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

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FORM 10-K

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2004                  
|OR                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number: 000-24207

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

|Delaware(State or other jurisdiction of
incorporation or organization)                                                                                                                                        |  | 94-3248826(IRS employer
Identification number)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|6701 Kaiser Drive, Fremont, CA(Address of principal executive office)                                                                                                                                         |  | 94555(Zip Code)                               
|(510) 608-6500(Registrant's telephone number, including area code)                                                                                                                                           
|Securities registered pursuant to Section 12(b) if the Act: None
Securities registered pursuant to Section 12(g) of the act: Common Stock, $0.0001 par value;
Preferred Stock Purchase Rights(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. Yes o    No o

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2004 was $945,820,549. The number of
shares of Common Stock, $0.0001 par value, outstanding on February 28, 2005, was 89,194,663.

Documents
incorporated by reference: Portions of the Proxy Statement for Registrant's Annual Meeting of Shareholders to be held June 13, 2005 (the Proxy Statement), are
incorporated herein by reference into Part III.



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TABLE OF CONTENTS

|         |  |                                                                                       |  | Pages
|-------- |  | ------------------------------------------------------------------------------------- |  | -----
|         |  | Part I                                                                                |  |      
|Item 1.  |  | Business                                                                              |  | 3    
|Item 2.  |  | Properties                                                                            |  | 44   
|Item 3.  |  | Legal Proceedings                                                                     |  | 44   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 44   
|         |  | Part II                                                                               |  |      
|Item 5.  |  | Market for the Registrant's Common Equity and Related Stockholder Matters             |  | 45   
|Item 6.  |  | Selected Financial Data                                                               |  | 46   
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 47   
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 62   
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 64   
|Item 9.  |  | Change in and Disagreements with Accountants on Accounting and Financial Disclosure   |  | 92   
|Item 9A. |  | Controls and Procedures                                                               |  | 92   
|Item 9B. |  | Other Information                                                                     |  | 92   
|         |  | Part III                                                                              |  |      
|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 92   
|Item 11. |  | Executive Compensation                                                                |  | 92   
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 93   
|Item 13. |  | Certain Relationships and Related Transactions                                        |  | 93   
|Item 14. |  | Principal Accountant Fees and Services                                                |  | 93   
|         |  | Part IV                                                                               |  |      
|Item 15. |  | Exhibits and Financial Statement Schedules                                            |  | 93   
|         |  | Signatures                                                                            |  | 100  

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PART I

Item 1. Business.

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

Abgenix

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

We
have proprietary technologies that facilitate rapid generation of highly specific, antibody therapeutic product candidates that contain fully human protein sequences and that bind to
disease targets appropriate for antibody therapy. In this annual report on Form 10-K we refer to these candidates as fully human antibody therapeutic product candidates. We
developed our XenoMouse® technology, a technology using genetically modified mice, to generate fully human antibodies. We also own a technology that enables the rapid identification of
antibodies with desired function and characteristics, referred to as SLAM technology. In our
XenoMax technology, we use SLAM technology to select and isolate antibodies with particular function and characteristics from antibody-producing cells generated by XenoMouse animals.

Currently,
ten antibodies generated with our XenoMouse technology are in clinical trials or are the subject of a regulatory application to initiate such trials, including two of our
proprietary antibody therapeutic product candidates and eight antibody product candidates being developed by companies that have licensed our technology. Our most advanced proprietary product
candidate, panitumumab (formerly known as ABX-EGF), is in pivotal trials and is being co-developed with Immunex Corporation, a wholly-owned subsidiary of Amgen Inc.
References in this annual report to Amgen are to both Amgen and Immunex. Our other proprietary product candidate is in early stage clinical trials. In addition, we have entered into a variety of
contractual arrangements with multiple pharmaceutical, biotechnology and genomics companies to jointly develop and commercialize products or to enable other companies to use our XenoMouse and XenoMax
technologies in the development of their products. Five of our licensing partners, Pfizer, Inc., Amgen, Chiron Corporation, CuraGen Corporation and Human Genome Sciences, Inc., have
initiated clinical trials or submitted regulatory applications for such trials for antibodies generated from XenoMouse animals.

Overview of Product Development

Proprietary Product Development

Two of our antibody therapeutic product candidates are in clinical trials. These clinical programs are described underProprietary Product
Development Programsbelow. The following is an overview of these programs.



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In
addition, we have entered into co-development agreements for the joint development of antibody product candidates with a variety of companies including U3 Pharma
AG, Microscience Limited, Dendreon Corporation, Chugai Pharmaceuticals Co., Ltd. and Sosei Co., Ltd. We intend to enter into additional joint development agreements for other product
candidates.

AstraZeneca Collaboration

We have entered into a broad collaboration with AstraZeneca UK Limited for the development of antibody therapeutics for the treatment of certain types of cancer
pursuant to which we have an opportunity to co-develop products with AstraZeneca, as well as provide preclinical and clinical research support and manufacturing support for the development
of product candidates by AstraZeneca. This collaboration involves the 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 and profit sharing basis. In connection with this collaboration, AstraZeneca made a $100.0 million investment in our company's convertible securities and,
upon the achievement of certain milestones, we may require AstraZeneca to invest up to an additional $60.0 million in our convertible preferred stock.

