | $ | (229,458 | ) | $ | (257,451 | ) |
| Basic and diluted net loss per share                                                                                                                                  |       | $                                                                     | (2.30      | ) | $ | (2.11 | ) | $ | (2.23 | ) |
| Pro forma basic  and diluted loss per share as if the fair value based method had been applied  to all awards                                                         |       | $                                                                     | (2.47      | ) | $ | (2.59 | ) | $ | (2.93 | ) |

 

Thefair value for these options was estimated as of the date of grant using aBlack-Scholes option pricing model with the following weighted-averageassumptions:

| ** **                                                                          | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Risk-free  interest rate                                                            |       | 4.13                                       | %          | 3.40 | % | 2.81 | % |
| Dividend yield                                                                      |       | 0.00                                       | %          | 0.00 | % | 0.00 | % |
| Volatility  factors of the expected market price of the Company’s common stock |       | 0.55                                       |       | 0.90 |   | 1.00 |   |
| Weighted-average  expected life of option (years)                                   |       | 5.07                                       |       | 5.63 |   | 5.51 |   |

 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

These same assumptions above were also applied in thedetermination of the option values related to stock options granted tonon-employees, except that the term of the consulting contracts (ranging fromsix months to five years) was used for the expected life of the option.For the year ended December 31, 2005, the Company recorded an expense of$677,000 related to non-employee stock options, of which $582,000 was includedin manufacturing start-up costs and $95,000 in general and administrative expenses.The Company did not incur such expense in 2004 and 2003. In order to determinethe value of the purchases made under the Company’s employee stock purchaseplans, similar assumptions to the above were applied after taking intoconsideration the 24-month offering periods and the six-month purchaseperiods associated with the Company’s employee stock purchase plans in the U.S.and Canada.

The Black-Scholes option valuation model was developedfor use in estimating the fair value of traded options, which have no vestingrestrictions and are fully transferable. In addition, option valuation modelsrequire the input of highly subjective assumptions, including the expectedstock price volatility. Because the Company’s employee stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management’s opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of its employeestock options.

For the year endedDecember 31, 2005, the Company also recorded a stock-based compensationexpense of $615,000 related to employees that were affected by therestructuring plan described in Note 14 below, and this stock-basedcompensation expense was included in restructuring and other expenses. Inaddition, the Company granted rights to purchase 227,750 shares of theCompany’s restricted stock in 2005 and recorded deferred stock-basedcompensation of $3.1 million in total, of which $520,000 was amortized toexpenses in 2005 as follows: $201,000 in research and development expenses,$218,000 in manufacturing start-up costs and $101,000 in general andadministrative expenses. As of December 31, 2005, the unamortized balanceof deferred stock-based compensation was $2.6 million, which was included inthe Company’s consolidated statements of stockholders’ equity.

**Restructuring Charges**

TheCompany records costs and liabilities associated with exit and disposalactivities, as defined in SFAS No. 146, “Accounting for Costs Associatedwith Exit or Disposal Activities,” at fair value in the period the liability isincurred. SFAS No. 146 requires that the estimated future cash flows to beused in the fair value calculation be discounted using a credit-adjustedrisk-free interest rate and that such interest rate shall have a maturity datethat approximates the expected timing of future cash flows. Future cash flowsrelated to lease obligations shall include the effect of sublease rental incomeand other lease operating expenses. In periods subsequent to initialmeasurement, changes to a liability are measured using the same credit-adjustedrisk-free rate that was applied in the initial period. The Company has recordedcosts and liabilities in accordance with SFAS No.146 for exit activitiesrelated to a restructuring plan described in Note 14 below. The Company willcontinue to evaluate and adjust the liability on a quarterly basis asappropriate for changes in sublease assumptions due to changes in marketconditions.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Net Loss Per Share**

Basicnet loss per share is calculated based on the weighted average number of sharesoutstanding during the period, adjusted for shares that are subject torepurchase as follows (in thousands):

| ** **                                                          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Weighted average  shares outstanding                                |       | 89,920                                     |       | 88,710 |   | 87,930 |   |
| Less: weighted  average shares subject to repurchase                |       | (33                                        | )          | — |   | — |   |
| Weighted average shares  used in computing basic net loss per share |       | 89,887                                     |       | 88,710 |   | 87,930 |   |

 

The impact of common stock options, restricted stockpurchase rights, common stock subject to repurchase, warrants and sharesissuable upon the conversion of the convertible subordinated notes due 2007,the convertible senior notes due 2011, the convertible subordinated note due2013 and the redeemable convertible preferred stock was excluded from thecomputation of diluted net loss per share, as the effect is antidilutive forthe periods presented.

Thefollowing table sets forth potential shares of common stock that are notincluded in the computation of diluted net loss per share because to do sowould be antidilutive for the year ended December 31, 2005 (in thousands):

| Outstanding  options to purchase common stock |   | 12,188 |   |
|-----------------------------------------------|--------|--------|--------|
| Restricted stock  purchase rights             |   | 52     |   |
| Common stock  subject to repurchase           |   | 176    |   |
| Warrants                                      |   | 3      |   |
| Convertible  subordinated notes due 2007      |   | 3,626  |   |
| Convertible  senior notes due 2011            |   | 23,401 |   |
| Convertible  subordinated note due 2013       |   | 2,398  |   |
| Redeemable  convertible preferred stock       |   | 2,398  |   |
|                                          |   | 44,242 |   |

 

**Use of Estimates**

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes. Actualresults could differ from those estimates.

**Reclassifications**

Certain prior-year balances have been reclassifiedto conform to the current-yearpresentation. Effective 2005, the Company includes in research and developmentexpenses reimbursements it receives from collaborators under joint developmentagreements. Prior to 2005, reimbursements from collaborators were reported ascontract revenues. Accordingly, reimbursements of $318,000 and $3.8 millionthat were previously reported as contract revenues in 2004 and 2003,respectively, have been reclassified and included in research and developmentexpenses as an offset to such expenses in the accompanying consolidatedstatements of operations. In addition, a certain portion of deferred revenue asof December 31, 2004 has been reclassified as long-term in theaccompanying consolidated balance sheets. These reclassifications do not haveany impact to the Company’s financial position or results of operations.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**2.   PROPOSED MERGER WITH AMGEN INC.**

On December 14, 2005, the Company announced thatit has entered into an agreement and plan of merger with Amgen and AthleticsMerger Sub, Inc., a wholly-owned subsidiary of Amgen. The merger issubject to the satisfaction of certain customary conditions including, amongothers, approval of the merger by the Company’s stockholders. A special meetingof the Company’s stockholders to vote upon the adoption of the merger agreementis scheduled to be held on March 29, 2006.

The merger agreement provides for, among other things,the merger of Athletics Merger Sub with and into the Company, pursuant to whicheach outstanding share of common stock of the Company will be converted intothe right to receive $22.50 in cash, without interest, less any applicablewithholding tax. In addition, the merger agreement provides that eachoutstanding option to purchase shares of Company common stock with an exerciseprice in excess of $30.00 and each outstanding stock purchase right issued bythe Company will become fully vested and exercisable upon notice by the Companyprior to the merger and will terminate if not exercised prior to the merger. Eachoutstanding option to purchase shares of Company common stock with an exerciseprice less than or equal to $30.00 will be converted into an equivalent optionto acquire shares of the common stock of Amgen. Each other right to acquire orreceive shares of Company common stock or benefits measured by the value ofshares of Company common stock and each award consisting of shares that may beheld, awarded, outstanding, payable or reserved for issuance under the Company’sequity plans and any other Company benefits plans will be deemed to beconverted into the right to acquire or receive equivalent rights to receivestock or stock units under Amgen’s equity plans.

The merger agreement maybe terminated: (i) by mutual consent of the parties, (ii) by Amgen orthe Company if the merger has not been completed by September 30, 2006, (iii) byAmgen or the Company if the merger is enjoined, (iv) by Amgen or theCompany if the Company’s stockholders fail to approve the merger, (v) byAmgen if the Company withdraws its recommendation of the merger, approves orrecommends an alternate proposal, fails to recommend that the stockholders nottender their shares within 10 business days from commencement of a tenderoffer, materially breaches its non-solicitation obligations under the mergeragreement or fails to hold its stockholder meeting or stockholder vote inrespect of the merger, or (vi) by the Company to accept a superiorproposal; provided that prior to the Company’s termination of the mergeragreement to accept a superior proposal, the Company gives Amgen prior noticeand agrees to revise the merger agreement. Under certain circumstances, theCompany would be required to pay a $75.0 million termination fee to Amgen inthe event of termination of the merger agreement.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**3.   IDENTIFIED INTANGIBLE ASSETS**

Identifiedintangible assets as of December 31, 2005 and 2004 consisted of thefollowing (in thousands):

| ** **                                | ** ** | **Gross  Assets** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** |
|-------------------------------------------|------------|-------------------|------------|-------------------------------|------------|--------------------------|------------|
| **As of  December 31, 2005:**        |       |              |       |                          |       |                     |       |   |   |
| Acquisition-related  developed technology |       | $                 | 48,590     |                          |       | $                        | (18,749    | ) |   | $ | 29,841 |   |
| Other intangible  assets                  |       | 824               |       |                          | (228       | )                        |       | 596 |   |
| ** **                                |       | $                 | 49,414     |                          |       | $                        | (18,977    | ) |   | $ | 30,437 |   |
| **As of  December 31, 2004:**        |       |              |       |                          |       |                     |       |   |   |
| Acquisition-related  developed technology |       | $                 | 85,142     |                          |       | $                        | (26,264    | ) |   | $ | 58,878 |   |
| Other intangible  assets                  |       | 1,442             |       |                          | (310       | )                        |       | 1,132 |   |
| ** **                                |       | $                 | 86,584     |                          |       | $                        | (26,574    | ) |   | $ | 60,010 |   |

 

The Company recorded an impairment charge related toidentified intangible assets of $25.0 million, $17.2 million and $1.4 millionin 2005, 2004 and 2003, respectively. See Note 12 for further discussion ofthese impairment charges. All of the Company’s acquired identified intangibleassets other than goodwill are subject to amortization and have originalestimated useful lives of 15 years for acquisition-related development technologyand 16 years for other intangible assets. Amortization of acquisition-relatedintangibles was $4.5 million, $6.4 million and $7.1 million for 2005, 2004 and2003, respectively. Amortization of other intangible assets was $70,000,$90,000 and $113,000 for 2005, 2004 and 2003, respectively.

Expectedamortization expense related to identified intangible assets for each of thefiscal years after December 31, 2005 is as follows (in thousands):

| ** **          | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------|------------|--------------------------------------------|------------|------------|------------|------------|------------|
| ** **          | ** ** | **2006**                                   | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Acquisition-related |       | $                                          | 3,332      |       | $          | 3,332      |       | $ | 3,332 |   | $ | 3,332 |   | $ | 3,332 |   |   | $ | 13,181 |   |   | $ | 29,841 |   |
| Other               |       | 51                                         |       | 51         |       | 51         |       | 51 |   | 51 |   |   | 341 |   |   | 596 |   |
|                |       | $                                          | 3,383      |       | $          | 3,383      |       | $ | 3,383 |   | $ | 3,383 |   | $ | 3,383 |   |   | $ | 13,522 |   |   | $ | 30,437 |   |

 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**4.   INVESTMENTS**

**Marketable Securities**

Thefollowing table is a summary of the Company’s marketable securities (inthousands):

| ** **                                | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **Amortized  Cost**             | ** ** | **Unrealized  Gain/(Loss)***    | ** ** | **Estimated  Fair Value** | ** ** | **Amortized  Cost** | ** ** | **Unrealized  Gain/(Loss)*** | ** ** | **Estimated  Fair Value** | ** ** |
| Corporate  obligations                    |       | $                               | 138,437    |                            |       | $ | (756 | ) |   | $ | 137,681 |   | $ | 103,885 |   |   | $ | (350 | ) |   | $ | 103,535 |   |
| Asset-backed  securities                  |       | 73,883                          |       |                            | (194       | ) |   | 73,689 |   | 35,314 |   |   | (87 | ) |   | 35,227 |   |
| U.S. government  and agencies obligations |       | 94,616                          |       |                            | (557       | ) |   | 94,059 |   | 136,155 |   |   | (749 | ) |   | 135,406 |   |
| Repurchase  agreements                    |       | 14,148                          |       |                            | —     |   |   | 14,148 |   | 137,007 |   |   | — |   |   | 137,007 |   |
| Money market  funds                       |       | 8,132                           |       |                            | —     |   |   | 8,132 |   | 4,416 |   |   | — |   |   | 4,416 |   |
| Marketable equity  securities             |       | 2,872                           |       |                            | —     |   |   | 2,872 |   | 12,723 |   |   | 10,577 |   |   | 23,300 |   |
| Total                                     |       | $                               | 332,088    |                            |       | $ | (1,507 | ) |   | $ | 330,581 |   | $ | 429,500 |   |   | $ | 9,391 |   |   | $ | 438,891 |   |
| Classified as:                            |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash equivalents                          |       | $                               | 22,253     |                            |       |   |   |   |   |   | $ | 141,390 |   |
| Marketable securities                     |       | 301,375                         |       |                            |       |   |   |   |   | 267,400 |   |
| Deposits and other assets                 |       | 6,953                           |       |                            |       |   |   |   |   | 6,801 |   |
| Long-term investments                     |       | —                          |       |                            |       |   |   |   |   | 23,300 |   |
|                                      |       |                            |       |                            |       |   |   | $ | 330,581 |   |   |   |   |   |   |   | $ | 438,891 |   |

----

*                    Amountsincluded gross unrealized gains of $11,000 and $47,000 as of December 31,2005 and 2004, respectively, related to marketable debt securities.

TheCompany’s available-for-sale debt securities have the following maturities (inthousands):

| ** **                                   | ** ** | **December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Due in one year  or less                     |       | $                     | 228,466    |   | $ | 286,258 |   |
| Due after one  year but less than five years |       | 99,243                |       | 129,333 |   |
|                                         |       | $                     | 327,709    |   | $ | 415,591 |   |

 

The following tables showall investments in an unrealized loss position for which another-than-temporary impairment had not been recognized and the related grossunrealized losses and estimated fair value, segregated by the length of timethat individual securities have been in a continuous unrealized loss position(in thousands):

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**As ofDecember 31, 2005:**

| ** **                                | ** ** | **Less than 12 Months** | ** ** | **12 Months or Greater** | ** ** | **Total**                      | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **Estimated  Fair Value**         | ** ** | **Unrealized  Loss**                    | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Loss** | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Loss** | ** ** |
| Corporate  obligations                    |       | $                                      | 66,185     |                                    |       | $                              | (513       | ) |   |   | $ | 56,210 |   |   |   | $ | (244 | ) |   | $ | 122,395 |   |   | $ | (757 | ) |   |
| Asset-backed  securities                  |       | 44,162                                 |       |                                    | (190       | )                              |       |   | 3,497 |   |   |   | (14 | ) |   | 47,659 |   |   | (204 | ) |   |
| U.S. government  and agencies obligations |       | 48,783                                 |       |                                    | (345       | )                              |       |   | 31,177 |   |   |   | (212 | ) |   | 79,960 |   |   | (557 | ) |   |
|                                      |       | $                                      | 159,130    |                                    |       | $                              | (1,048     | ) |   |   | $ | 90,884 |   |   |   | $ | (470 | ) |   | $ | 250,014 |   |   | $ | (1,518 | ) |   |

 

**As of December 31, 2004:**

| ** **                                | ** ** | **Less than 12 Months** | ** ** | **12 Months or Greater** | ** ** | **Total**                      | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **Estimated  Fair Value**         | ** ** | **Unrealized  Loss**                    | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Loss** | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Loss** | ** ** |
| Corporate  obligations                    |       | $                                      | 79,617     |                                    |       | $                              | (357       | ) |   |   | $ | — |   |   |   | $ | — |   |   | $ | 79,617 |   |   | $ | (357 | ) |   |
| Asset-backed  securities                  |       | 29,731                                 |       |                                    | (122       | )                              |       |   | — |   |   |   | — |   |   | 29,731 |   |   | (122 | ) |   |
| U.S. government  and agencies obligations |       | 125,056                                |       |                                    | (754       | )                              |       |   | — |   |   |   | — |   |   | 125,056 |   |   | (754 | ) |   |
|                                      |       | $                                      | 234,404    |                                    |       | $                              | (1,233     | ) |   |   | $ | — |   |   |   | $ | — |   |   | $ | 234,404 |   |   | $ | (1,233 | ) |   |

 

Unrealized losses were primarily due to changes ininterest rates and were reported as accumulated other comprehensive income(loss), which is a separate component of the stockholders’ equity. The Companyperiodically reviews its investments to identify and evaluate investments thatmay have indications of possible impairment. The Company considers variousfactors in determining whether an unrealized loss is temporary, including thelength of time and the extent to which the fair value has been below the costbasis, the current financial condition of the investee or the issuer, and theCompany’s intent and ability to hold the investment for a period of timesufficient to allow for any anticipated recovery in market value. Based on theCompany’s evaluation, the Company recorded an impairment charge of $1.6 millionin 2005 and $7.9 million in 2003. See Note 13 for further discussions. TheCompany has determined that unrealized losses as of December 31, 2005 weretemporary in nature and that the Company has the intent and ability to holdtemporarily impaired investments to maturity or call date.

For the year ended December 31,2005, the Company recorded a $2.0 million net realized gain on sale ofmarketable equity securities. Gross proceeds from the sale of these marketableequity securities were $10.4 million. There has been no material gross realizedgain or loss from the sale of marketable debt securities.

**Other Investments**

In August 2001, theCompany entered into a $16.8 million loan agreement. The first disbursement of$14.0 million was made in October 2001 and the final disbursement of $2.8million was made in July 2002. The amount is included in deposits andother assets on the Company’s consolidated balance sheets. The loan bearsinterest at a rate of 8.5% per year and is payable monthly. The loan matures inAugust 2011 and the entire principal balance and accrued interest are dueon the maturity date.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**5.   RELATEDPARTY TRANSACTIONS**

The Company had notesreceivable from certain employees totaling $350,000 at December 31, 2005and from certain officers and employees totaling $550,000 at December 31,2004. These notes were included in deposits and other assets on the Company’sconsolidated balance sheets. The notes were issued in connection with employeerelocation agreements. For notes outstanding at December 31, 2005,interest begins to accrue in November 2006 through June 2008 at ratesranging from 2.34% to 4.49%. These notes are secured by personal assets andhave due dates ranging from June 2012 through June 2013, or 30 daysfrom the date of termination of employment, if earlier.

**6.   BALANCESHEET COMPONENTS**

| ** **                         | ** ** | **December 31,**   | ** ** |
|------------------------------------|------------|-------------------------|------------|
| ** **                         | ** ** | **2005**                | ** ** | **2004** | ** ** |
| ** **                         | ** ** | **(in thousands)** | ** ** |
| Property and equipment,  net:      |       |                    |       |   |   |
| Furniture, machinery and equipment |       | $                       | 91,629     |   | $ | 91,239 |   |
| Leasehold improvements             |       | 175,506                 |       | 156,090 |   |
|                               |       | 267,135                 |       | 247,329 |   |
| Less accumulated depreciation      |       | (85,161                 | )          | (80,645 | ) |
| Construction-in-progress           |       | 15,624                  |       | 56,320 |   |
|                               |       | $                       | 197,598    |   | $ | 223,004 |   |
| Accrued liabilities:               |       |                    |       |   |   |
| Accrued product development costs  |       | $                       | 17,127     |   | $ | — |   |
| Accrued employee benefits          |       | 6,804                   |       | 5,838 |   |
| Accrued clinical costs             |       | 1,299                   |       | 3,944 |   |
| Accrued interest payable           |       | 1,269                   |       | 1,341 |   |
| Other accrued liabilities          |       | 3,829                   |       | 5,499 |   |
|                               |       | $                       | 30,328     |   | $ | 16,622 |   |

 

**7.   CONVERTIBLENOTES**

Convertiblenotes consisted of the following (in thousands):

| ** **                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2005**              | ** ** | **2004** | ** ** |
| 1.75% convertible  senior notes due 2011      |       | $                     | 300,000    |   | $ | 300,000 |   |
| 3.5% convertible  subordinated notes due 2007 |       | 100,000               |       | 113,750 |   |
| Convertible subordinated  note due 2013       |       | 49,893                |       | 49,880 |   |
|                                          |       | $                     | 449,893    |   | $ | 463,630 |   |

 

**1.75%Convertible Senior Notes due 2011**

On December 21, 2004,the Company issued $300.0 million principal amount of convertible senior notesin a private placement. The notes are senior in right to any existingindebtedness which is subordinated by its terms, including the Company’s 3.5%convertible subordinated notes due 2007 and convertible subordinated note due2013. The notes are convertible into shares of the Company’s common stock at aninitial conversion rate of 78.0153 shares per $1,000 principal amount of notes(which is equivalent to a conversion price of approximately $12.82 per share). Thenotes accrue interest at an annual 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

rate of1.75% payable on June 15 and December 15 of each year. The notes willmature on December 15, 2011 and are redeemable at the Company’s option onor after December 20, 2009 at the specified redemption prices. Inaddition, the holders of the notes may require the Company to repurchase thenotes, subject to certain conditions, if the Company undergoes certain changesin control. In addition, upon certain changes in control and subject to certainconditions, additional shares of common stock may become issuable to holdersupon conversion of the notes. Holders of the notes may also require the Companyto repurchase their notes for their principal amount plus accrued and unpaidinterest upon the occurrence of an event of default. The Company receivedproceeds of $291.0 million from the issuance of the notes, net of initialpurchasers’ discount and commissions. As of December 31, 2005 and 2004,the fair value of the notes was approximately $525.0 million and $327.5million, respectively. The fair value was based on the quoted market price ofthe last trade of the notes prior to or as of December 31, 2005 and 2004.

**3.5%Convertible Subordinated Notes due 2007**

In March 2002, theCompany issued $200.0 million principal amount of convertible subordinatednotes in a private placement. The notes are convertible into shares of Abgenixcommon stock at a conversion price of $27.58 per share subject to certainadjustments. The notes accrue interest at an annual rate of 3.5% and theCompany is obligated to pay interest by March 15 and September 15 ofeach year. The Company repurchased a portion of the notes totaling $13.8million and $86.2 million in September 2005 and December 2004,respectively. In connection with these repurchases, the Company recorded a gainon early extinguishment of debt of $152,000 in 2005 and a loss on earlyextinguishment of debt of $1.0 million in 2004, which were included in theinterest and other income (expense), net, in the Company’s consolidatedstatements of operations. The notes will mature on March 15, 2007, and areredeemable at the Company’s option on or after March 20, 2005, or earlierif the price of the Company’s common stock exceeds specified levels. Inaddition, the holders of the notes may require the Company to repurchase thenotes if the Company undergoes a change in control. Holders of the notes mayalso require the Company to repurchase their notes for their principal amountplus accrued and unpaid interest upon the occurrence of an event of default. Asof December 31, 2005 and 2004, the fair value of the notes wasapproximately $98.1 million and $113.2 million, respectively. The fair valuewas based on the quoted market price of the last trade of the notes prior to oras of December 31, 2005 and 2004.

**ConvertibleSubordinated Note due 2013**

On February 19, 2004,the Company issued to AstraZeneca a convertible subordinated note with aprincipal amount of $50.0 million in connection with the redemption byAstraZeneca of the Series A-2 preferred stock. The note matures on October 19,2013, and no interest is payable on the note, except that, in the event of apayment default by the Company, the note will bear interest at a rate equal tothe 10-year U.S. treasury rate plus 3%, compounded annually. The note issenior to the redeemable convertible preferred stock and the common stock andis junior to all senior indebtedness, including the 1.75% convertible seniornotes due 2011 and the 3.5% convertible subordinated notes due 2007. The fairvalue of the note cannot be reasonably estimated as the note is not publiclytraded and due to the unique nature of the terms of the note.

The note has the followingterms similar to that of the redeemable convertible preferred stock issued toAstraZeneca in October 2003: conversion rights, redemption rights andaggregate ownership limitation. The note contains the events of default thatpertain to the redeemable convertible preferred stock and an 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

additionalevent of default in the case of a cross-acceleration of $25 million or more ofother indebtedness of the Company. In addition, under the terms of the mergeragreement, Amgen can require the Company to repay the note, provided that Amgenshall bear the cost of such repayment. See Note 9 for detail description ofredeemable convertible preferred stock issued to AstraZeneca.

**8.   OTHERLONG-TERM LIABILITIES**

In 2000, the Companyentered into a joint development and commercialization agreement with ImmunexCorporation, a wholly-owned subsidiary of Amgen Inc., for the co-development ofABX-EGF, now known as panitumumab, a fully human antibody created by theCompany and directed against epidermal growth factor receptor (EGFr). Theparties amended this agreement in October 2003. Under the amendedagreement, Amgen has decision-making authority for development andcommercialization activities. As under the original agreement, the Company isobligated to pay 50% of the development and commercialization costs and isentitled to receive 50% of any profits from sales of panitumumab. As providedunder the amended agreement, Amgen advanced $60.0 million that the Company usedto fund a portion of its share of development and commercialization costs forpanitumumab. As of December 31, 2005, the Company had a carrying balanceof $65.7 million under this facility consisting of $60.0 million in advances,the maximum amount available, and $5.7 million of accrued interest. As of December 31, 2004, the Company had acarrying balance of $25.6 million under this facility consisting of $25.1million in advances and $517,000 of accrued interest. Interest is accruedat the contract rate of 12% per annum, compounded annually. The amount of anysuch advances, plus interest, may be repaid out of profits resulting fromfuture product sales; however, the Company is generally not obligated to repayany portion of the outstanding balance if panitumumab does not reachcommercialization.

**9.   REDEEMABLECONVERTIBLE PREFERRED STOCK**

In October 2003, inconnection with a collaboration agreement, the Company entered into asecurities purchase agreement with AstraZeneca. Pursuant to the agreement, theCompany issued to AstraZeneca $50.0 million of Series A-1 and $50.0 million of Series A-2convertible preferred stock which mature seven and 10-years,respectively, from the date of issuance. Net proceeds from these issuances were$99.7 million. Pursuant to itsterms, the Series A-2 preferred stock was redeemed at the option ofAstraZeneca on February 19, 2004 and the Company issued AstraZeneca aconvertible subordinated note with a principal amount of $50.0 million, whichmatures 10 years from the initial issuance of the Series A-2convertible preferred stock. Pursuantto the merger agreement with Amgen, the Company redeemed the issued andoutstanding shares of Series A-1 redeemable convertible preferredstock, all held by AstraZeneca, for $50.0 million on February 28, 2006.

Subject to various termsand conditions, if a certain milestone event is reached, the Company will havethe option to issue to AstraZeneca up to $30.0 million of Series A-3preferred stock and if a further milestone event is reached, the Company willhave the option to issue to AstraZeneca up to $30.0 million of Series A-4preferred stock. Each of the Series A-3 preferred stock and the Series A-4preferred stock will have a maturity date that is five years from issuance. Dueto the mandatory redemption feature, the Company does not record the redeemableconvertible preferred stock in stockholders’ equity on its consolidated balancesheet. The carrying value of the redeemable convertible preferred stockapproximates its fair value.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Conversion rights*

The Company, subject tocertain conditions, can convert each series of preferred stock into shares ofcommon stock at a conversion price equal to the lower of (a) the averagemarket price for the 10 days prior to the trading day immediately preceding theconversion date (provided that the average market price shall in no event behigher than 101% of the market price on the trading day immediately precedingthe conversion date) or (b) $30.00 per share.

AstraZeneca may converteach series of preferred stock into shares of common stock at a conversionprice of $30.00 per share, at any time prior to the earlier of (a) theredemption date or (b) the maturity date, as applicable.

*Redemption rights and maturity*

The Company must redeemall outstanding shares of its Series A-1 preferred stock, if any, ata cash redemption price per share equal to the liquidation preference by October 29,2010, the mandatory redemption date.

The Company can, upon atleast 15 days’ notice to the holder, redeem the preferred stock for cash in anamount equal to its liquidation preference, at any time prior to maturity.

AstraZeneca has the rightto require Abgenix to redeem all outstanding shares of the preferred stock attheir liquidation preference, upon the occurrence of a change in control ofAbgenix after the completion of a defined research period. At its option, andsubject to certain conditions, Abgenix may deliver shares of its common stockin lieu of cash upon such an event.

AstraZeneca has the rightto require Abgenix to redeem a specified portion of the outstanding shares ofpreferred stock upon the occurrence of (a) a material breach by Abgenix ofa material obligation under the Collaboration Agreement between the Company andAstraZeneca or (b) a change in control of Abgenix or an acquisition byAbgenix in which the other party to the change in control or acquisition, asthe case may be, is a competitor of AstraZeneca, in each case that occursduring a defined research period and results in AstraZeneca’s termination ofall research programs and future programs under the collaboration agreement.The amount that AstraZeneca may require Abgenix to redeem will be based uponthe extent of completion of the research programs that are the subject of thecollaboration between the Company and AstraZeneca. At its option, and subjectto certain conditions, Abgenix may deliver shares of its common stock in lieuof cash upon such events.

Upon the occurrence ofcertain events of default, (1) the holders of the Series A-1preferred stock shall have the right to make the entire liquidation value ofthe Series A-1 preferred stock due and payable and (2) if theevent of default is a payment default, quarterly cash dividends shall begin toaccrue on the Series A-1 preferred stock at a default rate equal tothe 10-year U.S. treasury rate plus three percent (3%) compoundedannually. Events of default for purposes of this provision include, but are notlimited to, the following: (i) a failure to make a required payment, or abreach by the Company of any of the Company’s other obligations under, the Series A-1preferred stock, the convertible subordinated note or any subordinatedpromissory note that may be issued by the Company in the circumstancesdescribed below under “Aggregate ownership limitation”; (ii) a breach ofthe Company of specified obligations under the securities purchase agreementwith AstraZeneca; (iii) the securities purchase agreement, or any otheragreement or instrument contemplated by the securities purchase agreement, isasserted by the Company not to be a legal, valid and binding instrument; and (iv) certainbankruptcy and insolvency events involving the Company.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Liquidation, Dividend and Voting rights*

The Series A-1preferred stock has a liquidation preference of $50 million. The Series A-1preferred stock will receive dividends or distributions if and when declared onthe common stock on an as-converted basis, but shall have no other rights todividends, except upon an event of default that is a payment default.

Holders of preferred stockhave the right to vote with the common stock on an as-converted basis. Inaddition, the preferred stock has a class vote on certain matters. Upon anevent of default that is a payment default, the preferred stock will accruequarterly a cumulative dividend, at a rate equal to the 10-year U.S.treasury rate plus 3%, compounded annually.

The preferred stock issubordinate and junior to all indebtedness and senior to the Company’s commonstock.

*Aggregate ownership limitation*

At no time may any holderof Series A-1 preferred stock beneficially own, following theconversion of the preferred stock more than 19.9% of the Company’s common stockthen outstanding. If any shares of common stock are issuable to a holder uponconversion of the preferred stock that would result in any holder (together withits affiliates) owning common stock in excess of the ownership thresholddescribed above, then the Company will be required to redeem the shares inexcess of the ownership threshold for a price equal to (1) the number ofsuch excess shares times (2) the average market price of the common stockfor the 30 consecutive days ending on the 15th trading day prior to the conversion date (suchprice, the “Excess Shares Redemption Price”). Upon such redemption of the Series A-1preferred stock, the Company will have the right, upon delivery of notice tothe holder, to receive a loan from the holder in the form of an interest-freesubordinated promissory note. The face amount of the promissory note shall bethe Excess Shares Redemption Price.

**10.   COMMITMENTS AND CONTINGENCIES**

**Facility Leases**

TheCompany has several operating leases for its office, research and developmentand manufacturing facilities in California and British Columbia, Canada. Theleases expire in the year 2010 through 2015 and each includes an option toextend, other than the leases for our facilities in Canada. Future minimumpayments under noncancelable operating leases at December 31, 2005 are asfollows (in thousands):

| **Year Ended  December 31,**                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                                                 |       | $          | 14,340     |       |
| 2007                                                                 |       | 14,878     |       |
| 2008                                                                 |       | 15,390     |       |
| 2009                                                                 |       | 15,893     |       |
| 2010                                                                 |       | 15,296     |       |
| Thereafter                                                           |       | 41,331     |       |
| Total lease  payments                                                |       | 117,128    |       |
| Less aggregate  future minimum rentals to be received under sublease |       | (1,613     | )          |
|                                                                 |       | $          | 115,515    |       |

 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

As of December 31,2005, approximately $22.2 million of future minimum lease payments were relatedto facilities impacted by the restructuring plan implemented in 2005. Rentexpense was $13.0 million, $14.1 million and $14.4 million for the years endedDecember 31, 2005, 2004 and 2003, respectively.

**Purchase Commitments**

As of December 31,2005, the Company had purchase commitments of approximately $691,000, themajority of which are for the purchase of equipment and leasehold improvementsfor its manufacturing facility.

**Letters of Credit**

In March 2000 and February 2001, the Companyobtained stand-byletters of credit for $2.0 million and $3.0 million, respectively, from acommercial bank as security for its obligations under two facility leases. These were increased in January 2002 to$2.5 million and $3.2 million, respectively, in connection with amendments tothe Company’s facility leases. In December 2003, the $3.2 million stand-byletter of credit increased to $3.5 million. The outstanding stand-byletters of credit are secured by an investment account, in which the Companymaintains a balance of approximately $7.0 million.

**License andCollaboration Agreements**

In October 2003, the Company entered into acollaboration and license agreement with AstraZeneca to provide for the jointdiscovery and development of therapeutic antibodies against up to 36 oncologytargets to be commercialized exclusively worldwide by AstraZeneca. Theagreement provides that the Company will conduct early stage preclinicalresearch on behalf of AstraZeneca with respect to these targets. Under theagreement, the Company also may conduct clinical, process development andmanufacturing activities for which AstraZeneca is to compensate the Company atcompetitive market rates. The collaboration agreement also includes aco-development component under which Abgenix will be able to generateadditional antibody product candidates against up to 18 targets thatAstraZeneca will have the option to co-develop with Abgenix. The companies willshare development costs and responsibilities for any co-development candidatesselected by AstraZeneca. During the three-year period of selection of targetsfor development, the Company will work exclusively with AstraZeneca to generateand develop antibodies for therapeutic use in oncology subjectto various exceptions, including among others for generation anddevelopment of antigens in accordance with existing collaborations, forantigens that the Company and AstraZeneca decide not to pursue in the collaboration,and for certain process development and manufacturing services.

**Contingencies**

On December 15, 2005, a putative class actionlawsuit entitled *Carter v. Abgenix, Inc., et al.*,Case No. RG05246834 (Dec. 15, 2005), was filed against the Company,its directors and Amgen in the Superior Court of the State of California,Alameda County. The complaint, which purported to be brought on behalf of allof the Company’s stockholders (excluding the defendants and their affiliates),alleged that the $22.50 per share in cash to be paid to stockholders inconnection with the proposed merger with Amgen is inadequate and that theCompany’s directors violated their fiduciary obligations to stockholders innegotiating and approving the merger agreement. The complaint also purported toassert claims against the Company and Amgen in connection with these matters.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

On January 17, 2006,the Company and its directors filed a demurrer to the complaint seeking todismiss all claims asserted against them. On January 18, 2006, Amgen fileda demurrer to the complaint seeking to dismiss all claims asserted against it. OnFebruary 13, 2006, plaintiff filed an amended complaint, which, inaddition to the allegations set forth above, alleges that Abgenix’s proxystatement, filed on February 9, 2006, failed to disclose certainpurportedly material information relating to the process leading to theapproval of the proposed merger with Amgen. The amended complaint seeks variousforms of relief, including injunctive relief that would, if granted, preventthe completion of the merger. On March 6, 2006, the defendants fileddemurrers to the amended complaint seeking to dismiss all claims assertedtherein. Those motionsare currently pending. While the outcome of this matter cannot be determined atthis time, the Company believes that this lawsuit is without merit andintends to vigorously defend the action.