Customer Product Development

We license our XenoMouse technology to pharmaceutical, biotechnology and genomics companies interested in developing antibody-based products. Typically, our
agreements with our customers provide for up-front and milestone payments to us upon the occurrence of certain events, along with royalty payments to us if the product reaches the market.
We do not participate in the development or marketing of these products with our customers. In addition to our proprietary antibody therapeutic product candidates in clinical trials, our customers
have advanced antibodies generated with XenoMouse technology into the clinical phase as follows:



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Abgenix Strategy

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

Building a diversified product portfolio.Utilizing our XenoMouse and XenoMax technologies, we intend to build a diversified
product portfolio, including a mix of internally developed and jointly developed product candidates. We are targeting serious medical conditions, including cancer, inflammation, and metabolic disease.
We may gain access to antigens through contractual arrangements with leading academic researchers and companies involved in the identification and development of antigens or from publicly available
sources. In addition to developing our own product candidates, our strategy is to supplement our product portfolio by entering into collaborations such as the co-development agreement we
have with Amgen for panitumumab. These product collaborations involve antibodies that bind to antigens to which we obtain rights from our collaborators or from publicly available sources. We may enter
into additional joint development and commercialization agreements after generating antibodies and determining preliminary safety and efficacy or we may develop the product candidate through later
stage clinical trials and license it to pharmaceutical or biotechnology companies for marketing. By entering into co-development and marketing arrangements, we can pursue multiple product
candidates in the development stage, enabling us to spread our risk of product development and make cost-effective use of available human and capital resources.

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

Production Services.Our manufacturing facility and our pilot plant provide integrated process sciences and manufacturing
capabilities for the development and manufacture of our proprietary product candidates. We are using some available capacity to manufacture our proprietary product candidate, panitumumab. We intend to
use other available capacity to manufacture other proprietary products that may be the subject of future co-development agreements. We also offer our production services to existing
customers and to third parties to further enable their development efforts and to absorb plant capacity not used or reserved for our proprietary product candidates.

Scientific Background

The Normal Antibody Response

The human immune system protects the body against a variety of infections and other illnesses. Specialized cells, which include B cells and T cells,
work in concert with the other components of the

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immune
system to recognize, neutralize and eliminate from the body numerous foreign substances, infectious organisms and malignant cells. In particular, B cells generally produce protein
molecules, known as antibodies, which are capable of recognizing substances potentially harmful to the human body. Such substances are called antigens. Upon being bound by an antibody, antigens can be
neutralized or blocked from interacting with and causing damage to the body. Antibodies that bind tightly are said to have high affinity.

All
antibodies have a common core structure composed of four subunits, two identical light (L) chains and two identical heavy (H) chains, named according to their relative
size. The heavy and light chains are assembled within the B cell to form an antibody molecule that consists of a constant region and two variable regions. As shown in the diagram below, one can
represent an antibody molecule schematically in the form of a "Y" structure.

GRAPHIC

The
base of the "Y," together with the part of each arm immediately next to the base, is called the constant region because its structure tends to be very similar across all antibodies.
In contrast, the variable regions are at the end of the two arms and are unique to each antibody.

Antibodies as Products

Recent advances in the technologies for creating and producing antibody products, coupled with a better understanding of how antibodies and the immune system
function in key disease states, have led to renewed interest in the commercial development of antibodies as therapeutic products. According to a survey by the Pharmaceutical Research and Manufacturers
of America, antibodies accounted for over 20% of all biopharmaceutical products in clinical development in August 2004. We are currently aware of eighteen antibody therapeutic products approved
for marketing in the United States. These products
are currently being marketed for a wide range of medical disorders such as autoimmune disease, cardiovascular disease, cancer and infectious diseases.

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



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Current Approaches to Development of Antibody Therapeutic Products

The therapeutic antibodies marketed today generally belong to a class of molecules known as "monoclonal antibodies". This term is used to refer to a homogeneous
population of antibody molecules that are identical in their structure and functional characteristics. Traditionally, the approach to generating monoclonal antibodies has been to immortalize mouse
antibody-secreting B cells by fusing them with a perpetually-growing cell line so that they are capable of reproducing over an indefinite period of time. Any of these fused cells, known as hybridomas,
producing an antibody with the desired binding characteristics can then be selected, cloned, and expanded, allowing the large scale production of a monoclonal antibody.

Mouse
monoclonal antibodies are wholly composed of mouse protein sequences and tend to be recognized as foreign by the human immune system. When patients are repeatedly treated with
mouse antibodies, they will begin to produce antibodies that effectively neutralize the mouse antibody, a reaction referred to as a Human Anti-Mouse Antibody, or HAMA, response. In many
cases, the HAMA response prevents the mouse antibodies from having the desired therapeutic effect and may cause the patient to have an allergic reaction.

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

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

GRAPHIC

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Human Antibodies

The probability of inducing a HAMA response can be reduced through the generation of antibody therapeutic products with fully human protein sequences. Researchers
have developed several antibody technologies to produce antibodies with 100% human protein sequences (see the diagram above). One approach to generating human antibodies, called "phage display"
technology, involves the cloning of human antibody genes into bacteriophages, viruses that infect bacteria, in order to display antibody fragments on the surfaces of bacteriophage particles. This
approach attempts to mimic in vitro the immune surveillance and affinity maturation processes that occur in the body.

Another
approach involves the isolation of human B cells. The B cells can be further propagated either through introducing them into immunodeficient mice or through generating
hybridomas. This approach is generally limited to generating antibodies only to nonhuman antigens or antigens to which the human B-cell donor had previously responded. Accordingly, this
approach may not be suitable for targeting many key diseases such as cancer and inflammatory and autoimmune disorders for which appropriate therapy might require antibodies to human antigens.