**11.   COMPREHENSIVE LOSS**

Thecomponents of comprehensive loss, net of tax of zero, were as follows (inthousands):

| ** **                                                             | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net loss                                                               |       | $                                          | (206,955   | ) | $ | (187,478 | ) | $ | (196,429 | ) |
| Other comprehensive  income (loss):                                    |       |                                       |       |   |   |   |   |
| Unrealized holding gains (losses) arising during the  period           |       | (10,509                                    | )          | 530 |   | 4,705 |   |
| Reclassification adjustment for gains and losses  included in net loss |       | (389                                       | )          | — |   | — |   |
| Change in unrealized gains (losses)                                    |       | (10,898                                    | )          | 530 |   | 4,705 |   |
| Comprehensive loss                                                     |       | $                                          | (217,853   | ) | $ | (186,948 | ) | $ | (191,724 | ) |

 

**12.   IMPAIRMENTOF IDENTIFIED INTANGIBLE ASSETS**

In the quarter ended June 30,2005, management determined that an impairment of the Company’s acquiredSelected Lymphocyte Antibody Method (SLAM)technology had occurred and that the estimated fair value had declined to $2.0million. This technology, which includes intellectual property, was acquired in2000 through the acquisition of Abgenix Biopharma Inc., formerly known asImmGenics Pharmaceuticals, Inc. In the second quarter of 2005, the Companycompleted a strategic planning process, which included an assessment of itstechnologies. After assessing the SLAM technology, the Company determined thatits use of the SLAM technology had declined and would continue to declinesubstantially because of significant improvements in the use of othertechnologies and processes. Because of this impairment indicator, the Companytested the SLAM technology for recoverability and found that the undiscountedfuture cash flows estimated to be generated from the use of the SLAM technologywere less than the carrying value of the SLAM technology. As a result, theCompany determined that an impairment of the SLAM technology had occurred andrecorded an impairment charge of $23.1 million in the second quarter of 2005 toadjust the carrying value of the SLAM technology to its estimated fair value,which is based on the estimated discounted future cash flows to be generatedfrom the SLAM technology.

In the quarter ended June 30, 2005, managementalso determined that an impairment of the Company’s acquired technology in thefield of intrabodies (antibodies that can access intracellular targets) hadoccurred and that the estimated value had declined to zero. This technology,which includes intellectual property, was acquired in 2000 through theacquisition of IntraImmune, Inc. The Company 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

decided to discontinue thedevelopment of the intrabody program and performed an assessment of theassociated patent position and the likelihood of sale or license of thetechnology to a third party. The Company determined that the possibility ofgenerating positive future cash flows from the technology was remote. As aresult, the Company recorded an impairment charge of $1.9 million in the secondquarter of 2005.

In the quarter ended June 30, 2004, managementhad determined that an impairment of the Company’s acquired technology in thefield of catalytic antibodies had occurred and that the estimated value haddeclined to zero. This technology, which includes intellectual property, wasacquired in 2001 through the acquisition of Hesed Biomed, Inc. The Companydecided to focus its resources on other research and development projects andwind down its catalytic antibody program. Additionally, after assessing theassociated patent position and the likelihood of sale or license of thetechnology to a third party, management further determined in the quarter endedJune 30, 2004 that the possibility of generating positive future cashflows from the technology was remote. As a result of this determination, theCompany recorded an impairment charge of $17.2 million in the second quarter of2004. Intangible assets held and used must be tested for impairment when eventsor changes in circumstances indicate that its carrying amount may not berecoverable. As of December 31, 2004, the Company determined that nochanges in circumstances had occurred that would indicate that a furtherimpairment of an intangible asset had occurred.

In the quarter ended March 31,2003, the Company decided to discontinue the development of anti-properdinantibodies. As a result, the Company recorded an impairment charge of $1.4million for previously capitalized costs related to licenses and researchfunding for the development of therapeutic antibodies to the complement proteinproperdin, which the Company licensed from Gliatech, Inc.

**13.   IMPAIRMENT OF INVESTMENTS**

In the fourth quarter of 2005, the Company sold themajority of its strategic investments in the common stock of two publiclytraded biotechnology companies. As of December 31, 2005, the remaininginvestments had a market value of $2.9 million and an unrealized loss of $1.5million. The Company determined that the unrealized loss wasother-than-temporary because the Company expects to sell these securities inthe near term. Accordingly, the Company recorded an impairment charge of $1.5million related to these investments as of December 31, 2005.

As of December 31, 2005, the Company determinedthat approximately $152,000 of unrealized loss related to its marketable debtsecurities was other-than-temporary, as a portion of these securities isexpected to be liquidated prior to their maturities in 2006 due to the Company’sforecasted cash flow requirements and such unrealized loss may not be fullyrecovered. Accordingly, the Company recordedan impairment charge of $152,000 related to these securities as of December 31,2005.

The Company had alsoinvested in the equity securities of a privately held company in connectionwith its collaboration with that company. As of December 31, 2003, theCompany determined that an impairment had occurred and estimated that the valueof the investment had declined to zero. Accordingly, the Company recorded animpairment charge of $7.9 million in the fourth quarter of 2003. The impairmentcharge was based on the difference between the estimated fair value asdetermined by management and the adjusted cost basis of the investment.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**14.   RESTRUCTURING AND OTHER**

In June 2005, the Company implemented arestructuring plan in which the Company decided to consolidate its research andcertain pre-clinical activities into the Company’s facility located in Burnaby,British Columbia, and to reduce its workforce by approximately 15%. As a resultof the reduction in workforce and an evaluation of its future needs, theCompany determined that it would not occupy and would sublease, to the extentpossible, certain of its research facilities. The restructuring plan wasdesigned to focus resources on the Company’s development pipeline andparticularly the potential commercial opportunity of its lead productcandidate, panitumumab. As of December 31, 2005, the Company had paid thesubstantial majority of the severance pay and retention bonuses, and theCompany was actively seeking sublease tenants for the unoccupied researchfacilities.

In connection with the restructuring plan, the Companyrecorded restructuring charges of $15.5 million in 2005, including $2.8 millionof termination benefits, $6.8 million of lease obligations, $5.7 million forthe impairment of leasehold improvements, equipment and other assets, and$215,000 of facilities and employee relocation expenses. Termination benefitsprimarily consisted of severance pay, retention bonuses and non-cash,stock-based compensation expense.

The lease obligations represent the fair value offuture lease commitment costs, net of projected sublease rental income, for theresearch facilities that the Company decided not to occupy as a result of therestructuring plan. The estimated future cash flows used in the fair valuecalculation are based on certain estimates and assumptions by management,including the projected sublease rental income, the amount of time the spacewill be unoccupied prior to sublease and the length of any subleases. TheCompany has lease obligations related to the facilities subject to itsrestructuring activities, which extend to the year 2014. Management will reviewthe sublease assumptions on a quarterly basis. Accordingly, management maymodify these estimates to reflect any changes in circumstances in futureperiods.

The Company’s decision to consolidate its researchfacilities was deemed to be an impairment indicator for its equipment andleasehold improvements under SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets.”  As aresult of performing an impairment evaluation, the Company recorded animpairment charge in 2005 to adjust the carrying value of the relatedlong-lived assets to their estimated fair values. The majority of theimpairment charge was related to leasehold improvements, and the fair value ofthese leasehold improvements was estimated based upon anticipated future cashflows associated with the related facilities, discounted at an interest ratecommensurate with the risks involved. A portion of the impairment charge wasalso related to certain lab and computer equipment and furniture and fixturesthat currently do not have any anticipated future use due to the restructuringplan.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thefollowing table is a summary of restructuring activities in 2005 and theliability balance as of December 31, 2005 (in thousands):

| ** **                                                | ** ** | **Charges to  Operations** | ** ** | **Non-Cash  Charges** | ** ** | **Cash  Payments** | ** ** | **Balance at  December 31,  2005** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|-----------------------|------------|--------------------|------------|----------------------------------------------|------------|
| Termination  benefits, including stock-based compensation |       |                            | $          | 2,779                 |       |               |       | $                                            | (615       | ) |   |   | $ | (1,971 | ) |   |   | $ | 193 |   |   |
| Lease  obligations, net                                   |       |                            | 6,792      |                  |       |               | 288        |                                         |       |   | (777 | ) |   |   | 6,303 |   |   |
| Impairment of  property and equipment                     |       |                            | 5,720      |                  |       |               | (5,720     | )                                            |       |   | — |   |   |   | — |   |   |
| Facilities and employee  relocation expenses              |       |                            | 215        |                  |       |               | —     |                                         |       |   | (181 | ) |   |   | 34 |   |   |
|                                                      |       |                            | $          | 15,506                |       |               |       | $                                            | (6,047     | ) |   |   | $ | (2,929 | ) |   |   | $ | 6,530 |   |   |
| Classified as:                                            |       |                            |       |                  |       |               |       |                                         |       |   |   |   |   |   |   |   |   |
| Short-term liability                                      |       |                            |       |                  |       |               |       |                                         |       |   |   |   |   |   | $ | 1,426 |   |   |
| Long-term liability                                       |       |                            |       |                  |       |               |       |                                         |       |   |   |   |   |   | 5,104 |   |   |
|                                                      |       |                            |       |                  |       |               |       |                                         |       |   |   |   |   |   | $ | 6,530 |   |   |

 

**15.   INTERESTAND OTHER INCOME (EXPENSE), NET**

Interestand other income (expense), net, consisted of the following (in thousands):

| ** **                                   | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Interest income                              |       | $                                          | 12,101     |   | $ | 6,376 |   | $ | 9,498 |   |
| Gain on sale of  investments                 |       | 2,005                                      |       | — |   | — |   |
| Gain (loss) on  early extinguishment of debt |       | 152                                        |       | (1,016 | ) | — |   |
| Other income  (expense)                      |       | (17                                        | )          | 22 |   | 455 |   |
|                                         |       | $                                          | 14,241     |   | $ | 5,382 |   | $ | 9,953 |   |

 

**16.   INCOME TAXES**

No federal or state income tax expense or benefit wasrecorded for the years ended December 31, 2005, 2004 and 2003, as theCompany incurred net operating losses during these periods and potential taxbenefits associated with net operating loss carryforwards and other deferredtax assets were completely offset by a full valuation allowance. The Companyrecorded a foreign income tax expense of $84,000 in 2003 but did not incur anyforeign income tax expense in 2005 and 2004.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Deferredincome taxes reflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes. Significant components of the Company’sdeferred tax assets as of December 31, 2005 and 2004 are as follows (inthousands):

| ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Deferred tax  assets:                |       |                  |       |   |   |
| Net operating loss carryforwards     |       | $                     | 304,300    |   | $ | 239,500 |   |
| Research credit carryforwards        |       | 34,600                |       | 28,000 |   |
| Capitalized research and development |       | 26,200                |       | 21,300 |   |
| Capital loss carryforwards           |       | 17,600                |       | — |   |
| Investment reserve                   |       | 15,500                |       | 32,900 |   |
| Other                                |       | 26,000                |       | 19,300 |   |
| Total deferred  tax assets           |       | 424,200               |       | 341,000 |   |
| Valuation  allowance                 |       | (412,300              | )          | (313,200 | ) |
| Net deferred tax assets              |       | 11,900                |       | 27,800 |   |
| Deferred tax  liabilities:           |       |                  |       |   |   |
| Purchased intangibles                |       | (11,900               | )          | (23,600 | ) |
| Other                                |       | —                |       | (4,200 | ) |
| Net deferred taxes                   |       | $                     | —     |   | $ | — |   |

 

Realization of deferred tax assets is dependent uponfuture earnings, if any, the timing and amount of which are uncertain. Accordingly,the net deferred tax assets have been fully offset by a valuation allowance.The valuation allowance increased by $99.1 million and $75.7 million during theyears ended December 31, 2005 and 2004, respectively. Approximately $47.4million of the valuation allowance for deferred tax assets relates to benefitsof stock option deductions, the benefit of which will be credited to equitywhen realized. As of December 31, 2005, the Company had net operating losscarryforwards for federal and state income tax purposes of approximately $849.0million and $261.0 million, respectively.  The federal net operating loss carryforwardsexpire in the years 2011 through 2025, and the state net operating losscarryforwards expire in the years 2006 through 2015. Approximately $14.0million of the state net operating loss carryforwards will expire in 2006, ifnot utilized. As of December 31, 2005, the company had federal and stateresearch and development tax credit carryforwards of approximately $20.0million and $22.0 million, respectively. The federal credits expire in theyears 2006 through 2025, and the state credits do not expire. As of December 31,2005, the Company also had federal and state capital loss carryforwards thatare available to offset future capital gains of approximately $45.0 million and$38.0 million, respectively. These capital loss carryforwards expire in 2010. Utilizationof the Company’s net operating loss and tax credit carryforwards may be subjectto substantial annual limitation due to the ownership change limitationsprovided by Internal Revenue Code and similar state provisions. Such an annuallimitation could result in the expiration of these carryforwards beforeutilization.

The Company has entered into intercompany agreementswith its Canadian subsidiary, and such agreements could be unfavorablyinterpreted by the applicable taxing authorities, causing an increase in incometax expense and net loss. As a result, the Company has recorded a tax liability.The assessment of income tax implications of this intercompany relationshiprequires significant management judgment.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**17.   SEGMENTINFORMATION**

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

Informationabout customers who provided 10% or more of total revenues for the period is asfollows:

| **Year Ended**     | ** ** | ** **                                        | ** ** | **Number of Customers and Percentage of Total  Revenues for each of the Customers** | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
| December 31,  2005 |       | 3  customers, 38%, 29% and 12%, respectively      |       |
| December 31,  2004 |       | 4  customers, 26%, 24%, 21% and 10%, respectively |       |
| December 31, 2003  |       | 4 customers, 27%, 24%,  15% and 14%, respectively |       |

 

**18.   STOCKHOLDERS’ EQUITY**

**Common Stock**

TheCompany is authorized to issue up to 220,000,000 shares of common stock. At December 31,2005, common stock reserved for future issuance was as follows (in thousands):

| Stock option  plans                      |   | 16,329 |   |
|------------------------------------------|--------|--------|--------|
| Warrants                                 |   | 3      |   |
| Employee stock  purchase plans           |   | 1,204  |   |
| Convertible  subordinated notes due 2007 |   | 3,626  |   |
| Convertible  senior notes due 2011       |   | 23,401 |   |
| Convertible  subordinated note due 2013  |   | 1,667  |   |
| Redeemable  convertible preferred stock  |   | 1,666  |   |
|                                     |   | 47,896 |   |

 

**Stockholder Rights Plan**

On June 2, 1999, the Company’s Board of Directorsdeclared a dividend of one right, or Right, to purchase one one-thousandth of ashare of the Company’s Series A Participating Preferred Stock, or Series APreferred, for each of the Company’s outstanding shares of common stock, theCommon Shares. On June 14, 1999, the Company entered into a PreferredShares Rights Agreement, or Rights Agreement, with ChaseMellon ShareholderServices, L.L.C., the predecessor to Mellon Investor Services LLC, as RightsAgent, which was amended and restated on November 19, 1999, and on May 9,2002 and amended on October 29, 2003 and December 14, 2005. Thedividend was payable to stockholders of record as of the close of business onthe record date, June 14, 1999. As amended, each Right entitles theregistered holder to purchase from the Company one one-thousandth of a share ofSeries A Preferred at an exercise price of $175.00, the Purchase Price. Eachone one-thousandth of a share of Series A Preferred has rights and preferencessubstantially equivalent to those of one Common Share.

The Rights will separate from the Common Shares andbecome exercisable upon the earlier of: (i) 10 days following a publicannouncement that a person or group has acquired 15% or more of the outstandingCommon Shares, or (ii) 10 business days (or such later date as may bedetermined by the Company’s Board of Directors) following the announcement of atender offer or exchange offer for 15% or more of the Common Shares. Unless theRights are earlier redeemed by the Board of Directors at a price of $0.01 perRight, if a person or group acquires 15% or more of the Common Shares, eachRight will entitle its holder to receive, upon exercise, Common Shares having avalue equal to two times the Purchase Price. 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Similarly, unless theRights are earlier redeemed, in the event that, after a person or group becomesthe beneficial owner of 15% or more of the Common Shares, (i) the Companyis acquired in a merger, or (ii) 50% or more of the Company’s assets or earningpower are sold, proper provision must be made so that each holder of a Rightwhich has not been exercised will have the right to receive, upon exercise,shares of common stock of the acquiring company having a value equal to twotimes the Purchase Price. After the acquisition of 15% or more of the CommonShares but prior to such a merger or sale, the Board of Directors may exchangeeach Right for one Common Share.

In October 2003, pursuant to the securitiespurchase agreement between the Company and AstraZeneca, the Company amended itsstockholder rights plan to prevent AstraZeneca from becoming an “AcquiringPerson” for purposes of the rights plan as a result of (1) its acquisitionof securities of Abgenix pursuant to the securities purchase agreement; (2) thebeneficial ownership by AstraZeneca and its affiliates of the common stock ofAbgenix issuable upon conversion of the securities issued pursuant to thesecurities purchase agreement; or (3) the mandatory conversion at theCompany’s option of the securities issued pursuant to the securities purchaseagreement into shares of common stock. The Company agreed to keep thisamendment in place for a “standstill period” designated in the securitiespurchase agreement, provided that the Company’s obligation to keep the rightsplan amendment in place shall lapse if AstraZeneca breaches its standstillobligations in the securities purchase agreement. The Company has agreed tocontinue to keep the amendment in place after the termination of the standstillperiod for so long as AstraZeneca does not acquire voting securities of Abgenixthat would cause AstraZeneca’s level of ownership to exceed that in effect onthe date of the termination of the standstill period.

On December 14, 2005,pursuant to the merger agreement with Amgen, the Company amended itsstockholder rights plan to prevent Amgen and its affiliates from becoming an “AcquiringPerson” as a result of the execution and delivery of the merger agreement, theconsummation of the merger or consummation of the other transactionscontemplated by the merger agreement. In addition, the definition ofDistribution Date and Triggering Event (each, as defined in the stockholderrights plan) have been deemed to not occur as a result of the execution anddelivery of the merger agreement, the consummation of the merger or any of thetransactions contemplated by the merger agreement or the public announcement ofthe merger agreement.

**Warrants**

In connection with theacquisition of Hesed Biomed in November 2001, the Company assumedobligations under outstanding warrants for the issuance of 18,731 shares of theCompany’s common stock. At December 31, 2005, 2,715 shares of these warrants with an exercise price of$18.48 were outstanding and expireon various dates from November 2009through February 2010.

**19.   STOCK OPTION AND BENEFIT PLANS**

**Incentive Stock Plans**

The Company has three stock plans, which allow for thegranting of incentive and non-qualified stock options and stock purchase rights to employees,outside directors and consultants of the Company. An aggregate of 26,365,000shares of common stock have been authorized for issuance under the plans. TheCompany grants options to purchase shares of common stock under the plans at noless than the fair value 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

of the stock. Optionsgranted under the plans generally have a term of seven or ten years and vestover four years.

Informationwith respect to activity under the plans is as follows:

| ** **                               | ** ** | **Shares  Available  for Grant** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| Balances at  December 31, 2002      |       | 5,764,412                             |       | 12,758,981               |       |                                       | $          | 29.38 |   |   |
| Options granted                          |       | (2,365,473                            | )          | 2,365,473                |       |                                       | $          | 9.32 |   |   |
| Options exercised                        |       | —                                |       | (280,844                 | )          |                                       | $          | 3.75 |   |   |
| Options canceled                         |       | 2,478,793                             |       | (2,478,793               | )          |                                       | $          | 34.03 |   |   |
| Balances at December 31, 2003       |       | 5,877,732                             |       | 12,364,817               |       |                                       | $          | 25.24 |   |   |
| Options granted                          |       | (2,128,254                            | )          | 2,128,254                |       |                                       | $          | 12.77 |   |   |
| Options exercised                        |       | —                                |       | (437,267                 | )          |                                       | $          | 4.81 |   |   |
| Options canceled                         |       | 826,142                               |       | (826,142                 | )          |                                       | $          | 23.80 |   |   |
| Balances at December 31, 2004       |       | 4,575,620                             |       | 13,229,662               |       |                                       | $          | 23.52 |   |   |
| Options granted                          |       | (3,001,455                            | )          | 3,001,455                |       |                                       | $          | 9.02 |   |   |
| Restricted stock purchase rights granted |       | (227,750                              | )          | —                   |       |                                       | —     |   |   |
| Options exercised                        |       | —                                |       | (1,300,129               | )          |                                       | $          | 5.49 |   |   |
| Options canceled                         |       | 2,742,728                             |       | (2,742,728               | )          |                                       | $          | 28.64 |   |   |
| Balances at December 31, 2005       |       | 4,089,143                             |       | 12,188,260               |       |                                       | $          | 20.73 |   |   |
| Options exercisable at:                  |       |                                  |       |                     |       |                                       |       |   |   |
| December 31, 2003                   |       | 8,953,781                             |       |                     | $          | 26.78                                      |       |   |
| December 31, 2004                   |       | 10,203,794                            |       |                     | $          | 26.67                                      |       |   |
| December 31, 2005                   |       | 8,738,301                             |       |                     | $          | 24.98                                      |       |   |

 

Thefollowing table summarizes information about options outstanding at December 31,2005:

| ** **                          | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|-------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Range of  Exercise  Prices** | ** ** | ** **                   | ** ** | **Number  of Options**  | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Remaining  Contractual  Life, in Years** | ** ** | **Number  of Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| $0.15 - $2.50                       |       | 674,189                      |       |                         | $          | 1.08 |   |   |   | 1.68 |   |   | 674,189 |   |   | $ | 1.08 |   |   |
| $3.59 - $10.99                      |       | 5,578,147                    |       |                         | $          | 8.11 |   |   |   | 5.14 |   |   | 2,872,929 |   |   | $ | 7.46 |   |   |
| $11.18 - $31.81                     |       | 3,169,685                    |       |                         | $          | 22.20 |   |   |   | 5.18 |   |   | 2,425,090 |   |   | $ | 24.65 |   |   |
| $32.28 - $42.00                     |       | 1,585,013                    |       |                         | $          | 36.11 |   |   |   | 4.96 |   |   | 1,584,867 |   |   | $ | 36.11 |   |   |
| $45.00 - $59.93                     |       | 472,026                      |       |                         | $          | 49.01 |   |   |   | 4.92 |   |   | 472,026 |   |   | $ | 49.01 |   |   |
| $75.17 - $80.81                     |       | 709,200                      |       |                         | $          | 78.95 |   |   |   | 4.72 |   |   | 709,200 |   |   | $ | 78.95 |   |   |
|                                |       | 12,188,260                   |       |                         | $          | 20.73 |   |   |   | 4.90 |   |   | 8,738,301 |   |   | $ | 24.98 |   |   |
|                                     |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The weighted-average fair values of options grantedduring the years ended December 31, 2005, 2004 and 2003 were $4.66, $9.43,$7.25 per share, respectively.

In addition to options,the Company has granted stock purchase rights to certain employees. These stockpurchase rights have been granted under the Abgenix Amended and Restated 1996Incentive Stock 

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Plan. Theshares of common stock purchased upon exercise of these rights are subject torestrictions on transfer and the Company’s repurchase option, which optionshall lapse pursuant to the schedule set forth in the restricted stock purchaseagreement. On January 24, 2005, the Company granted the right to purchase10,000 shares of restricted common stock to an executive officer in connectionwith the hiring of this executive officer. The Company’s repurchase optionlapsed with regard to 2,500 shares purchased by the executive officer on January 24,2006 and was to lapse with regard to 2,500 shares on each of January 24,2007, 2008 and 2009, provided that this individual remains a service provideron each such date. In connection with the proposed merger with Amgen, theCompany’s repurchase option will lapse and these shares will become fullyvested upon consummation of the merger. In November and December 2005,all employees of the Company, other than executive officers, were grantedrights to purchase a total of 217,750 shares of restricted common stock for$0.01 per share. Any unexercised purchase rights expired on February 10,2006. The shares purchased upon exercise of these rights are subject to theCompany’s repurchase option, which was to lapse with regard to all shares inconnection with the public announcement of approval by the FDA of a biologicslicense application for panitumumab, provided that the employee remains aservice provider on such date. In addition, any shares that are still subjectto the Company’s repurchase option on November 10, 2007, were to bereleased from the repurchase option on that date, provided that the employeeremains a service provider on that date. In connection with the proposed mergerwith Amgen, the Company’s repurchase option will lapse and these shares will bebecome fully vested upon consummation of the merger.

**Employee Stock Purchase Plans**

The Abgenix employee stock purchase plan enableseligible employees to purchase the Company’s common stock at 85% of the closingsales price on the first day of the 24-month offering period or 85% ofthe closing sales price on the last day of each 6-month purchase period,whichever is lower. Employees may authorize periodic payroll deductions of upto 15% of eligible compensation for common stock purchases, with certainlimitations. As of December 31, 2005, 2,990,544 shareshad been authorized under the plan and 1,920,120 shares had been issued. Asrequired by the merger agreement, the Company set a new exercise date to end all offering periods on January 13,2006, and all employee payroll deductions as of January 13, 2006 were usedto purchase common stock on that date. No new purchase period began, and theCompany plans to terminate the employee stock purchase plan before theconsummation of the merger.

The Abgenix Canadian employee stock purchase plan enablescertain eligible employees to purchase common stock at the closing sales priceon the first day of the 24-month offering period or the closing salesprice on the last day of each 6-month purchase period, whichever islower. Eligible employees may authorize periodic payroll deductions of up to15% of eligible compensation for common stock purchases, with certainlimitations. As of December 31, 2005, 200,000 shares had beenauthorized under this plan and 66,752 shares had been issued. Inconnection with the merger agreement, the Company set a new exercise date to end all offeringperiods on January 13, 2006, and all employee payroll deductions as of January 13,2006 were used to purchase common stock on that date. No new purchase periodbegan, and the Company plans to terminate the Canadian employee stock purchaseplan before the consummation of the merger.

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**ABGENIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Benefit Plan**

The Company has availablea 401(k) retirement plan in the United States. Eligible employees maycontribute up to 100% of their compensation up to a maximum allowable under theInternal Revenue Code. The Company did not match contributions and, therefore,has not recorded any expense. Effective January 1, 2006, the Companymatches $0.50 for every $1.00 of employee contributions, up to a maximumemployee contribution of six percent of salary, with a maximum Company match of$3,000 per employee participant per year. The Company also has available aretirement plan in Canada. Eligible employees may contribute a percentage oftheir gross salary, up to the maximum dollar amount legislated by CanadaRevenue Agency. After one year of employment, the Company matches employeecontributions up to a maximum of 5% of the employee’s gross salary.

**20.   CUSTOMER INDEMNIFICATION**

The Company has certainagreements with customers and collaborators that contain indemnificationprovisions. In such provisions, the Company typically agrees to indemnify thecustomer or collaborator against certain types of third-party claims. TheCompany would accrue for known indemnification issues if a loss were probableand could be reasonably estimated. The Company would also accrue for estimatedincurred but unidentified issues based on historical activity. There was noaccrual for or expense related to indemnification issues as of December 31,2005 and 2004.

**21.   QUARTERLYFINANCIAL INFORMATION (UNAUDITED)**

Unauditedquarterly financial information is as follows (in thousands, except pershare data):

| ** **                                  | ** ** | **Quarter Ended** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **Mar. 31,**      | ** ** | **Jun. 30,** | ** ** | **Sep. 30,** | ** ** | **Dec. 31,** | ** ** |
| **2005**                                    |       |                   |       |   |   |   |   |   |   |
| Total revenues                              |       | $                      | 2,658      |   | $ | 3,403 |   | $ | 4,689 |   | $ | 7,596 |   |
| Impairment of  identified intangible assets |       | —                 |       | 25,000 |   | — |   | — |   |
| Restructuring and  other                    |       | —                 |       | 14,740 |   | 398 |   | 368 |   |
| Loss from  operations                       |       | (42,247                | )          | (83,394 | ) | (36,116 | ) | (42,618 | ) |
| Net loss                                    |       | (42,633                | )          | (84,117 | ) | (36,839 | ) | (43,366 | ) |
| Basic and diluted  net loss per share       |       | $                      | (0.48      | ) | $ | (0.94 | ) | $ | (0.41 | ) | $ | (0.48 | ) |
| **2004**                                    |       |                   |       |   |   |   |   |   |   |
| Total revenues                              |       | $                      | 2,890      |   | $ | 5,514 |   | $ | 3,116 |   | $ | 5,927 |   |
| Impairment of  identified intangible assets |       | —                 |       | 17,241 |   | — |   | — |   |
| Loss from  operations                       |       | (41,593                | )          | (60,790 | ) | (42,009 | ) | (41,235 | ) |
| Net loss                                    |       | (41,566                | )          | (60,623 | ) | (42,420 | ) | (42,869 | ) |
| Basic and diluted  net loss per share       |       | $                      | (0.47      | ) | $ | (0.68 | ) | $ | (0.48 | ) | $ | (0.48 | ) |

 

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**Item 9.   Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure**

Not applicable.

**Item 9A.   Controls and Procedures**

**(a)   Evaluationof Disclosure Controls and Procedures**

Our principal executive officer and principalfinancial officer reviewed and evaluated our disclosure controls and procedures(as defined in Exchange Act Rule 13a-15(e)) as of the end of theperiod covered by this annual report on Form 10-K. Based on thatevaluation, our principal executive officer and principal financial officerhave concluded that our disclosure controls and procedures are effective in ensuring that all material information requiredto be included in this annual report on Form 10-K has been madeknown to them in a timely fashion.

**(b)   Management’sAnnual Report on Internal Control Over Financial Reporting**

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting (as defined inExchange Act Rule 13a-15(f)). Management assessed the effectivenessof the Company’s internal control over financial reporting as of December 31,2005. In making this assessment, management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control-Integrated Framework*. Basedon the assessment using those criteria, management believes that, as of December 31,2005, our internal control over financial reporting was effective.

Our management’s assessment of the effectiveness ofour internal control over financial reporting as of December 31, 2005 hasbeen audited by Ernst & Young LLP, our independent registered publicaccounting firm, as stated in their report.

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**Report of Independent Registered Public AccountingFirmOn Internal Control Over Financial Statements**

*The Board ofDirectors and Stockholders of Abgenix, Inc.*

We have audited management’s assessment, included inthe accompanying Management’s Annual Report on Internal Control Over FinancialReporting, that Abgenix, Inc. maintained effective internal control overfinancial reporting as of December 31, 2005, based on criteria establishedin Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria). Abgenix, Inc.’smanagement is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting. Our responsibility is to express an opinionon management’s assessment and an opinion on the effectiveness of the company’sinternal control over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

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

In our opinion, management’s assessment that Abgenix, Inc.maintained effective internal control over financial reporting as of December 31,2005, is fairly stated, in all material respects, based on the COSO criteria. Also,in our opinion, Abgenix, Inc. maintained, in all material respects,effective internal control over financial reporting as of December 31,2005, based on****the COSO criteria**.**

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets of Abgenix, Inc. as of December 31,2005 and 2004, and the related consolidated statements of operations,stockholders’ equity and cash flows for each of the three years in the periodended December 31, 2005, of Abgenix, Inc. and our report dated March 3**,**2006 expressed an unqualified opinion thereon.
|                        | /s/  Ernst & Young LLP |
|------------------------|---------------------------------|
| Palo Alto,  California |                            |
| March 3,  2006    |                            |

 

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**(c)   Changesin Internal Control Over Financial Reporting**

There was no change in ourinternal control over financial reporting during our last fiscal quarter thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

**Item 9B.   Other Information**

On December 15,2005, the board of directors of Abgenix approved the following actions of thecompensation committee of the board of directors of Abgenix with regard to thecompensation of the executive officers of Abgenix for the year 2006:

2006 Base Salary Increases.   Thecompensation committee, after considering a competitive market review of totalcompensation for its executive officers, approved increases to the basesalaries of the executive officers resulting in adjusted base salaries for 2006as follows: William R. Ringo, Chief Executive Officer, President and Director($550,000); H. Ward Wolff, Chief Financial Officer and Senior Vice President,Finance ($320,000); Gisela M. Schwab, M.D., Chief Medical Officer($335,000); Donald R. Joseph, Senior Vice President, General Counsel andSecretary ($310,000); Kristen Metza, Senior Vice President, Human Resources($264,000); Gayle M. Mills, Senior Vice President, Business Development($282,500) and Jeffrey H. Knapp, Senior Vice President, Sales andMarketing ($275,000).

Annual Incentive Compensation Earned in 2005.   The compensationcommittee approved annual cash bonus awards earned during 2005 for theexecutive officers. The bonus awards were earned based upon the achievement ofperformance goals established early in 2005, which were reviewed and approvedby the compensation committee. The amounts of the bonus awards are as follows: Mr. Ringo($500,000); Mr. Wolff ($200,000); Dr. Schwab ($209,000); Mr. Joseph($186,000); Ms. Metza ($159,000) and Ms. Mills ($78,000).

Annual Incentive Compensation to Be Earned in 2006.   The compensationcommittee approved the following cash bonus award target levels, as a percentof salary, for the executive officers based upon each such named executiveofficer achieving their individual performance goals: Mr. Ringo (60%); Mr. Wolff(45%); Dr. Schwab (45%); Mr. Joseph (40%); Ms. Metza (35%); Ms. Mills(35%) and Mr. Knapp (35%). The actual awards made will be based on thecompensation committee’s evaluation of Abgenix’s achievement of the corporateperformance goals for fiscal 2006. In addition, the compensation committee willassess the contribution of each executive to Abgenix’s success based onindividual goals. The annual bonus for any executive may be more or less thanthe applicable target, depending on our financial performance, the compensationcommittee’s assessment of the executive’s contribution and such other factorsas the compensation committee may choose to consider.

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**PART III**

**Item 10.   Directors and Executive Officers of theRegistrant**

In light of the pendingmerger with Amgen, the Company has not scheduled an annual meeting ofstockholders for 2006 and does not plan to file a definitive proxy statementinvolving the election of directors unless the Company’s stockholders do notapprove the transaction at the special meeting of stockholders.

**Directors**

| **Name**                        | ** ** | ** ** | ** ** | **Age** | ** ** | **Position(s)**                                  | ** ** |
|---------------------------------|------------|------------|------------|---------|------------|--------------------------------------------------|------------|
| R. Scott Greer                  |       |       | 47         |    |       | Chairman                                         |       |
| M. Kathleen  Behrens, Ph.D.(1)  |       |       | 53         |    |       | Director                                         |       |
| Raju S. Kucherlapati,  Ph.D.(3) |       |       | 63         |    |       | Director                                         |       |
| Kenneth B.  Lee, Jr.(1)(2) |       |       | 58         |    |       | Director                                         |       |
| Mark B.  Logan(1)(2)            |       |       | 67         |    |       | Director                                         |       |
| William R. Ringo                |       |       | 60         |    |       | President,  Chief Executive Officer and Director |       |
| Thomas G. Wiggans(2)(3)         |       |       | 54         |    |       | Director                                         |       |

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(1)          Member of the AuditCommittee

(2)          Member of theCompensation Committee

(3)          Member of the Nominatingand Governance Committee

*R. Scott Greer* has served as ourChairman of the Board since May 2000, and as one of our directors since June 1996.From June 1996 until April 2002, he served as our Chief ExecutiveOfficer and from June 1996 until December 2000, he served as ourPresident. He is currently Managing Director of Numenor Ventures, LLC, aventure capital fund. He also serves as Chairman of the Board of directors ofSirna Therapeutics, Inc. Previously, Mr. Greer held senior managementpositions at Cell Genesys, Inc., including Senior Vice President,Corporate Development and Chief Financial Officer, and various positions atGenetics Institute, Inc. Mr. Greer was also a certified publicaccountant. Mr. Greer received a B.A. degree in economics from WhitmanCollege and an M.B.A. degree from Harvard University.