The Abgenix SolutionXenoMouse and XenoMax Technologies

Our approach to generating human antibodies with fully human protein sequences is to use genetically engineered strains of mice in which mouse antibody gene
expression is suppressed and functionally replaced with human antibody gene expression, while leaving intact the rest of the mouse immune system. Rather than engineering each antibody product
candidate, these transgenic mice capitalize on the natural power of the mouse immune system in diversity and affinity maturation to produce a broad repertoire of high affinity antibodies. By
introducing human antibody genes into the mouse genome, transgenic mice with such traits can be bred indefinitely. Importantly, these transgenic mice are capable of generating human antibodies to
human antigens because the only human products expressed in the mice (and therefore recognized as "self") are the antibodies themselves. The mouse thus recognizes any other human tissue or protein as
a foreign antigen and the mouse will mount an immune response.

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

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

Antibodies
derived from XenoMouse animals originate solely from the human immunoglobulin genes that have been introduced into the animal. Consequently, antibodies generated using
XenoMouse technology are fully human and are, therefore, expected to be less likely to be recognized as foreign and to elicit an antibody response to the therapeutic antibody than antibodies
containing mouse proteins. However, an antibody response to a particular fully human antibody sequence could still occur, resulting in formation of a human anti-human antibody (HAHA)
response, which neutralizes the effect of the antibody and may result in an allergic reaction.

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We
obtain the antibodies generated by XenoMouse animals by extracting the antibody-producing B cells. We can convert these B cells into hybridomas to generate the quantities of
antibodies needed for standard methods of assaying and selecting antibodies for further development. We have expended considerable effort in enhancing hybridoma technology to optimize the diversity of
the antibodies that we recover. Alternatively, we can submit the B cells to our proprietary Selected Lymphocyte Antibody Method (SLAM) technology, which we acquired through our November 2000
acquisition of Abgenix Biopharma Inc. We use the term XenoMax technology to refer to the use of XenoMouse technology together with SLAM technology. With XenoMax technology, we bypass the
hybridoma step by culturing the B-cells directly and rapidly assaying them over a period of several days using a microplate-based, high throughput system. Using XenoMax, we can further
increase the number of different antigen-reactive monoclonal antibodies identified in a single experiment compared to hybridoma technology.

Other
approaches to generating fully human antibodies from mice that we understand are being pursued by competitors include: (i) transgenic mice containing heavy human chain and
human light chain genes on a "minilocus" (which are mice that possess a relatively small number of representative human heavy and light chain genes in their genome), (ii) "transchromosomic"
mice that contain large numbers of human heavy chain and light chain genes on one or more separate, or extra, chromosomes, and (iii) "UltiMab" mice that are generated as a result
of breeding "minilocus" containing mice with "transchromosomic" mice. "Transchromosomic" mice were developed by Kirin Brewing Co., Ltd. It is our understanding that "UltiMab" mice were
developed 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 technologies in which human B cells and T cells are implanted in mice with compromised immune systems.

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

Our Technology Advantages

We believe that our technologies offer the following advantages:

Producing antibodies with fully human protein sequences.Our XenoMouse technology, unlike chimeric and humanization
technologies, allows the generation of antibodies with 100% human protein sequences. More than 1,000 patients have been tested with our antibody product candidates and we have observed HAHA responses
in two patients, both of whom were tested in our Phase 1 clinical trial of ABX-MA1.

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

Generating high affinity antibodies that do not require further engineering.XenoMouse technology uses the natural in vivo
affinity maturation process to generate antibody product candidates, usually in two to four months. In contrast to antibodies generated using humanization and phage display technology, we and our
customers can produce XenoMouse antibodies without the need for any

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subsequent
engineering, a process that at times has proven to be challenging and time consuming. By avoiding the need to further engineer antibodies, we reduce the risk that an antibody's structure
and therefore functionality will be altered between the initial antibody selected for testing and the final antibody approved for marketing and placed into production.

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

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

Providing an integrated production platform.Our integrated production platform has been designed to minimize the risks
associated with process, scale and site changes. We believe that our platform, which integrates a comprehensive range of process sciences services, including cell line, cell culture, purification,
formulation and assay development, and our manufacturing facility can enable us to rapidly advance product candidates from cell line generation to production. This integrated approach may reduce the
variability and risk associated with technology transfer and improve production quality and efficiency.

Proprietary Product Development Programs

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

|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)                      |  | Phase 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 and second line treatment (monotherapy)                 |  | Phase 2     
|ABX-PTH               |  | Secondary hyperparathyroidism                                 |  | Phase 1     

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Panitumumab

Tumor cells that overexpress the epidermal growth factor receptor, or EGFr, on their surface often depend on EGFr's activation for growth. EGFr is expressed in a
variety of cancers including lung, breast, ovarian, bladder, prostate, colorectal, kidney and head and neck. The activation of EGFr is triggered by the binding to EGFr by epidermal growth factor, or
EGF, or transforming growth factor alpha, or TGFa, both of which are expressed by the tumor or by neighboring cells. We believe that blocking the ability of EGF
and TGFa to bind with EGFr may offer a treatment for certain cancers. Panitumumab binds to EGFr with high affinity and has been shown to inhibit tumor cell
proliferation in vivo and cause eradication of EGF dependent human tumors established in mouse models. Published studies have shown that panitumumab can inhibit growth of EGF-dependent
human tumors cells in mouse models. Panitumumab has also demonstrated the ability to reverse cancer cell growth and cause eradication of established tumors in mice even when administered after
significant tumor growth has occurred. Furthermore, in these models where tumors were eradicated, researchers did not observe any relapse of the tumor after discontinuation of the antibody treatment.