*M. Kathleen Behrens, Ph.D.,*has served as one of our directors since December 1997. She is currently ageneral partner of RS & Co. Venture Partners IV, LP, which is thegeneral partner of a venture fund, RS& Co. IV, LP. From 1999 to 2003, Dr. Behrenswas a Managing Director of RS Investments, where she managed venture funds. Priorto that, she held various positions with Robertson Stephens & Co.,which she joined in 1983, including general partner and Managing Director.Dr. Behrens received a Ph.D. degree in microbiology from the University ofCalifornia, Davis, where she performed genetic research for six years.

*Raju S. Kucherlapati, Ph.D.,*has served as one of our directors since June 1996. Dr. Kucherlapatiwas a founder of Cell Genesys and served as a director of Cell Genesys from1988 to 1999. Since September 2001, he has been a Professor of Medicine andthe Paul C. Cabot Professor of Genetics at Harvard Medical School and theScientific Director of the Harvard Partners Center for Genetics and Genomics. Previously,Dr. Kucherlapati was the Saul and Lola Kramer Professor and the Chairmanof the Department of Molecular Genetics at the Albert Einstein College ofMedicine of Yeshiva University. Dr. Kucherlapati also serves as a directorof Millennium Pharmaceuticals, Inc. Dr. Kucherlapati received a B.S.degree in Biology from Andhra University, in India, and a Ph.D. degree ingenetics from the University of Illinois, Urbana.

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*Kenneth B. Lee, Jr.,*has served as one of our directors since March 2003. Mr. Lee iscurrently a consultant for life sciences companies and a principal of HatterasBioCapital, LLC, a venture capital firm. Mr. Lee served as President of A.M.Pappas & Associates, an international life sciences venturedevelopment company, from January 2002 to June 2002. From 1982 to December 2001,Mr. Lee was a partner at Ernst & Young LLP, a public accountingfirm, which he joined as an employee in 1972. He served as Managing Director ofErnst & Young’s Health Sciences Investment Banking group from 2000 to2001 and co-founder of its Center for Strategic Transactions from 1997 to 2000.He previously served as Co-Chairman of its International Life Sciences Practice.He serves as a director of CV Therapeutics, Inc., Inspire Pharmaceuticals, Inc.and Pozen Inc. Mr. Lee received a B.A. degree from Lenoir-Rhyne Collegeand an M.B.A. degree from the University of North Carolina at Chapel Hill, andis a certified public accountant.

*Mark B. Logan* hasserved as one of our directors since August 1997. Mr. Logan served asChairman of the Board of VISX, Incorporated, a medical device company, from November 1994until his retirement in May 2001. He also served as Chief ExecutiveOfficer of VISX from November 1994 until February 2001 and asPresident from November 1994 until February 1999. Previously, Mr. Loganserved as Chairman of the Board and Chief Executive Officer of INSMEDPharmaceuticals, Inc. and held senior management positions at Bausch &Lomb, Inc., Becton, Dickinson and Company and Wyeth, and also served as amember of the board of directors of Bausch & Lomb. Mr. Logancurrently serves as a director of Vivus, Inc., the University of VirginiaHeart and Vascular Center and Public Policy Virginia. Mr. Logan received aB.A. degree from Hiram College and a P.M.D. degree from Harvard BusinessSchool.

*William R. Ringo*has served as our Chief Executive Officer and President and as a Director sinceAugust 2004. From 1973 to 2001, Mr. Ringo held various commercial andproduct marketing positions at Eli Lilly and Company, including president ofthe company’s Oncology and Critical Care Product teams. Mr. Ringo alsoserved as president of Eli Lilly’s Internal Medicine Products unit and aspresident of its Infectious Diseases business unit. Previously, he was vicepresident of Sales and Marketing for Eli Lilly’s U.S. pharmaceuticaloperations, after holding a variety of positions in general management,marketing and business planning across Eli Lilly’s pharmaceutical and devicesbusinesses. Mr. Ringo is currently the non-executive chairman of the boardof directors of InterMune, Inc. and served as interim Chief ExecutiveOfficer from June to September 2003. He has served as a director on anumber of biotechnology company boards and he is currently a director ofInspire Pharmaceuticals, Inc. Mr. Ringo received a B.S. degree inmanagement and an M.B.A. degree from the University of Dayton.

*ThomasG. Wiggans* has served as one of our directors since April 2003.He has been the Chief Executive Officer and a director of ConneticsCorporation, a pharmaceutical company, since July 1994, and the Chairmanof the Board since January 2006. Previously, Mr. Wiggans served invarious senior management positions for CytoTherapeutics, a biotechnologycompany, and for the Ares-Serono Group, a pharmaceutical company. He also heldvarious sales and marketing positions with Eli Lilly & Co., apharmaceutical company. He is currently a director of Tercica, Inc., andOnyx Pharmaceuticals, Inc. He also serves as a director of theBiotechnology Industry Organization and is the Chairman of the BiotechnologyInstitute. Mr. Wiggans received a B.S. degree in pharmacy from theUniversity of Kansas and an M.B.A. degree from Southern Methodist University.

**The Board and its Committees**

The Board of the Directors has an Audit Committee, aCompensation Committee and a Nominating and Governance Committee. The Board hasdetermined that the following members of the Board, constituting a majority ofthe Board and each member of the Audit Committee, Compensation Committee andNominating and Governance Committee, are independent within the meaning of thelisting standards of the Nasdaq Stock Market: Dr. Behrens, Dr. Kucherlapati,Mr. Lee, Mr. Logan and Mr. Wiggans. The independent directorsmeet in regularly scheduled executive sessions.

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The Board has also determined that at least one memberof the Audit Committee, Mr. Lee, is qualified as an audit committeefinancial expert within the meaning of the applicable SEC regulations. Asdescribed above, Mr. Lee is an independent director.

TheBoard has approved a process for stockholders to send communications to theBoard. Stockholders may submit written communications to the Board ofDirectors, or to any committee or individual member of the Board, in care ofthe Secretary at 6701 Kaiser Drive, Fremont, CA 94555. Information regardingthe submission of comments or complaints relating to the Company’s accounting,internal accounting controls or auditing matters can be found on the Company’swebsite at *www.abgenix.com*. Therehave been no material changes to the procedures by which security holders mayrecommend nominees to the Company’s Board of Directors subsequent to thedisclosure of such procedures incorporated in the Company’s previous annualreport.

**Executive Officers**

The information requiredby this item concerning the Company’s executive officers is set forth in Part Iof this Form 10-K.

**Section 16(a) BeneficialOwnership Reporting Compliance**

Section 16(a) ofthe Exchange Act requires the Company’s directors and executive officers, andpersons who own more than ten percent of a registered class of the Company’s equitysecurities, to file initial reports of beneficial ownership and reports ofchanges in beneficial ownership of common stock and other equity securities ofthe Company with the Securities and Exchange Commission. Officers, directorsand greater than ten percent beneficial owners are required by Securities andExchange Commission regulation to furnish the Company with copies of all Section 16(a) formsthey file. To the Company’s knowledge, based solely on a review of the copiesof such reports furnished to the Company and written representations from theCompany’s executive officers and directors, the Company believes that itsexecutive officers and directors complied with Section 16(a) filingrequirements in 2005.

**Code of Ethics**

The Company has adopted aCode of Ethics applicable to all directors, officers and employees, includingthe Chief Executive Officer, senior financial officers and other personsperforming similar functions. The Code of Ethics is a statement of businesspractices and principles of behavior that support the Company’s commitment toconducting business with honesty and integrity. It covers topics including, butnot limited to, conflicts of interest, compliance with laws, rules andregulations, internal reporting of violations and accountability for adherenceto the Code. A copy of the Code of Ethics is available on the Company’sInternet website at *www.abgenix.com*.Any amendment of the Code of Ethics or any waiver of its provisions for adirector, executive officer or senior financial officer must be approved by theBoard of Directors. The Company will publicly disclose any such waivers oramendments pursuant to applicable SEC and Nasdaq Stock Market regulations.

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**Item 11.   Executive Compensation**

**Director Compensation**

Eachnon-employee director of the Company receives a yearly retainer, paidquarterly, as well as fees for each board and committee meeting attended inperson or by teleconference, as follows:

| **Service**                                                           | ** ** | ** ** | ** ** | **Amount** | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Annual  Retainer—Board Chairman                                  |       | $          | 50,000     |       |
| Annual  Retainer—Audit Committee Chair                           |       | $          | 40,000     |       |
| Annual  Retainer—Other Committee Chairs                          |       | $          | 35,000     |       |
| Annual  Retainer—Board Member                                    |       | $          | 30,000     |       |
| Fee per Board  meeting attended in person—Chairman               |       | $          | 2,000      |       |
| Fee per Board  meeting attended in person Board—Member           |       | $          | 1,500      |       |
| Fee per Board  meeting attended by teleconference—Board Chairman |       | $          | 1,000      |       |
| Fee per Board  meeting attended by teleconference—Board Member   |       | $          | 750        |       |
| Fee per Committee  meeting attended—Committee Chair              |       | $          | 1,000      |       |
| Fee per Committee  meeting attended—Board Member                 |       | $          | 750        |       |

 

The members of the Board of Directors are alsoeligible for reimbursement for their expenses incurred in connection withattendance at Board meetings in accordance with Company policy.

Each non-employee director of the Company alsoreceives stock option grants under the 1998 Director Option Plan, as amended(the “Directors Plan”). Only non-employee directors are eligible to receiveoptions under the Directors Plan and option are granted automatically, withoutfurther action by the Company, the Board of Directors or the stockholders ofthe Company. Each new non-employee director is automatically granted an optionto purchase 40,000 shares of common stock on the date such person becomes anon-employee director. These options vest in equal monthly installments over atwo-year period from the date of grant. Each non-employee director who isre-elected at the annual meeting of stockholders and has served as a directorfor at least six months is automatically granted an option to purchase 20,000shares of common stock on the date of the annual meeting. These options arefully vested upon grant. No other options may be granted at any time under theDirectors Plan. The exercise price of options granted under the Directors Planis 100% of the fair market value of our common stock on the date of grant basedon the closing price of our common stock, as reported on the Nasdaq NationalMarket.

The term of options granted under the Directors Planis seven years. In the event of a merger of the Company with or into anothercorporation or other change-in-control transaction involving the Company, eachoption either will continue in effect, if the Company is the surviving entity,or will be assumed or an equivalent option will be substituted by the successorcorporation, if the Company is not the surviving entity. If the successorcorporation does not assume an outstanding option or substitute for it anequivalent option, then the option shall become fully vested and exercisable.In addition, following such assumption or substitution, if the optionee’sstatus as a director is terminated other than upon a voluntary resignation, theoption shall become fully vested and exercisable. Upon consummation of themerger with Amgen, each current member of the board of directors will cease tobe a director of the Company or its successor and, therefore, each outstandingoption granted under the Director Plan will become fully vested and exercisableand will remain exercisable in accordance with the applicable stock optionagreement.

During the last fiscalyear, the Company granted options covering 20,000 shares of its common stock toMr. Greer, Dr. Behrens, Dr. Kucherlapati, Mr. Lee, Mr. Loganand Mr. Wiggans on the date of the Company’s 2005 Annual Meeting ofStockholders, at an exercise price per share of $7.70.

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**Executive Compensation**

The following table showsfor the fiscal years ended 2005, 2004 and 2003 compensation awarded or paid to,or earned by, the Company’s Chief Executive Officer and its four other mosthighly compensated executive officers at December 31, 2005 (the “NamedExecutive Officers”):

**SummaryCompensation Table**

|                                                | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long-Term  Compensation** | ** ** |
|------------------------------------------------|------------|------------|------------|------------------------------|------------|-----------------------------|------------|
| **Name and Principal Position** | ** ** | ** ** | ** ** | **Fiscal Year**         | ** ** | **Salary**                  | ** ** | **Bonus(1)** | ** ** | **Other Annual  Compensation** | ** ** | **Securities  Underlying  Options (#)** | ** ** | **Restricted  Stock  Award(s)(2)** | ** ** | **All Other  Compensation** | ** ** |
| William R. Ringo                               |       |       | 2005       |                         |       | $                           | 507,000    |   |   | $ | 500,000 |   |   |   | — |   |   |   | 155,000 |   |   |   | — |   |   |   | $ | 113,874 | (5) |   |
| President and Chief Executive                  |       |       | 2004       |                         |       | $                           | 197,890    |   |   | $ | 83,333 |   |   |   | $ | 82,240 | (4) |   |   | 500,000 |   |   |   | — |   |   |   | $ | 419,071 | (5) |   |
| Officer(3)                                     |       |       | 2003       |                         |       | —                      |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Donald R. Joseph                               |       |       | 2005       |                         |       | $                           | 229,167    |   |   | $ | 186,000 |   |   |   | — |   |   |   | 150,000 |   |   |   | — |   |   |   | $ | 62,340 | (7) |   |
| Senior Vice President, General                 |       |       | 2004       |                         |       | —                      |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Counsel, Secretary(6)                          |       |       | 2003       |                         |       | —                      |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Kristen Metza                                  |       |       | 2005       |                         |       | $                           | 225,538    |   |   | $ | 159,000 |   |   |   | — |   |   |   | 90,000 |   |   |   | $ | 84,999 | (9) |   |   | $ | 25,742 | (10) |   |
| Senior Vice President, Human                   |       |       | 2004       |                         |       | —                      |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Resources(8)                                   |       |       | 2003       |                         |       | —                      |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Gisela M. Schwab                               |       |       | 2005       |                         |       | $                           | 299,400    |   |   | $ | 209,000 |   |   |   | — |   |   |   | 80,000 |   |   |   | — |   |   |   | $ | 2,903 | (11) |   |
| Chief Medical Officer                          |       |       | 2004       |                         |       | $                           | 271,960    |   |   | $ | 66,643 |   |   |   | — |   |   |   | 27,000 |   |   |   | — |   |   |   | $ | 7,510 | (11) |   |
|                                           |       |       | 2003       |                         |       | $                           | 267,000    |   |   | $ | 68,085 |   |   |   | — |   |   |   | 44,000 |   |   |   | — |   |   |   | $ | 7,510 | (11) |   |
| H. Ward Wolff                                  |       |       | 2005       |                         |       | $                           | 286,000    |   |   | $ | 200,000 |   |   |   | — |   |   |   | 50,000 |   |   |   | — |   |   |   | $ | 2,322 | (13) |   |
| Chief Financial Officer and                    |       |       | 2004       |                         |       | $                           | 83,381     |   |   | $ | 23,100 |   |   |   | — |   |   |   | 175,000 |   |   |   | — |   |   |   | $ | 1,575 | (13) |   |
| Senior Vice President,                         |       |       | 2003       |                         |       | —                      |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Finance(12)                                    |       |       |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |            |            |            |                              |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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      (1)  Our NamedExecutive Officers were eligible for incentive bonuses for fiscal year 2005. Anincentive bonus that is earned in a particular fiscal year is typically paid inthe first quarter of the following fiscal year. The amounts reflected in thiscolumn are the amounts earned in the applicable fiscal year.

      (2)  The aggregatenumber of restricted shares of common stock reported in this SummaryCompensation Table is 10,000 shares. These are described in note 9 below. As of December 31, 2005, the aggregate valueof these shares, based on a closing price of the Company’s common stock of$21.49 on the Nasdaq Stock Market, was $214,899.

      (3)  Mr. Ringo was appointed President and ChiefExecutive Officer effective August 30, 2004.

      (4)  Consistssolely of a one-time tax gross-up payable with respect to relocation benefitspaid to Mr. Ringo in connection with the commencement of his employmentwith the Company, as further described below under **Employment and Related Agreements**.

      (5)  Includes a$280,000 sign-on bonus for 2004, $2,310 and $102,007 in relocation expenses for2005 and 2004, $108,000 and $36,000 in mortgage differential payments for 2005and 2004 and $3,564 and $1,064 in insurance premiums paid by the Company for2005 and 2004 on behalf of Mr. Ringo for group term life insurance.

      (6)  Mr. Josephwas appointed Senior Vice President, General Counsel and Secretary effective March 1,2005.

      (7)  Includes a$20,000 sign-on bonus, $1,035 in insurance premium paid by the Company onbehalf of Mr. Joseph for group term life insurance and $41,305 in feespaid to Mr. Joseph as interim general counsel between January 18,2005 and February 28, 2005, prior to his employment with the Company.

      (8)  Ms. Metzawas appointed Senior Vice President, Human Resources effective January 24,2005.

      (9)  In connectionwith her employment arrangement, Ms. Metza purchased 10,000 shares ofrestricted common stock for $0.0001 per share on January 24, 2005. Theclosing price of Company common stock on the Nasdaq Stock Market on January 24,2005 was $8.50. On January 24, 2006, 2,500 of these shares became vestedand the remaining 7,500 shares were scheduled to become vested in equalinstallments on next three anniversaries of the purchase. In accordance withresolutions approved by the Compensation Committee, the remaining unvestedshares will become fully vested in connection with and contingent upon theconsummation of the merger with Amgen. The Company has not and does not plan topay cash dividends on common stock.

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 (10)  Includes a $25,000 sign-on bonus and $742 ininsurance premium paid by the Company on behalf of Ms. Metza for groupterm life insurance.

 (11)  Includes an imputed interest income of $2,093for 2005 and $6,700 for each of 2004 and 2003 on a loan from us toDr. Schwab, as further described below under **Certain Transactions**. The balance of this loan was paid onApril 25, 2005. Also included in the balance was $810 of insurance premiumpaid by the Company on behalf of Dr. Schwab for group term life insurance.

 (12)  Mr. Wolff was appointed Chief FinancialOfficer and Senior Vice Present, Finance effective September 13, 2004.

 (13)  Includes $2,322 and $333in insurance premiums paid by the Company for 2005 and 2004 on behalf ofMr. Wolff for group term life insurance and $1,242 as a temporary housingsubsidy in 2004.

**Option Grants in Last Fiscal Year**

The following tableprovides information relating to stock options awarded to each of the NamedExecutive Officers during the year ended December 31, 2005. All theseoptions were awarded under our 1996 Incentive Stock Plan, except as notedbelow.