We
are co-developing panitumumab with Amgen under a development and commercialization agreement. The following is a summary of the status of these clinical trials.

Colorectal cancer, single agent therapy with panitumumab.In January 2004, Amgen initiated two pivotal studies of
panitumumab as third-line monotherapy in patients with metastatic colorectal cancer, one in the United States and one outside the United States. The initiation of the U.S. trial followed
the receipt of a Special Protocol Assessment letter from the FDA endorsing the design of the trial to support a regulatory submission for potential accelerated approval. Enrollment in this trial,
which began in the first quarter of 2004, is proceeding more slowly than originally anticipated. The second pivotal study, a randomized controlled study comparing best supportive care with best
supportive care and panitumumab, is being conducted in Europe, Canada and Australia in support of the global registration program. Enrollment in this study is proceeding as anticipated. In
December 2004, the FDA indicated that data from one pivotal trial, once completed, could be acceptable with additional data from other pending studies to support a submission for marketing
approval in the United States.

A
Phase 2 study is evaluating the effect of panitumumab monotherapy in patients with metastatic colorectal cancer who have previously failed chemotherapy. An interim analysis of
this study was reported at the annual meeting of the American Society of Clinical Oncology in May 2003. Forty-four patients were included in this analysis. Forty patients were
efficacy evaluable, which was prospectively defined as having received at least 5 of 8 planned weekly doses of panitumumab during the first 8 weeks of treatment. Panitumumab was given weekly at
2.5 mg/kg. Four of 40 (10%) efficacy evaluable patients achieved a partial response at week 8, which was confirmed 4 weeks later. Fifty-five percent of patients had stable
disease at week 8. On the basis of this efficacy result, we and Amgen designed a pivotal trial program for panitumumab in third line monotherapy treatment of colorectal cancer.

Updated
interim data from this Phase 2 study were presented at the annual meeting of the American Society for Clinical Oncology in June 2004 and demonstrated that
panitumumab has antitumor activity when administered as a single-agent treatment to patients with metastatic colorectal cancer who have failed chemotherapy. The interim analysis showed that patients
with measurable metastatic colorectal cancer which expressed the epidermal growth factor receptor experienced partial responses. The study included 148 patients who were previously treated with
fluoropyrimidine (with or without leucovorin), and either irinotecan or oxaliplatin, or both. Patients received 2.5 mg/kg of panitumumab by weekly intravenous infusion in 8-week
treatment cycles until disease progression or unacceptable toxicity. Tumor responses were confirmed at least four weeks after the initial response was observed. Treatment with panitumumab resulted in
a partial response in 15 of the 148 patients (10%) with a median duration of response of 5.2 months, and no complete responses. Stabilization of disease was observed in 56 of the
148 patients (38%) with a median duration of stable disease of 3.8 months.

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Median
overall time to progression was two months and median overall survival time was 7.9 months. Exploratory subgroup analyses comparing patients who had received two prior chemotherapy
agents, (80 patients), versus those who had received three prior chemotherapy agents (68 patients), demonstrated similar response rates of 11% and 9%, respectively. In the interim
analysis, panitumumab was generally well-tolerated, with skin rash as the most common side effect: 95% experienced a skin rash and 4% experienced a grade 3 skin rash. Other side
effects experienced by some patients were fatigue, nausea and diarrhea. One patient had a grade 3 infusion-related reaction related to panitumumab, which did not result in discontinuation of
panitumumab. There were no instances of anaphylaxis. In the 110 patients for whom samples were available for testing, no human antihuman antibodies (HAHAs) were observed.

Colorectal cancer, combination of panitumumab with chemotherapy.A separate Phase 2 study is evaluating the effect of
panitumumab administered with standard chemotherapy, as first-line treatment in patients with metastatic colorectal cancer. Interim data of this study presented at the European Society of
Medical Oncology (ESMO) annual conference in October of 2004 showed an objective response rate of 47% among 19 patients who have received panitumumab with chemotherapy (irinotecan, fluorouracil
and leucovorin, given according to the "Saltz" regimen). Time to tumor progression was 8.2 months and median overall survival time was 16.4 months. The most common side effects were skin
rash and diarrhea.

The Initial Phase 1 Study.We began the clinical development of panitumumab with a Phase 1
dose-escalating clinical trial in July 1999 examining the safety, pharmacokinetics and biological activity of multiple doses of panitumumab as monotherapy in patients with a variety
of advanced cancers. On the basis of preliminary results from this study, a number of Phase 2 studies were initiated in 2001 and 2002. We first reported data on this ongoing study in
November 2001 and presented updated information at the annual meeting of the American Society for Clinical Oncology in May 2002. Forty-six patients had been recruited to this
study at that time. Panitumumab appeared to be well tolerated at weekly doses ranging up to 3.5 mg/kg. We did not observe any allergic reactions, clinically significant infusion-related
reactions or human anti-human antibody formation. At doses greater than or equal to 2.0 mg/kg, typical EGF receptor mediated skin rashes were seen in 100% of patients. Six patients
who had received panitumumab (doses of 0.1 or 0.75, 2.5 or 3.5 mg/kg) achieved a partial response, minor response or disease stabilization. In 2003, we expanded enrollment in this trial to
investigate additional panitumumab does levels and schedules of administration. Enrollment is closed and treatment is complete.