**OptionGrants in Last Fiscal Year**

|                  | ** ** | **Individual Grants** | ** ** | **Potential Realizable** | ** ** |
|------------------|------------|----------------------------|------------|-------------------------------|------------|
| ** **       | ** ** | **Number of**         | ** ** | **Percent of**           | ** ** | ** ** | ** ** | ** ** | ** ** | **Value at Assumed** | ** ** |
| ** **       | ** ** | **Securities**             | ** ** | **Total Options**        | ** ** | ** ** | ** ** | ** ** | ** ** | **Annual Rates of Stock** | ** ** |
| ** **       | ** ** | **Underlying**             | ** ** | **Granted to**           | ** ** | **Exercise or** | ** ** | ** ** | ** ** | **Price Appreciation** | ** ** |
| ** **       | ** ** | **Options**                | ** ** | **Employees in**         | ** ** | **Base Price** | ** ** | **Expiration** | ** ** | **For Option Term(4)** | ** ** |
| **Name**         | ** ** | ** **                 | ** ** | **Granted(1)**                | ** ** | **Fiscal Year** (2) | ** ** | **($/Share)** (3) | ** ** | **Date** | ** ** | **5%** | ** ** | **10%** | ** ** |
| William R. Ringo |       |                       | 155,000    |                          |       |   | 5.16 | % |   |   | $ | 8.98 |   |   | 1/19/2012 |   | $ | 566,643 |   | $ | 1,320,519 |   |
| Donald R. Joseph |       |                       | 150,000    | (5)                           |       |   | 5.00 | % |   |   | $ | 8.16 |   |   | 3/10/2012 |   | $ | 498,291 |   | $ | 1,161,230 |   |
| Kristen Metza    |       |                       | 90,000     | (5)                           |       |   | 3.00 | % |   |   | $ | 8.50 |   |   | 1/24/2012 |   | $ | 311,432 |   | $ | 725,769 |   |
| Gisela M. Schwab |       |                       | 80,000     |                          |       |   | 2.67 | % |   |   | $ | 8.98 |   |   | 1/19/2012 |   | $ | 292,461 |   | $ | 681,558 |   |
| H. Ward Wolff    |       |                       | 50,000     |                          |       |   | 1.67 | % |   |   | $ | 8.98 |   |   | 1/19/2012 |   | $ | 182,788 |   | $ | 425,974 |   |
|                  |            |                            |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)   Annualmerit option grants to officers typically vest and become exercisable as to 1¤48th of the shares subject to each option on thefirst day of the month immediately following the date of grant with fullvesting occurring four years after the date of grant. Annual merit optiongrants to officers who have been with the Company less than one year do notvest and become exercisable as to any shares until the one-year anniversary oftheir employment, at which point the option vests as to a sufficient number ofshares such that the option will continue to vest as to 1¤48th of the total number of shares each month thereafter,with full vesting occurring after four years. Options granted to newly hiredofficers vest and become exercisable as to 1¤4th of the shares subject to each such option oneyear from the date of hire, and as to 1¤48th of the total number of shares each monththereafter, with full vesting occurring after four years. In each case, vestingis subject to the optionee’s continued relationship with us. The options expireseven years from the date of grant, or earlier upon termination of service tothe Company as an employee or other service provider.

(2)   Based on anaggregate of 3,001,455 options granted by us in the year ended December 31,2005, to our employees, non-employee directors and consultants, including theNamed Executive Officers.

(3)   Optionswere granted at an exercise price equal to the fair market value of our commonstock on the date of grant.

(4)   The 5% and10% assumed annual rates of compounded stock price appreciation are mandated byrules of the Securities and Exchange Commission. We cannot provide anyassurance to any executive officer or any other holder of our securities thatthe actual stock price appreciation over the option term will be at the assumed5% and 10% levels or at any other defined level. Unless the market price of ourcommon stock appreciates over the option term, no value will be realized fromthe option grants made to the Named Executive Officers. The potentialrealizable value is calculated by assuming 

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that the fair value of ourcommon stock on the date of grant appreciates at the indicated rate for theentire term of the option and that the option is exercised at the exerciseprice and sold on the last day of its term at the appreciated price. Thepotential realizable value computation is net of the applicable exercise price,but does not take into account applicable federal or state income taxconsequences and other expenses of option exercises or sales of appreciatedstock.

(5)   These options, granted to Mr. Joseph and Ms. Metza asinducements essential to their entering into employment with the Company, weregranted under the Company’s 1999 Nonstatutory Stock Option Plan.

**AggregatedOption Exercises in Last Fiscal Year and Fiscal Year-End Option Values**

The following table setsforth for each of the Named Executive Officers the number of shares of ourcommon stock acquired and the dollar value realized upon exercise of optionsduring the year ended December 31, 2005, and the number and value ofsecurities underlying unexercised options held at December 31, 2005:

**AggregatedOption Exercises in Last Fiscal Yearand Fiscal Year-End Option Values**

| ** **       | ** ** | **# Shares  Acquired on** | ** ** | **Value**    | ** ** | **Number of Securities  Underlying Unexercised  Options at Fiscal Year-End** | ** ** | **Value of Unexercised  In-the-Money Options  at Fiscal Year-End(2)** | ** ** |
|------------------|------------|-------------------------------------|------------|--------------|------------|------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| **Name**         | ** ** | ** **                          | ** ** | **Exercise** | ** ** | **Realized(1)**                                                                                            | ** ** | **Exercisable**                                                                                | ** ** | **Unexercisable** | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| William R. Ringo |       |                                | —     |         |       |                                                                                                       | —     |                                                                                           |       |   | 202,186 |   |   |   | 452,814 |   |   | $ | 2,494,347 |   |   | $ | 5,594,703 |   |   |
| Donald R. Joseph |       |                                | —     |         |       |                                                                                                       | —     |                                                                                           |       |   | — |   |   |   | 150,000 |   |   | — |   |   | $ | 1,999,500 |   |   |
| Kristen Metza    |       |                                | —     |         |       |                                                                                                       | —     |                                                                                           |       |   | — |   |   |   | 90,000 |   |   | — |   |   | $ | 1,169,100 |   |   |
| Gisela M. Schwab |       |                                | —     |         |       |                                                                                                       | —     |                                                                                           |       |   | 591,895 |   |   |   | 89,105 |   |   | $ | 5,057,855 |   |   | $ | 1,008,615 |   |   |
| H. Ward Wolff    |       |                                | —     |         |       |                                                                                                       | —     |                                                                                           |       |   | 66,145 |   |   |   | 158,855 |   |   | $ | 721,928 |   |   | $ | 1,755,072 |   |   |
|                  |            |                                     |            |              |            |                                                                                                            |            |                                                                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)   Valuerealized reflects the aggregate fair value of our common stock underlying theoption on the date of exercise minus the aggregate exercise price of theoption.

(2)   Value of unexercised in-the-money options are based on a value of$21.49 per share, the closing price of our common stock on December 31,2005. Amounts are based on the value of $21.49 per share, minus the per shareexercise price, multiplied by the number of shares underlying the option.

**Change of Control Agreements**

We have enteredinto change of control severance agreements with each of our executive officersat or around the time such executive officers became employees. Theseagreements provide each executive with certain benefits in the event that suchexecutive experiences an “involuntary termination” of employment with Abgenixor its successor within 24 months following a “change of control” (each, asdefined in the agreements). The consummation of the merger with Amgen willconstitute a “change of control” for purposes of the change of controlseverance agreements. Upon an “involuntary termination” of employment withAbgenix or its successor within 24 months following the effective time of themerger, the executive would be entitled to the following benefits:

·   continuedbase salary and entitlement to target bonus, at the rate in effect just priorto the change of control, for a period of 12 months (or 24 months, in the caseof Mr. Ringo) following such termination, to be paid in accordance withthe normal payroll practices of Abgenix or its successor;

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·   continuedparticipation in the group health plans and life insurance plans by theexecutive and the executive’s spouse and dependents for a period of 12 months(or 24 months, in the case of Mr. Ringo) following termination; and

·   fulland immediate vesting and exercisability of each outstanding stock option topurchase shares of common stock of Abgenix (or its successor) held by theexecutive.

To the extent that the payments and benefits payableunder the change of control severance agreements would cause an executive to beliable for excise taxes by reason of sections 280G and 4999 of the InternalRevenue Code, the executive would be entitled to additional “gross up” paymentsto compensate for the effect of the excise taxes.

The Company’s Board ofDirectors has approved a plan which provides that, in the event of a change ofcontrol of the Company, options granted under the 1996 Incentive Stock Plan toan employee whose employment is terminated without cause within 24 months afterthe change in control will automatically become exercisable in full. For thesepurposes, a change in control includes: (1) a person becoming thebeneficial owner of 50% or more of the total voting power represented by thethen-outstanding voting securities; (2) certain changes in the compositionof our Board of Directors occurring within a two-year period as a result ofwhich the incumbent directors before the changes ceased to be a majority of theBoard; (3) a merger or consolidation in which Abgenix stockholdersimmediately before the transaction own less than a majority of the outstandingvoting securities of the surviving entity immediately after the transaction; or(4) any approval by stockholders of a plan of complete liquidation or thesale of all or substantially all of the Company’s assets.

**Employment and Related Agreements**

The Company has enteredinto an employment agreement with Mr. Ringo in connection with Mr. Ringo’sappointment to the position of President and Chief Executive Officer of theCompany effective August 30, 2004. The terms of this agreement include: abase salary of $500,000 per year; a sign-on bonus of $280,000; eligibility fora target bonus of 50% of his salary prorated to $83,333 for fiscal year 2004;reimbursement for relocation costs up to $100,000; a mortgage differentialallowance of $9,000 per month from September 2004 through August 2006and $6,000 per month from September 2006 through August 2009; and thegrant of nonstatutory stock options to purchase 500,000 shares of Abgenixcommon stock with an exercise price of $9.19 (12¤48 of theseoptions vested and became exercisable on August 30, 2005 and 1¤48 vest monthlythereafter). In connection with the relocation costs, Mr. Ringo isentitled to a one-time tax “gross up” intended to offset the majority ofnon-deductible, tax-related relocation costs, in accordance with Company policy.If Mr. Ringo’s employment is terminated as a result of an “involuntarytermination” (as defined in his change of control agreement), and provided heexecutes a release of claims, Mr. Ringo will continue to receive his basesalary and target bonus for two years following the termination of hisemployment. The agreement further provided that from July 20, 2004,through and including August 29, 2004, Mr. Ringo became a part-timeemployee and transition advisor to the Company with cash compensation of$20,834 per month.

**Certain Transactions**

On May 5, 2000, Dr. Schwab and Abgenixentered into a relocation loan agreement pursuant to which Abgenix loaned$100,000 to Dr. Schwab in exchange for a promissory note from Dr. Schwabsecured by a deed of trust. No interest was to accrue on the promissory noteuntil May 2005. The balance of this loan was paid on April 25, 2005.

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On October 11, 2000, Gayle Mills, current SeniorVice President, Business Development, and Abgenix entered into a loan agreementpursuant to which Abgenix loaned $100,000 to Ms. Mills in exchange for apromissory note from Ms. Mills secured by a deed of trust. No interest wasto accrue on the promissory note until October 2005. The balance of thisloan was paid on August 30, 2005.

Abgenix has entered intoindemnity agreements with its executive officers and directors which provide,among other things, that the Company will indemnify such officer or director,under the circumstances and to the extent provided for therein, for expenses,damages, judgments, fines and settlements he or she may be required to pay inactions or proceedings which he or she is or may be made a party by reason ofhis or her position as a director, officer or other agent of Abgenix, andotherwise to the full extent permitted under Delaware law and the Bylaws of theCompany.

**CompensationCommittee Interlocks and Insider Participation**

Mr. Lee,Mr. Logan and Mr. Wiggans serve as members of our CompensationCommittee. None of the members of our Compensation Committee has been, at anytime since our formation, an officer or employee of Abgenix. None of ourexecutive officers serves or has served as a member of the board of directorsor compensation committee of any entity that has one or more executive officersserving as a member of our Board of Directors or Compensation Committee.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters

**Security Ownership of Certain BeneficialOwners**

Thefollowing table sets forth certain information known to us with respect to thebeneficial ownership of Abgenix common stock as of March 1, 2006 by eachperson known by us to be a beneficial owner of five percent or more of anyclass of Abgenix’s voting securities and based on 91,982,830 shares of Abgenixcommon stock issued and outstanding on March 1, 2006.

|                                                                        | ** ** | **Common Stock** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|
| Name and Address of Beneficial Owner (1) | ** ** | ** **            | ** ** | **Amount and  Nature of  Beneficial  Ownership(2)** | ** ** | **Percent of  Class(3)** | ** ** |
| OrbiMed Advisors LLC(4)                                                |       |                  | 7,885,200  |   |   |   | 8.57 | % |   |
| 767 Third Avenue, 30th Floor                                           |       |                  |       |   |   |   |   |   |   |
| New York, NY 10017                                                     |       |                  |       |   |   |   |   |   |   |
| Wellington Management Company, LLP(5)                                  |       |                  | 7,382,136  |   |   |   | 8.03 | % |   |
| 75 State Street                                                        |       |                  |       |   |   |   |   |   |   |
| Boston, MA 02109                                                       |       |                  |       |   |   |   |   |   |   |
| T. Rowe Price  Associates, Inc.(6)                                |       |                  | 5,578,777  |   |   |   | 6.07 | % |   |
| 100 East Pratt Street                                                  |       |                  |       |   |   |   |   |   |   |
| Baltimore, MD 21202                                                    |       |                  |       |   |   |   |   |   |   |
| Citigroup(7)                                                           |       |                  | 4,838,803  |   |   |   | 5.26 | % |   |
| 399 Park Avenue                                                        |       |                  |       |   |   |   |   |   |   |
| New York, NY 10043                                                     |       |                  |       |   |   |   |   |   |   |
|                                                                        |            |                       |            |  |  |  |  |  |  |  |  |

 

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**SecurityOwnership of Directors and Executive Officers**

This table shows theamount of common stock beneficially owned as of March 1, 2006 by: (i) eachdirector or nominee, (ii) the Named Executive Officers and (iii) thedirectors and executive officers of Abgenix as a group. “Beneficial ownership”is determined in accordance with the rules of the SEC and generally refersto shares that a director or executive officer has the power to vote, or thepower to dispose of, and stock options or share rights that are exercisablecurrently or become exercisable within 60 days of March 1, 2006. As of March 1,2006, there were 91,982,830 shares of Abgenix common stock issued andoutstanding.

| ** **                                                                 | ** ** | **Common Stock** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|
| **Name and Address of Beneficial Owner** (1) | ** ** | ** **            | ** ** | **Amount and  Nature of  Beneficial  Ownership(2)** | ** ** | **Percent of  Class(3)** | ** ** |
| R. Scott Greer(8)                                                          |       |                  | 1,186,834  |   |   |   | 1.28 | % |   |
| M. Kathleen  Behrens, Ph.D.(9)                                             |       |                  | 393,717    |   |   |   | * |   |   |
| Raju S.  Kucherlapati, Ph.D.(10)                                           |       |                  | 405,100    |   |   |   | * |   |   |
| Kenneth B.  Lee, Jr.(11)                                              |       |                  | 65,833     |   |   |   | * |   |   |
| Mark B. Logan(12)                                                          |       |                  | 200,300    |   |   |   | * |   |   |
| William R.  Ringo(13)                                                      |       |                  | 270,227    |   |   |   | * |   |   |
| Thomas G.  Wiggans(14)                                                     |       |                  | 66,000     |   |   |   | * |   |   |
| H. Ward Wolff(15)                                                          |       |                  | 87,388     |   |   |   | * |   |   |
| Donald R.  Joseph(16)                                                      |       |                  | 41,564     |   |   |   | * |   |   |
| Kristen Metza(17)                                                          |       |                  | 39,578     |   |   |   | * |   |   |
| Gisela M.  Schwab(18)                                                      |       |                  | 619,892    |   |   |   | * |   |   |
| All directors and  executive officers as a group (13 persons)(19)     |       |                  | 3,767,983  |   |   |   | 3.96 | % |   |
|                                                                            |            |                       |            |  |  |  |  |  |  |  |  |

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             *  Represents beneficial ownership of less thanone percent of Abgenix’s common stock.

   (1)  Unless otherwise indicated, the mailing address for each individualis c/o Abgenix, Inc., 6701 Kaiser Drive, Fremont, California 94555.          

   (2)  This table is based upon information supplied by officers,directors and principal stockholders, Schedule 13Gs filed with the Securitiesand Exchange Commission and other publicly available information. Unlessotherwise indicated in the footnotes to this table and subject to communityproperty laws where applicable, each of the stockholders named in this tablehas sole voting and investment power with respect to the shares indicated asbeneficially owned.

   (3)  Applicable percentages are based on 91,982,830 shares outstandingon March 1, 2006.

   (4)  In a filing on Schedule 13G/A, dated February 2, 2006, OrbiMedAdvisors LLC reported that it is the beneficial owner of 5,739,600 shares,OrbiMed Capital LLC reported that it is the beneficial owner of 2,145,600shares, and Samuel D. Isaly reported that he is the beneficial owner of7,885,200 shares. OrbiMed Advisors LLC and OrbiMed Capital LLC are investmentadvisors and Samuel D. Isaly is a control person of OrbiMed Advisors LLC andOrbiMed Capital LLC. OrbiMed Advisors LLC and OrbiMed Capital LLC hold shareson behalf of Caduceus Capital Master Fund Limited (836,000 shares), CaduceusCapital II, L.P. (407,500 shares), UBS Eucalyptus Fund, LLC (608,300 shares),PaineWebber Eucalyptus Fund, LLC (66,900 shares), HFR SHC Aggressive Fund(136,300 shares), Knightsbridge Post Venture IV L.P. (93,700 shares),Knightsbridge Integrated Holdings, V, LP (104,400 shares), KnightsbridgeNetherlands II, LP (28,600 shares), Knightsbridge Integrated Holdings IV PostVenture, LP (39,300 shares), Knightsbridge Post Venture III, LP (25,600shares), Knightsbridge Netherlands I LP (24,400 shares), KnightsbridgeNetherlands III LP (27,100 shares), 

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Knightsbridge IntegratedHoldings II Limited (32,000 shares), Knightsbridge Venture Capital IV, L.P.(25,900 shares), Knightsbridge Venture Capital III LP (18,900 shares),Knightsbridge Venture Capital VI LP (33,900 shares), Knightsbridge VentureCompletion 2005 LP (12,100 shares), UBS Juniper Crossover Fund (150,000shares), Eaton Vance Worldwide Health Sciences (4,000,000 shares), Eaton VanceEmerald Worldwide Health Sciences (284,000 shares), Eaton Vance Variable Trust(43,000 shares), Finsbury Worldwide Pharmaceutical Trust (755,000 shares) andFinsbury Emerging Biotechnology Trust PLC(133,700 shares).

   (5)  In a filing on Schedule 13G, dated March 10, 2006, WellingtonManagement Company, LLP (“WMC”), in its capacity as investment adviser,reported that it may be deemed to beneficially own 7,382,136 shares, which areheld of record by clients of WMC. According to the disclosure contained in WMC’sSchedule 13G, WMC has shared power to dispose or to direct the disposition of7,382,136 shares and has shared power to vote or direct the voting of 5,835,936shares.

   (6)  In a filing on Schedule 13G, dated February 14, 2006, T. RowePrice Associates, Inc. (“Price Associates”) reported that it is thebeneficial owner of 5,578,777 shares and that Price Associates has shared powerto dispose or to direct the disposition of 5,578,777 shares and has sharedpower to vote or direct the voting of 1,135,157 shares.

   (7)  In a filing on Schedule 13G, dated February 13, 2006,Citigroup Inc. reported that it is the beneficial owner of 4,838,803 shares andthat Citigroup Inc. has shared power to dispose or to direct the disposition of4,838,803 shares and has shared power to vote or direct the voting of 4,838,803shares.

   (8)  Includes 879,683 shares issuable upon exercise of optionsexercisable within 60 days of March 1, 2006.

   (9)  Includes 31,800 shares owned by an administrative trust, of whichshe is a trustee and a beneficiary, and 7,151 shares owned by each of twochildren. Also, includes 247,500 shares issuable upon exercise of optionsexercisable within 60 days of March 1, 2006.

(10) Includes 2,085 shares owned by his son. Also, includes 255,100shares issuable upon exercise of options exercisable within 60 days of March 1,2006.

(11) Includes 65,833 shares issuable upon exercise of options exercisablewithin 60 days of March 1, 2006.

(12) Includes 200,300 shares issuable upon exercise of optionsexercisable within 60 days of March 1, 2006.

(13) Includes 256,769 shares issuable upon exercise of optionsexercisable within 60 days of March 1, 2006.

(14) Includes 65,000 shares issuable upon exercise of options exercisablewithin 60 days of March 1, 2006.

(15) Includes 84,894 shares issuable upon exercise of options exercisablewithin 60 days of March 1, 2006.

(16) Includes 40,625 shares issuable upon exercise of options exercisablewithin 60 days of March 1, 2006.

(17) Includes 28,125 shares issuable upon exercise of options exercisablewithin 60 days of March 1, 2006.

(18) Includes 605,935 shares issuable upon exercise of optionsexercisable within 60 days of March 1, 2006.

(19) Includes 3,120,325 shares issuable upon exercise of optionsexercisable within 60 days of March 1, 2006.

Asdescribed elsewhere in this annual report on Form 10-K, we have enteredinto an agreement with Amgen pursuant to which Amgen has agreed to acquire theCompany for approximately $2.2 billion in cash plus the assumption of the Company’s debt. Under the terms of theagreement, shareholders of Abgenix will receive $22.50 in cash per commonshare, less any applicable withholding tax. The boards of directors ofthe Company and Amgen have approved the transaction, which remains subject tothe approval of the Company’s stockholders at a special meeting to be held on March 29,2006, and other customary closing conditions.

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**EquityCompensation Plan Information**

Thefollowing table summarizes information as of December 31, 2005, concerningour equity compensation plans, pursuant to which options, restricted stock orother rights to acquire shares may be granted from time to time.

| ** **                                                 | ** ** | **Number of Securities to  be Issued Upon Exercise  of Outstanding  Options(3)** | ** ** | **Weighted-Average   Exercise Price per Share  of Outstanding  Options(3)** | ** ** | **Number of Securities  Remaining Available for  Future Issuance Under  Equity Compensation  Plans(4)** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by stockholders(1)     |       |                                                                                                                | 3,595,155  |                                                                                                 |       |                                                                                                                                       | $          | 13.51 |   |   |   | 2,106,842 |   |   |
| Equity  compensation plans not approved by stockholders(2) |       |                                                                                                                | 8,593,105  |                                                                                                 |       |                                                                                                                                       | $          | 23.75 |   |   |   | 3,181,473 |   |   |
| Total                                                      |       |                                                                                                                | 12,188,260 |                                                                                                 |       |                                                                                                                                       | $          | 20.73 |   |   |   | 5,288,315 |   |   |

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(1)          Includes the Amended andRestated 1996 Incentive Stock Plan, the 1998 Employee Stock Purchase Plan andthe Amended and Restated 1998 Director Option Plan.

(2)          Includes the Amended and Restated 1999Nonstatutory Stock Option Plan and the Canadian Employee Stock Purchase Plan.

(3)          Does not includepurchase rights under the 1998 Employee Stock Purchase Plan or the CanadianEmployee Stock Purchase Plan. Pursuant to the merger agreement with Amgen,these plans will be terminated and no purchase periods are ongoing.

(4)          Themaximum number of shares available for sale under the 1998 Employee StockPurchase Plan is automatically increased on the date of each annual meeting ofstockholders by the lesser of one million shares, one percent of theoutstanding shares of the Company on the record date for such annual meeting ofstockholders, or a lesser amount determined by the Board of Directors.

**Summaryof Equity Compensation Plans Not Approved by Stockholders**

The Company’sCanadian Employee Stock Purchase Plan, or Canadian Plan, was adopted in April 2002.The Canadian Plan enables certain eligible employees to purchase common stockat the closing sales price on the first day of the 24-month offeringperiod or the closing sales price on the last day of eachsix-month purchase period, whichever is lower. Eligible employees mayauthorize periodic payroll deductions of up to 15% of eligible compensation forcommon stock purchases, with certain limitations. As of December 31,2005, 200,000 shares had been authorized under the Canadian Planand 66,752 shares had been issued. Pursuant to the merger agreement with Amgen, this plan will beterminated and no purchase periods are ongoing.

The Company’s Amended andRestated Nonstatutory 1999 Stock Option Plan, or 1999 Plan, was adopted in October 1999.The number of shares of common stock authorized for issuance to employees andconsultants under the 1999 Plan is 12,600,000. As of December 31, 2005,options to purchase an aggregate of 8,593,105 shares were outstanding and3,048,225 shares were available for future grant under the 1999 Plan. Optionscannot be granted under the 1999 Plan to directors and executive officers ofthe Company, except that options may be granted to an officer not previouslyemployed by the Company as an inducement essential to that individual enteringinto an employment contract with the Company. Stock options granted under the1999 Plan generally have an exercise price of no less than the public marketclosing price of the underlying common stock on the date of grant. Optionsgranted under the 1999 Plan generally have a term of seven to ten years andvest over four years. The 1999 Plan is administered by the 

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CompensationCommittee, pursuant to authority delegated by the Board, and options aregranted at the discretion of the Plan Administrator.

**Item 13.   Certain Relationships and RelatedTransactions**

See information under Item11, “Employment and Related Agreements” and “Certain Transactions.”

**Item 14.   Principal Accountant Fees and Services**

During fiscal year 2005, Ernst & Young LLPserved as the Company’s independent registered public accounting firm andprovided certain tax and accounting consultation services. Ernst &Young LLP has audited the Company’s financial statements since the Company’sinception in 1996.

Feesbilled to the Company by Ernst & Young LLP during the fiscal yearsended December 31, 2005 and 2004 were as follows:

| ** **          | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit Fees          |       | $        | 702,500    |     | $          | 645,800 |   |
| Audit-Related  Fees |       | —   |       | 42,800   |       |
| Tax Fees            |       | 220,430  |       | 144,640  |       |
| All Other Fees      |       | 1,500    |       | —   |       |
| Total               |       | $        | 924,430    |     | $          | 833,240 |   |

 

*AuditFees:*   This category includes the audit of theCompany’s annual financial statements and internal control over financialreporting, review of financial statements included in the Company’s quarterlyreports on Form 10-Q and services that are normally provided by theindependent registered public accounting firm in connection with registrationstatements and other regulatory filings for those fiscal years.

*Audit-RelatedFees:*   This category consists of services by theCompany’s independent registered public accounting firm that are reasonablyrelated to the performance of the audit or review of the Company’s financialstatements and are not reported above under Audit Fees, including accountingconsultations in 2004. The Company did not incur any audit-related fees in2005.

*TaxFees:*   This category consists of professionalservices rendered for tax compliance and preparation and other tax advice. Thetotal amount of fees billed for tax services in these years includes fees of$90,230 and $107,923 for tax compliance and preparation in 2005 and 2004,respectively, and fees of $130,200 and $36,717 for other tax-related servicesin 2005 and 2004, respectively, including assistance with tax audits and taxplanning and advisory services.

The Audit Committee hasconsidered whether the nature of the services provided by Ernst &Young LLP in exchange for the foregoing fees is compatible with maintainingtheir independence as the Company’s independent registered public accountingfirm.

**Pre-ApprovalPolicies and Procedures**

The Audit Committee has pre-approvedall audit and permissible non-audit services to be provided by the Company’sindependent registered public accounting firm through a combination of specificpre-approval and general pre-approval policies and procedures. Unless a type ofservice has received general pre-approval, proposed services to be provided bythe Company’s independent registered public accounting firm must receivespecific approval. The only audit and non-audit services and correspondingpayment of fees for any such services that the Audit Committee may approve arethose that, individually and in the aggregate, do not compromise theindependence of the Company’s independent registered 

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publicaccounting firm. The Audit Committee considers, among other things, whethersuch services and are consistent with applicable regulations regarding auditorindependence; whether the provision of such services would impair theindependent registered public accounting firm’s independence; and whether theindependent registered public accounting firm is best positioned to provide themost effective and efficient service.

*SpecificPre-Approval*

The Audit Committee maygrant specific pre-approval for any engagement for audit, audit-related, taxand other services to be provided by the Company’s independent registeredpublic accounting firm. The Chair of the Audit Committee has authority topre-approve services if the services are expected to generate fees of up to$25,000. The Chair is to report any such approval to the Audit Committee at itsnext meeting.

*GeneralPre-Approval*

The Audit Committee may grant general pre-approval forcategories or types of audit, audit-related, tax and other services that may beprovided by the Company’s independent registered public accounting firm withoutobtaining specific pre-approval from the Audit Committee for projects orconsultations for which the total per-project fees are within the pre-approvedamount for such services. The categories or types of services that the AuditCommittee may generally pre-approve must be detailed as to the particularservices to be provided. The term of any general pre-approval is twelve monthsfrom the date of pre-approval, unless the Audit Committee provides for ashorter period.

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**PART IV**

**Item 15.   Exhibits and Financial StatementSchedules**

(a)           Thefollowing documents are filed as part of this Report:

**1.****                FinancialStatements**

**ABGENIX, INC., FINANCIAL STATEMENTS**

Report of Independent Registered Public AccountingFirm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notesto Consolidated Financial Statements

**2.****                FinancialStatement Schedules**

Allschedules for which provision is made in the applicable accounting regulationsof the Securities and Exchange Commission are not required under the relatedinstructions or are inapplicable or the information has been disclosed in thefinancial statements, and therefore have been omitted.

**3.****                Exhibits**

| Number          | ** ** | **Description**                                                                                                                                                                                                                                                                                                     | ** ** |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 2.1   | (34)       | Agreement and  Plan of Merger Among Abgenix, Inc., Amgen Inc. and Athletics Merger Sub  Inc., dated December 14, 2005.                                                                                                                                                                                    |       |
| 3.1   | (29)       | Amended and  Restated Certificate of Incorporation of Abgenix, as currently in effect.                                                                                                                                                                                                                              |       |
| 3.2   | (35)       | Amended and  Restated Bylaws of Abgenix, as currently in effect.                                                                                                                                                                                                                                                    |       |
| 4.1   | (1)        | Specimen Common  Stock Certificate.                                                                                                                                                                                                                                                                                 |       |
| 4.2   | (23)       | Indenture dated  March 4, 2002, between State Street Bank and Trust Company of  California, N.A. and Abgenix, Inc.                                                                                                                                                                                        |       |
| 4.3   | (21)       | Amended and  Restated Preferred Shares Rights Agreement, dated as of May 9, 2002,  between Abgenix, Inc. and Mellon Investor Services, LLC, including the  Certificate of Determination, the form of Rights Certificate and the Summary  of Rights attached thereto as Exhibits A, B and C, respectively. |       |
| 4.4   | (27)       | Certificate of  Designations, Preferences and Rights of Series A-1 Convertible  Preferred Stock of Abgenix, Inc.                                                                                                                                                                                          |       |
| 4.5   | (26)       | Securities  Purchase Agreement, dated as of October 15, 2003, by and between  Abgenix, Inc. and AstraZeneca UK Limited.                                                                                                                                                                                   |       |
| 4.6   | (28)       | Amendment  No. 1 to Amended and Restated Preferred Shares Rights Agreements,  between Abgenix, Inc. and Mellon Investor Services LLC, dated  October 29, 2003.                                                                                                                                       |       |
| 4.7   | (30)       | Convertible  Subordinated Note issued to AstraZeneca UK Limited.                                                                                                                                                                                                                                                    |       |

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| 4.8    | (33) | Indenture dated  December 31, 2004, between U.S. Bank National Association and  Abgenix, Inc.                                                                        |   |
|------------------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 4.9    | (33) | Registration  Rights Agreement dated December 21, 2004 between Goldman,  Sachs & Co. and Merrill Lynch & Co. and Abgenix, Inc.                     |   |
| 4.10             | (34) | Amendment  No. 2 to Amended and Restated Preferred Shares Rights Agreements,  between Abgenix, Inc. and Mellon Investor Services LLC, dated  December 14, 2005. |   |
| 10.1   | (1)  | Form of  Indemnification Agreement between Abgenix and each of its directors and  officers.                                                                               |   |
| 10.2   | (29) | Amended and  Restated 1996 Incentive Stock Plan.                                                                                                                               |   |
| 10.3   | (1)  | 1998 Employee  Stock Purchase Plan and form of agreement thereunder.                                                                                                           |   |
| 10.4   | (29) | Amended and  Restated 1998 Director Option Plan.                                                                                                                               |   |
| 10.5   | (22) | Amended and  Restated 1999 Nonstatutory Stock Option Plan.                                                                                                                     |   |
| 10.6   | (22) | Canadian Employee  Stock Purchase Plan.                                                                                                                                        |   |
| 10.7   | (24) | Form of  Change of Control Severance Agreement between Abgenix, Inc. and its  officers.                                                                              |   |
| 10.8   | (32) | Employment  Agreement, dated July 20, 2004, between Abgenix, Inc. and William  R. Ringo.                                                                             |   |
| 10.9   | (32) | Change of Control  Severance Agreement dated as of August 30, 2004, between  Abgenix, Inc. and William R. Ringo.                                                     |   |
| 10.11            | (3)  | Joint Venture  Agreement dated June 12, 1991 between Cell Genesys and JT Immunotech USA  Inc.                                                                             |   |
| 10.12            | (6)  | Amendment  No. 1 dated January 1, 1994 to Joint Venture Agreement.                                                                                                   |   |
| 10.13            | (9)  | Amendment  No. 2 dated June 28, 1996 to Joint Venture Agreement.                                                                                                     |   |
| 10.14            | (3)  | Collaboration  Agreement dated June 12, 1991 among Cell Genesys, Xenotech, Inc.  and JT Immunotech USA Inc.                                                          |   |
| 10.15            | (5)  | Amendment  No. 1 dated June 30, 1993 to Collaboration Agreement.                                                                                                     |   |
| 10.16            | (13) | Amendment  No. 2 dated January 1, 1994 to Collaboration Agreement.                                                                                                   |   |
| 10.17            | (7)  | Amendment  No. 3 dated July 1, 1995 to Collaboration Agreement.                                                                                                      |   |
| 10.18            | (9)  | Amendment  No. 4 dated June 28, 1996 to Collaboration Agreement.                                                                                                     |   |
| 10.19            | (2)  | Amendment  No. 5 dated November 1997 to Collaboration Agreement.                                                                                                     |   |
| 10.20            | (3)  | Limited  Partnership Agreement dated June 12, 1991 among Cell Genesys,  Xenotech, Inc. and JT Immunotech USA Inc.                                                    |   |
| 10.21            | (6)  | Amendment  No. 2 dated January 1, 1994 to Limited Partnership Agreement.                                                                                             |   |
| 10.22            | (8)  | Amendment  No. 3 dated July 1, 1995 to Limited Partnership Agreement.                                                                                                |   |
| 10.23            | (10) | Amendment  No. 4 dated June 28, 1996 to Limited Partnership Agreement.                                                                                               |   |
| 10.24            | (4)  | Field License  dated June 12, 1991 among Cell Genesys, JT Immunotech USA Inc. and  Xenotech, L.P.                                                                         |   |
| 10.25            | (10) | Amendment  No. 1 dated March 22, 1996 to Field License.                                                                                                              |   |