Non-small Cell Lung Cancer.We are also conducting a Phase 2 study in patients with non-small
cell lung cancer receiving either standard chemotherapy with carboplatin and paclitaxel alone or administered with panitumumab. Interim data from Part 1 of this Phase 2 study were
presented at the conference of the American Society of Clinical Oncology in June 2004 and demonstrated that frontline therapy with panitumumab was generally well tolerated when administered
with paclitaxel and carboplatin in patients with advanced non-small cell lung cancer. Nineteen patients were enrolled into three groups and were administered panitumumab weekly for up to
eight 6-week cycles, in combination with paclitaxel and carboplatin administered every three weeks, for up to six 3-week cycles: six subjects were administered panitumumab at a
does of 1.0 mg/kg/week; seven subjects were administered panitumumab at a dose of 2.0 mg/kg/week; and six subjects were administered panitumumab at a dose of 2.5 mg/kg/week. Five
of 19 patients had objective responses (one complete, four partial). In this small study of 19 patients, the observed median time to progression was six months and the observed median
overall survival was 17 months. The most common adverse event seen in this study was skin rash, but the incidence of grade 3 skin rash did not appear to increase with panitumumab dose.
Part 2 of this study, which is fully enrolled with 175 patients, compares time to progression for patients receiving panitumumab plus chemotherapy against time to progression for
patients receiving chemotherapy alone as frontline therapy for advanced non-small cell lung cancer.

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In
addition, an evaluation of panitumumab in non-small cell lung cancer in combination with chemotherapy and AMG 706, Amgen's proprietary multi-kinase inhibitor, is currently
ongoing.

Renal Cell Cancer.This Phase 2 study is evaluating the effect of panitumumab monotherapy in patients with renal cell
cancer. An interim analysis of this study was reported at the annual meeting of the American Society of Clinical Oncology in May 2002. A total of 88 patients with metastatic renal cell
cancer had been treated in this panitumumab monotherapy 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. Panitumumab was administered for eight weeks or until patients demonstrated progressive disease.
Eighty-nine percent of patients included in this study had received prior systemic therapy and the majority of patients had received more than one prior systemic regimen. Panitumumab was
generally well tolerated. No allergic reactions, clinically significant infusion-related reactions, or human anti-human antibody formation were observed. A dose-related typical
EGFr mediated skin rash was observed with an incidence of 100% at a dose level of 2.5 mg/kg. Single agent biological activity was seen in this heavily pre-treated patient population
with 3 partial responses, 2 minor responses and 50% stable disease reported.

Additional Studies.Amgen has also initiated an additional study to evaluate panitumumab in metastatic colorectal cancer
patients with tumors having low or undetectable levels of EGFr. Further Phase 1 and 2 clinical studies evaluating panitumumab in different tumor types either as a single agent or in combination
with different chemotherapeutic agents or targeting agents have been initiated and are expected to be initiated from time to time.

ABX-PTH

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

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

Using
our proprietary technology, we have generated a novel antibody known as ABX-PTH, to target and neutralize the action of parathyroid hormone. We are developing
ABX-PTH as a potential treatment for secondary hyperparathyroidism. This fully human antibody has a novel mechanism of action that, in preclinical studies, neutralizes PTH by directly
lowering serum levels of free PTH. We believe that ABX-PTH could provide a significant therapeutic advance for the SHPT population by directly reducing bioactive PTH levels, rather than
relying on the indirect mechanisms provided by current therapies.

Clinical Status.In December 2003, we filed an IND and in February 2004 we initiated a Phase 1 clinical
trial of ABX-PTH for the treatment of patients with SHPT. Preliminary results from an interim analysis of this ongoing study were presented during a poster presentation at the
26thAnnual Meeting of the American Society for Bone and Mineral Research on October 3, 2004. In the Phase 1
study, five patients received a single dose of placebo, four patients received 30 mg of ABX-PTH and eight patients received 100 mg of ABX-PTH by intravenous bolus
injection. ABX-PTH treatment resulted in dose dependent suppression of parathyroid hormone and a dose dependent reduction in serum calcium. Intravenous bolus administration was generally
well tolerated. We intend to initiate a multi-dose Phase 1 trial of ABX-PTH later this year.

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ABX-MA1

Melanoma is the most serious cancer of the skin. Currently, it is the seventh most common cancer in the United States. The American Cancer Society estimates that
in 2005 approximately 59,580 cases of melanoma will be diagnosed in the United States and approximately 7,770 Americans are expected to die from melanoma. Melanoma can spread in the body through the
blood and lymphatic system. Organ involvement by metastasis, most commonly to the lungs and liver, is the leading cause of death from the disease. Melanomas that have not spread beyond the site at
which they developed are curable by surgical excision. Melanoma that has spread to distant sites is infrequently curable with surgery, although long-term survival is occasionally achieved
by resection of metastases. Radiation therapy may provide symptomatic relief for metastases to brain, bones and viscera. Although advanced melanoma is relatively resistant to standard chemotherapy,
some biologic therapies, such as interferon alpha and interleukin-2, have been reported to produce a low percentage of objective responses.

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

Clinical Status.In December 2001, we filed an IND and in February 2002 we initiated a Phase 1 clinical
trial of ABX-MA1 for the treatment of patients with metastatic melanoma. Enrollment is closed and treatment is complete. In connection with our collaboration in the field of oncology,
AstraZeneca had the first right to negotiate terms for the development of this product candidate. AstraZeneca has recently declined to exercise this right. In March 2005, we decided not to pursue
further clinical development independently or to dedicate further significant time and resources to this program.

Summary of Contractual Arrangements

Overview

We have entered into a variety of contractual arrangements covering numerous antigens to use our XenoMouse and XenoMax technologies to generate and/or develop the
resulting fully human antibodies. The following is a summary of these relationships.

Amgen Collaboration

In 2000, we entered into a joint development and commercialization agreement with Immunex, now a wholly-owned subsidiary of Amgen, for the
co-development of ABX-EGF, now known as panitumumab. We amended this agreement in October 2003. Under the amended agreement, Amgen has decision-making authority for
development and commercialization activities and we have the right to co-promote panitumumab. We are obligated to pay 50% of the development and commercialization costs and we are entitled
to receive 50% of any profits from sales of panitumumab. In addition, Amgen is required to make available in 2004 and 2005 up to $60.0 million in advances that we may use to fund a portion of
our share of development and commercialization costs for panitumumab after we have contributed $20.0 million toward development costs. We began accessing this credit facility in 2004 and, as of
December 31, 2004, we had a carrying balance of $25.6 million, consisting of $25.1 million in advances and $517,000 of interest accrued at the contract rate of 12% per annum. We
have drawn an additional $9.0 million under this facility in 2005 and we intend to continue to draw up to the $60.0 million limit in 2005. The amount of any such advances, plus interest,
may be repaid out of profits resulting from future product sales; however, we are generally not obligated to repay any portion of the outstanding balance if panitumumab does not reach
commercialization. Under a separate

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agreement
with Amgen, we are manufacturing clinical supplies of panitumumab for the collaboration and will manufacture commercial supplies for the first five years after commercial launch, with
Amgen's support and assistance. The costs of manufacturing clinical and commercial supplies are also shared equally.

AstraZeneca Collaboration

We entered into a collaboration and license agreement with AstraZeneca in October 2003 for the discovery, development and commercialization of fully human
monoclonal antibodies to treat cancer. This alliance involves the joint discovery and development of therapeutic antibodies for up to 36 cancer targets to be commercialized exclusively worldwide by
AstraZeneca. We will conduct early stage preclinical research on behalf of AstraZeneca with respect to some or all of these targets, and have initiated research programs for several of them. To date,
we and AstraZeneca have selected seventeen targets for inclusion in the collaboration, including several for which we had pre-existing preclinical programs. For any resulting products, we
may receive milestone payments at various stages of development and royalties on future product sales. AstraZeneca may make milestone payments to us of up to $51 million per candidate that is
developed under the agreement, and for any antibody we choose to develop to a target that is discontinued from the collaboration, we may pay AstraZeneca up to $15 million. Under the agreement,
we also may conduct early clinical trials, process development and clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales, and would be compensated
for those activities at competitive market rates. The collaboration also gives us the right to select and develop an additional pool of antibodies against up to 18 targets, which the companies may
elect to further develop on an equal cost and profit sharing basis. Subject to a number of exceptions, we will work exclusively with AstraZeneca to generate and develop antibodies for therapeutic use
in the field of oncology during a three-year target selection period. These exceptions include, among others, work on antibodies directed at antigens that are or become subject to existing
collaborations and antigens that we and AstraZeneca decide not to pursue in the collaboration, and certain process development and manufacturing services. In connection with this collaboration,
AstraZeneca made a $100.0 million investment in Abgenix securities. Upon the achievement of certain milestones, we may also require AstraZeneca to invest up to an additional
$60.0 million in our convertible preferred stock.

Joint Development Collaborations

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

Technology Out-Licensing

We have licensed our XenoMouse technology to third parties for the purpose of generating antibody product candidates to one or more specific antigens provided by
the customer. We may also use our XenoMax technology on the customer's behalf. Pursuant to these contracts, we and our customers intend to generate antibodies for development as product candidates for
the treatment of cancer, inflammation, autoimmune diseases, cardiovascular disease, growth factor modulation, neurological diseases, metabolic diseases and infectious diseases, and may pursue other
diseases. The customer generally has an option for a period of time to acquire a product license for any antibody identified using XenoMouse technology that the customer wishes to develop and
commercialize. The financial terms of these agreements may include license fees, option fees and milestone payments paid

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to
us by the customers. Based on our agreements, these payments and fees would average from approximately $7.0 million to $10.0 million per antigen if our customer takes the antibody
into development and ultimately to commercialization. Generally, under these agreements, our collaborators are responsible for the costs of product development, manufacturing and commercialization.
Additionally, these license agreements entitle us to receive royalties on any future product sales by the customer.

Production Services

We have entered into a limited number of contracts for process sciences and manufacturing services. We may offer a variety of process development, cell banking
and clinical and commercial scale manufacturing services for antibody product candidates to existing and new customers to absorb production services capacity we are not using for our proprietary
product candidates. Pursuant to such arrangements we may receive fees and, in some circumstances, royalties from future product sales. We may continue to assess and enter into such service contracts.

Xenotech and Japan Tobacco

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

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

Intellectual Property

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

We
and our subsidiaries own 15 issued patents in the United States, including an issued patent directed to panitumumab, and numerous granted patents in other foreign countries. In
addition, we have ten issued U.S. patents and several granted patents in foreign countries that we jointly own with Japan Tobacco relating to, among other things, antibody technology and genetic
manipulation.

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

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

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and
Trademark Office issued a corresponding patent to Kirin. Kirin has filed corresponding patent applications in Europe and Australia. Our licensee, Japan Tobacco, filed opposition proceedings
against the Kirin patent in Japan and in July 2004 the Patent Appeals Board in Japan upheld the patent, subject to certain claim amendments. We use our XenoMouse technology to generate fully
human antibody products and believe that we do not use the Kirin technology.