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| 10.26  | (10) | Amendment  No. 2 dated June 28, 1996 to Field License.                                                                                                                                                                                                                                              |   |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.27  | (3)  | Expanded Field  License dated June 12, 1991 among Cell Genesys, JT Immunotech USA Inc.  and Xenotech, L.P.                                                                                                                                                                                               |   |
| 10.28  | (10) | Amendment  No. 1 dated June 28, 1996 to Expanded Field License.                                                                                                                                                                                                                                     |   |
| 10.29  | (9)  | Master Research  License and Option Agreement dated June 28, 1996 among Cell Genesys,  Japan Tobacco Inc. and Xenotech, L.P.                                                                                                                                                                             |   |
| 10.30  | (2)  | Amendment  No. 1 dated November 1997 to the Master Research License and Option  Agreement.                                                                                                                                                                                                          |   |
| 10.31  | (2)  | Stock Purchase  and Transfer Agreement dated July 15, 1996 by and between Cell Genesys  and Abgenix.                                                                                                                                                                                                     |   |
| 10.32  | (1)  | Governance  Agreement dated July 15, 1996 between Cell Genesys and Abgenix.                                                                                                                                                                                                                              |   |
| 10.33  | (1)  | Amendment  No. 1 dated October 13, 1997 to the Governance Agreement.                                                                                                                                                                                                                                |   |
| 10.34  | (1)  | Amendment No. 2  dated December 22, 1997 to the Governance Agreement.                                                                                                                                                                                                                               |   |
| 10.35  | (2)  | Patent Assignment  Agreement dated July 15, 1996 by Cell Genesys in favor of Abgenix.                                                                                                                                                                                                                    |   |
| 10.36  | (11) | Lease Agreement  dated July 31, 1996 between John Arrillaga, Trustee, or his Successor Trustee,  UTA dated 7/20/77 (Arrillaga Family Trust) as amended, and Richard T. Peery,  Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery  Separate Property Trust) as amended, and Abgenix. |   |
| 10.37  | (12) | Release and  Settlement Agreement dated March 26, 1997 among Cell Genesys, Abgenix,  Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc.                                                                                                                                            |   |
| 10.38  | (12) | Cross License  Agreement effective as of March 26, 1997, among Cell Genesys, Abgenix,  Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc.                                                                                                                                          |   |
| 10.39  | (12) | Interference  Settlement Procedure Agreement, effective as of March 26, 1997, among  Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco Inc. and GenPharm  International, Inc.                                                                                                                    |   |
| 10.40  | (2)  | Agreement dated  March 26, 1997 among Xenotech, L.P., Xenotech, Inc., Cell Genesys,  Abgenix, Japan Tobacco Inc. and JT Immunotech USA Inc.                                                                                                                                                         |   |
| 10.41  | (1)  | Excerpts from the  Minutes of a Meeting of the Board of Directors of Abgenix, dated  October 23, 1996.                                                                                                                                                                                                   |   |
| 10.42  | (1)  | Excerpts from the  Minutes of a Meeting of the Board of Directors of Abgenix, dated  October 22, 1997.                                                                                                                                                                                                   |   |
| 10.43  | (2)  | Exclusive  Worldwide Product License dated November 1997 between Xenotech, L.P. and  Abgenix.                                                                                                                                                                                                            |   |
| +10.44 | (14) | Multi-Antigen  Research License and Option Agreement by and between Abgenix, Inc. and  Japan Tobacco Inc. effective December 31, 1999.                                                                                                                                                              |   |
| +10.45 | (14) | Amended and  Restated Field License by and among Abgenix, Inc., JT America Inc. and  Xenotech L.P. effective December 31, 1999.                                                                                                                                                                     |   |
| 10.46  | (14) | Agreement to  Terminate the Collaboration Agreement by and among Abgenix, Inc., JT  America Inc., and Xenotech L.P. effective December 31, 1999.                                                                                                                                                    |   |

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| +10.47 | (14) | Agreement to  Terminate the Interest of Japan Tobacco Inc. in the Master Research License  and Option Agreement by and among Abgenix, Inc., Japan Tobacco Inc. and  Xenotech L.P. effective December 31, 1999.                       |   |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| +10.48 | (14) | Amendment of the  Expanded Field License by and among Abgenix, Inc., JT America Inc. and  Xenotech L.P. effective December 31, 1999.                                                                                                 |   |
| 10.49  | (14) | Limited  Partnership Interest and Stock Purchase Agreement between Abgenix, Inc.  and JT America Inc. made December 20, 1999.                                                                                                        |   |
| +10.50 | (14) | License Agreement  by and between Abgenix, Inc. and Japan Tobacco Inc. effective  December 31, 1999.                                                                                                                                 |   |
| 10.51  | (15) | Lease Agreement  dated February 24, 2000 between Ardenwood Corporate Park Associates, a  California Limited Partnership and Abgenix, Inc.                                                                                            |   |
| 10.52  | (15) | Lease Agreement  dated May 19, 2000 between Ardenwood Corporate Park Associates, a  California Limited Partnership and Abgenix, Inc.                                                                                                 |   |
| 10.53  | (16) | Acquisition  Agreement dated as of September 25, 2000 among Abgenix, Inc.,  Abgenix Canada Corporation and ImmGenics Pharmaceuticals Inc.                                                                                            |   |
| +10.54 | (17) | License Agreement  among BR Centre Limited, Ingenix Biomedical Inc. and Dr. John W.  Schrader, dated May 9, 1994.                                                                                                                    |   |
| +10.55 | (17) | License Agreement  Amendment among BR Centre Limited, Ingenix Biomedical Inc. and Dr. John  W. Schrader, dated May 9, 1994.                                                                                                          |   |
| 10.56  | (17) | Assignment  Agreement among BR Centre Limited and The University of British Columbia  Foundation, dated March 10, 1998.                                                                                                                   |   |
| 10.57  | (18) | Lease Agreement  dated February 8, 2001 between AMB Property, L.P., a Delaware limited  partnership, and Abgenix, Inc.                                                                                                               |   |
| 10.58  | (19) | Lease dated  September 1, 2001 among Townline Ventures 17 Ltd., Abgenix  Biopharma Inc. and Abgenix, Inc.                                                                                                                       |   |
| +10.59 | (19) | License Agreement  among Medical Research Council, Agricultural and Food Research Council  Institute of Animal Physiology and Genetics Research of Babraham Hall,  Marianne Bruggemann and Cell Genesys, Inc., dated March 29, 1994. |   |
| 10.60  | (19) | First Amendment,  dated as of November 30, 2001, to the Lease Agreement, dated as of  February 8, 2001, between AMB Property, L.P. and Abgenix, Inc.                                                                       |   |
| 10.61  | (23) | First Amendment,  dated August 31, 2001, to the Lease Agreement, dated February 24,  2000, between Ardenwood Corporate Park Associates, a California Limited  Partnership, and Abgenix, Inc.                                    |   |
| 10.62  | (23) | First Amendment,  dated August 31, 2001, to the Lease Agreement, dated May 19, 2000,  between Ardenwood Corporate Park Associates, a California Limited  Partnership, and Abgenix, Inc.                                         |   |
| 10.63  | (23) | Second Amendment,  dated November 7, 2001, to the Lease Agreement, dated May 19, 2000,  between Ardenwood Corporate Park Associates, a California Limited  Partnership, and Abgenix, Inc.                                       |   |

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| 10.64            | (23)   | Amendment  No. 1, dated January 22, 2002, to the Lease Agreement, dated  July 31, 1996, between John Arrillaga, Trustee, or his Successor Trustee  UTA dated 7/20/77 (John Arrillaga Survivors Trust) as amended, and Richard T.  Peery, Trustee, or his Successor Trustee UTA dated 7/20/77 (Richard T. Peery  Separate Property Trust) as amended, and Abgenix, Inc. |   |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.65            | (23)   | Lease Agreement  dated January 22, 2002 between John Arrillaga, Trustee, or his Successor  Trustee UTA dated 7/20/77 (John Arrillaga Survivors Trust) as amended, and  Richard T. Peery, Trustee, or his Successor Trustee UTA dated 7/20/77  (Richard T. Peery Separate Property Trust) as amended, and Abgenix, Inc.                                                           |   |
| 10.66            | (25)   | Sublease, dated  as of July 31, 2003, by and between Protein Design Labs, Inc. and  Abgenix, Inc.                                                                                                                                                                                                                                                                           |   |
| +10.67           | (26)   | Collaboration and  License Agreement, dated as of October 15, 2003, by and between  Abgenix, Inc. and AstraZeneca UK Limited.                                                                                                                                                                                                                                                    |   |
| +10.68           | (31)   | Amendment  No. 1 to Collaboration and License Agreement, dated as of March 19,  2004, by and between Abgenix, Inc. and AstraZeneca UK Limited.                                                                                                                                                                                                                              |   |
| 12.1   |   | Statement Re:  Computation of Ratio                                                                                                                                                                                                                                                                                                                                                        |   |
| 21.1   | (20)   | List of  subsidiaries.                                                                                                                                                                                                                                                                                                                                                                     |   |
| 23.1   |   | Consent of  Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                 |   |
| 24.1   |   | Power of Attorney  (see page 121).                                                                                                                                                                                                                                                                                                                                                    |   |
| 31.1   |   | Certification of  William R. Ringo Pursuant to Rule 13a-14(a), as Adopted Pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                            |   |
| 31.2   |   | Certification of  H. Ward Wolff Pursuant to Rule 13a-14(a), as Adopted Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                               |   |
| 32.1   |   | Certification of  William R. Ringo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                    |   |
| 32.2   |   | Certification of  H. Ward Wolff Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                       |   |

----

         +  Confidential treatment granted for portions of these exhibits.Omitted portions have been filed separately with the Commission.

   (1)  Incorporated by reference to the same exhibit filed with Abgenix’sRegistration Statement on Form S-1 (File No. 333-49415).

   (2)  Incorporated by reference to the same exhibit filed with Abgenix’sRegistration Statement on Form S-1 (File No. 333-49415),portions of which have been granted confidential treatment.

   (3)  Incorporated by reference to the same exhibit filed with CellGenesys’ Registration Statement on Form S-1 (File No. 33-46452),portions of which have been granted confidential treatment.

   (4)  Incorporated by reference to the same exhibit filed with Cell Genesys’Registration Statement on Form S-1 (File No. 33-46452).

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   (5)  Incorporated by reference to the same exhibit filed with CellGenesys’ Quarterly Report on Form 10-Q for the quarter ended June 30,1993, portions of which have been granted confidential treatment.

   (6)  Incorporated by reference to the same exhibit filed with CellGenesys’ Annual Report on Form 10-K for the year ended December 31,1993, portions of which have been granted confidential treatment.

   (7)  Incorporated by reference to the same exhibit filed with CellGenesys’ Quarterly Report on Form 10-Q for the quarter ended June 30,1995, portions of which have been granted confidential treatment.

   (8)  Incorporated by reference to the same exhibit filed with CellGenesys’ Quarterly Report on Form 10-Q for the quarter ended June 30,1995.

   (9)  Incorporated by reference to the same exhibit filed with CellGenesys’ Quarterly Report on Form 10-Q for the quarter ended June 30,1996, portions of which have been granted confidential treatment.

(10) Incorporated by reference to the same exhibit filed with CellGenesys’ Quarterly Report on Form 10-Q for the quarter ended June 30,1996.

(11) Incorporated by reference to the same exhibit filed with CellGenesys’ Quarterly Report on Form 10-Q for the quarter ended September 30,1996.

(12) Incorporated by reference to the same exhibit filed with CellGenesys’ Annual Report on Form 10-K for the year ended December 31,1996, as amended, portions of which have been granted confidential treatment.

(13) Incorporated by reference to the same exhibit filed with CellGenesys’ Annual Report on Form 10-K for the year ended December 31,1993.

(14) Incorporated by reference to the same exhibits filed with Abgenix’sCurrent Report on Form 8-K filed with the Commission on January 27,2000.

(15) Incorporated by reference to the same exhibits filed with Abgenix’sQuarterly Report on Form 10-Q for the quarter ended June 30,2000.

(16) Incorporated by reference to the same exhibits filed with Abgenix’sQuarterly Report on Form 10-Q for the quarter ended September 30,2000.

(17) Incorporated by reference to the same exhibits filed with Abgenix’sAnnual Report on Form 10-K for the year ended December 31,2000.

(18) Incorporated by reference to the same exhibits filed with Abgenix’sQuarterly Report on Form 10-Q for the quarter ended March 31,2001.

(19) Incorporated by reference to the same exhibits filed with Abgenix’sRegistration Statement on Form S-1 (File Number 333-49858).

(20) Incorporated by reference to the same exhibits filed with Abgenix’sAnnual Report on Form 10-K for the year ended December 31,2001.

(21) Incorporated by reference to the same exhibits filed with Abgenix’sAmendment No. 2 to its Registration Statement on Form 8-A (FileNumber 000-24207).

(22) Incorporated by reference to the same exhibits filed with Abgenix’sRegistration Statement on Form S-8 (File Number 333-88232).

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(23) Incorporated by reference to the same exhibits filed with Abgenix’sQuarterly Report on Form 10-Q for the quarter ended March 31,2002.

(24) Incorporated byreference to the same exhibits filed with Abgenix’s Quarterly Report on Form 10-Qfor the quarter ended June 30, 2003.

(25) Incorporated byreference to the same exhibit filed with Abgenix’s Quarterly Report on Form 10-Qfor the quarter ended September 30, 2003.

(26) Incorporated byreference to exhibit 10.1 filed with Abgenix’s Registration Statement on Form S-3 (File No. 333-112285).

(27) Incorporated byreference to the same exhibit filed with Abgenix’s Quarterly Report on Form 10-Qfor the quarter ended September 30, 2003.

(28) Incorporated byreference to the same exhibit filed with Abgenix’s Amendment No. 3 to itsRegistration Statement on Form 8-A (File No. 000-24207).

(29) Incorporated by reference to the same exhibit filed with Abgenix’sAnnual Report on Form 10-K the year ended December 31, 2002.

(30) Incorporated by reference to the same exhibit filed with Abgenix’sAnnual Report on Form 10-K the year ended December 31, 2003.

(31) Incorporated by reference to the same exhibit filed with Abgenix’sQuarterly Report on Form 10-Q for the quarter ended March 30,2004.

(32) Incorporated by reference to the same exhibit filed with Abgenix’sQuarterly Report on Form 10-Q for the quarter ended September 30,2004.

(33) Incorporated by reference to the same exhibit filed with Abgenix’sCurrent Report on Form 8-K filed December 22, 2004.

(34) Incorporated by reference to the same exhibit filed with Abgenix’sCurrent Report on Form 8-K filed December 15, 2005.

(35) Incorporated by reference to the same exhibitfiled with Abgenix’s Current Report on Form 8-K filed September 27,2005.

(b)          Exhibits.

See Item 15(a)3 above.

(c)           FinancialStatement Schedule.

See Item 15(a)2 above.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, as amended, Abgenix has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized, in the City ofFremont, State of California, on the 15th day of March, 2006.

|        | ABGENIX, INC. |
|--------|---------------|
|   | By:           | /s/ WILLIAM R. RINGO |
|   |          | William R. Ringo |
|   |          | *President and Chief Executive Officer* |

 

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESE PRESENTS, that each personwhose signature appears below hereby constitutes and appoints William R. Ringo and H. Ward Wolff, andeach one of them, acting individually and without the other, as his attorney-in-fact, each with full power of substitution, for him in any andall capacities, to sign any and all amendments to this Annual Report on Form 10-K,and to file the same, with exhibits thereto and other documents in connectiontherewith, with the Securities and Exchange Commission, hereby ratifying andconfirming all that each of said attorneys-in-fact, or his substitute orsubstitutes may do or cause to be done by virtue hereof.

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, this reporthas been signed by the following persons in the capacities and on the datesindicated.

|                                  | **Signature** | ** **                                    | ** ** |                     | **Title** | ** ** | ** ** |  | **Date** | ** ** |
|----------------------------------|---------------|-----------------------------------------------|------------|---------------------|-----------|------------|------------|--|----------|------------|
| /s/ R. SCOTT  GREER              |          | Chairman of the  Board                        |       | March 15, 2006 |
| R.  Scott Greer                  |          |                                          |       |                |
| /s/ WILLIAM R.  RINGO            |          | President and  Chief Executive Officer        |       | March 15, 2006 |
| William  R. Ringo                |          | (Principal Executive  Officer)                |       |                |
| /s/ H. WARD WOLFF                |          | Chief Financial  Officer and                  |       | March 15, 2006 |
| H.  Ward Wolff                   |          | Senior Vice President,  Finance               |       |                |
|                             |          | (Principal Financial and  Accounting Officer) |       |                |
| /s/ M.  KATHLEEN BEHRENS, PH.D.  |          | Director                                      |       | March 15, 2006 |
| M.  Kathleen Behrens, Ph.D.      |          |                                          |       |                |
| /s/ RAJU S.  KUCHERLAPATI, PH.D. |          | Director                                      |       | March 15, 2006 |
| Raju  S. Kucherlapati, Ph.D.     |          |                                          |       |                |
| /s/ KENNETH B.  LEE, JR.    |          | Director                                      |       | March 15, 2006 |
| Kenneth  B. Lee, Jr.        |          |                                          |       |                |
| /s/ MARK B.  LOGAN               |          | Director                                      |       | March 15, 2006 |
| Mark  B. Logan                   |          |                                          |       |                |
| /s/ THOMAS G.  WIGGANS           |          | Director                                      |       | March 15, 2006 |
| Thomas G. Wiggans                |          |                                          |       |                |

 

121

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**ABGENIX, INC.**

**INDEX TO EXHIBITS***

| EXHIBIT | ** ** | **ITEM** |
|---------|------------|----------|
|    | 12.1       |     |   | Statement Re:  Computation of Ratio |
|    | 23.1       |     |   | Consent of  Independent Registered Public Accounting Firm. |
|    | 24.1       |     |   | Power of Attorney  (see page 121). |
|    | 31.1       |     |   | Certification of William  R. Ringo Pursuant to Rule 13a-14(a), as Adopted Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
|    | 31.2       |     |   | Certification of  H. Ward Wolff Pursuant to Rule 13a-14(a), as Adopted Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
|    | 32.1       |     |   | Certification of  William R. Ringo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. |
|    | 32.2       |     |   | Certification of H. Ward  Wolff Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

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*                    Only exhibitsactually filed are listed. Item 15(a)(3) of this Report on Form 10-Ksets forth exhibits incorporated by reference.

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