Genentech,
Johnson & Johnson, GlaxoSmithKline plc and Transkaryotic Therapies, Inc. and the Trustees of the Columbia University in the City of New York each owns or
controls a U.S. patent that relates to recombinant cell lines or methods of generating recombinant cell lines for the production of antibodies. We do not believe that these patents would be
successfully asserted against any of our current or planned activities. If a court determines that the claims of any of these patents cover our activities and are valid, such a decision may require us
to obtain a license or licenses. Under these circumstances, our failure to obtain a license at all or on commercially reasonable terms could impede commercialization of one or more of our products.

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

Government Regulation

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

We
believe our antibody therapeutic products will be classified by the FDA as "therapeutic biologic products" as opposed to "drug products." On October 1, 2003, the FDA
transferred certain oversight responsibility for therapeutic biologic products from the Center for Biologics Evaluation and Research (CBER) to the Center for Drug Products Evaluation and Research
(CDER). The FDA has stated that biologic products transferred to CDER will continue to be regulated as biologics. The steps ordinarily required before a biological product may be marketed in the
United States include:



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Preclinical
testing includes laboratory evaluation of product chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of each product.
Laboratories that conduct preclinical safety tests must comply with FDA regulations regarding good laboratory practices. We submit the results of the preclinical tests, together with manufacturing
information, analytical data and clinical study plans, to the FDA as part of the IND and the FDA reviews those results before the commencement of clinical trials. Unless the FDA objects to an IND, the
IND will become effective 30 days following its receipt by the FDA. If we submit an IND, our submission may not result in FDA authorization to commence clinical trials. Also, the lack of an
objection by the FDA does not mean it will ultimately approve an application for marketing approval. Furthermore, we may encounter problems in clinical trials or in manufacturing clinical supplies
that cause us or the FDA to delay, suspend or terminate our trials.

Clinical
trials involve the administration of the investigational product to humans under the supervision of a qualified principal investigator. We must conduct clinical trials in
accordance with Good Clinical Practice regulations under protocols submitted to the FDA as part of the IND. In addition, each clinical trial site must have approval from and conduct the trial under
the auspices of an Institutional Review Board and with patient informed consent. The Institutional Review Board will consider, among
other things, ethical factors, the safety of human subjects and the possibility of liability of the institution conducting the trial.

We
conduct clinical trials in three sequential phases that may overlap. Phase 1 clinical trials may be performed in healthy human subjects or, depending on the disease, in patients. The
goal of a Phase 1 clinical trial is to establish initial data about safety and tolerability of the biologic agent in humans. In Phase 2 clinical trials, we seek preliminary evidence of the desired
therapeutic efficacy of a biologic agent in limited studies of patients with the target disease. We make efforts to evaluate the effects of various dosages and to establish an optimal dosage level and
dosing schedule. We also gather additional safety data from these studies. The Phase 3 clinical trial program consists of expanded, large-scale, multi-center studies of persons who are susceptible to
or have developed the disease. A pivotal study is designed to meet registration requirements. Phase 3 studies that are designed for registration purposes are considered pivotal studies and Phase 2
studies specifically designed for registration purposes also can be pivotal studies. The goal of these studies is to obtain statistically significant evidence of the efficacy and relevant safety data
of the proposed product and dosage regimen.

Antibody
therapeutic products must be manufactured by an appropriately validated process and in a facility that complies with FDA good manufacturing practice regulations and other
regulations. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. In
addition, the FDA and other regulatory authorities will require us to register any manufacturing facilities in which our antibody therapeutic products are manufactured. These facilities will be
subject to periodic and unannounced inspections to confirm continued compliance with FDA good manufacturing practices or other regulations. The FDA or foreign regulatory bodies will not grant
pre-market approval of our product candidates if the facilities in which they are manufactured cannot pass a pre-license inspection. In addition, manufacturing facilities in
California, including our facility, are also subject to the licensing requirements of and inspection by the California Department of Health Services.

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

Competition

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We face competition in several
different forms. Our antibody generation activities currently face competition from several companies and technologies. In addition, the product
candidates that we, our partners or customers are developing also face competition from biologic and small molecule products as well as other treatment modalities.

We
are aware of several pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antibody therapy. Many of these companies
have commenced clinical trials of antibody therapeutic product candidates or have successfully commercialized antibody therapeutic products. Many of these companies are addressing the same diseases
and disease indications as we or our customers are.

We
compete with companies that offer the services of generating monoclonal antibodies for antibody-based therapeutics. Many of these competitors have specific expertise or technology
related to antibody development and introduce new or modified technologies from time to time. One such competitor is Medarex, through its wholly owned subsidiary GenPharm. Other companies are also
developing or have developed technologies for generating human or partially human antibodies, including Avanir Pharmaceuticals, XTL Biopharmaceuticals Ltd., Kirin Brewing Co. and GenMab.
Several companies are developing, or have developed, technologies, not involving animal immunization, that result in libraries composed of numerous human antibody sequences. Cambridge Antibody
Technology Group, Dyax, MorphoSys and Alexion Pharmaceuticals, Inc. are using libraries of human antibody genes to develop therapeutic products comprising human antibody sequences.

Panitumumab

We are aware of several companies that have approved products or product candidates in clinical testing that target the EGF receptor and therefore may compete
with panitumumab. These include, but are not limited to ImClone with cetuximab (Erbitux®), OSI Pharmaceuticals, Inc. and Genentech, Inc. with erlotinib
(Tarceva), and AstraZeneca with gefitinib (Iressa). Other potential competitors include Pfizer, GlaxoSmithKline, Novartis, Merck KgaA, Wyeth, Medarex and YM
Bioscience Inc.

In
February 2004, ImClone and Bristol-Myers Squibb received approval from the FDA to market Erbitux in the United States for use in combination with irinotecan in the treatment of
patients with metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with metastatic colorectal cancer who are
intolerant to irinotecan-based chemotherapy. ImClone and Bristol-Myers Squibb have also announced the submission of an application for approval to market Erbitux in Canada in combination with
irinotecan for the treatment of patients with irinotecan-refractory metastatic colorectal cancer. In June 2004, Merck received approval to market Erbitux in the European Union in combination
with irinotecan for the treatment of patients with metastatic colorectal cancer after failure of irinotecan-including cytotoxic therapy. Merck has also gained approval for use of Erbitux in
combination with irinotecan in patients with metastatic colorectal cancer who have failed prior irinotecan therapy in Switzerland in December 2003. Erbitux was 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 with metastatic colorectal cancer after failure of
irinotecan-including cytotoxic therapy.

On
February 26, 2004, Genentech announced that the FDA approved bevacizumab (Avastin) for treatment in first line metastatic colorectal cancer. Avastin is an approved
therapeutic antibody

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designed
to inhibit vascular endothelial growth factor, a protein that plays a role in tumor angiogenesis (the formation of new blood vessels to the tumor) and maintenance of existing tumor blood
vessels.

On
May 5, 2003, AstraZeneca received approval from the FDA to market Iressa, a small molecule product indicated as monotherapy for the treatment of patients with locally advanced
or metastatic advanced non-small cell lung cancer after failure of both platinum-based and docetaxel chemotherapies. AstraZeneca also received 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 its application
for marketing authorization of Iressa in the European Union for the treatment of non-small cell lung cancer in view of trial results that did not meet the approval requirements for the
application.

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

ABX-PTH

On March 8, 2004, Amgen announced that it had received approval to market cinacalcet HCI (Sensipar®), a small molecule product that may compete
with ABX-PTH, in the United States for the treatment of secondary hyperparathyroidism in chronic kidney disease patients on dialysis and the treatment of elevated calcium levels in
patients with parathyroid carcinoma. Amgen received approval to market cinacalcet HCI as Mimpara® in Europe and Canada and has applied for regulatory approval in Australia and New Zealand.

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



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

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



Developments
by competitors may render our product candidates or technologies obsolete or non-competitive. We face and will continue to face intense competition from other
companies for

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agreements
with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology.

Antibody Production

Our antibody production activities, also referred to as production services, include closely integrated process sciences and manufacturing capabilities for the
manufacture of therapeutic product candidates. We use this capability for the manufacture of our own proprietary products candidates and also offer these services to our collaborators and others. We
believe the close integration between process sciences and manufacturing enables us to streamline the production process. Within our pilot plant, our process sciences services include cell line
development, optimization and production scale up. The resulting process can be transitioned to our manufacturing facility.

Our
manufacturing facility is designed to manufacture product candidates for clinical trials and to support the potential commercial launch of a limited number of products in compliance
with FDA and European good manufacturing practices. In May 2000, we signed a long-term lease for the building that contains this manufacturing facility. Construction has been
completed and portions of the facility are operational and validated. In October 2003, following an inspection by the State Department of Health Services, we received a Drug Manufacturing
License from the State of California. The license permits us to manufacture and ship clinical material from our manufacturing facility. The total cost of constructing the facility was approximately
$150 million. The costs of completing validation of this facility, making the remaining portions of the facility operational and qualifying the facility for regulatory compliance may be higher
than expected. We currently have excess production services capacity and this condition may persist for an extended period. However, if the commercial launch of one of our product candidates proves
successful, we may experience capacity shortages and may need to use one or more third-party facilities to produce these products in sufficient commercial quantities.

Previously,
we relied on contract manufacturers to produce candidates under good manufacturing practice regulations for use in our clinical trials. We continually evaluate our options
for commercial production of our product candidates, including use of third-party manufacturers or entering into a manufacturing joint venture relationship with a collaborator or other third party. We
are aware of only a limited number of companies on a worldwide basis that operate manufacturing facilities in which our product candidates can be manufactured under good manufacturing practice
regulations. It may take a substantial period of time for a contract manufacturing facility that has not been producing antibodies
to begin producing antibodies in compliance with good manufacturing practice regulations and we may not be able to contract with any of these companies on acceptable terms, if at all.

Employees

As of December 31, 2004, we employed 523 persons. We also use temporary contractor personnel to fill staffing needs from time to time.

Our
success will depend in large part upon our ability to attract and retain employees. We face competition in this regard from other companies, research and academic institutions,
government entities and other organizations. We believe that we maintain good relations with our employees.

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Executive Officers

The names and ages of our executive officers are as follows:

|Name                     |  | Age |  | Position(s)                                               
|------------------------ |  | --- |  | ----------------------------------------------------------
|William R. Ringo         |  | 59  |  | President and Chief Executive Officer                     
|H. Ward Wolff            |  | 56  |  | Senior Vice President, Finance and Chief Financial Officer
|Kristen Metza Anderson   |  | 45  |  | Senior Vice President, Human Resources                    
|C. Geoffrey Davis, Ph.D. |  | 53  |  | Chief Scientific Officer                                  
|Donald R. Joseph         |  | 51  |  | Senior Vice President, General Counsel and Secretary      
|Gayle M. Mills           |  | 50  |  | Senior Vice President, Business Development               
|Gisela M. Schwab, M.D.   |  | 48  |  | Chief Medical Officer                                     

William R. Ringohas served as our Chief Executive Officer and President since July 2004. From 1973 to 2001,
Mr. Ringo held 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 Medicine Products 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 general management, marketing and business planning across Eli Lilly's pharmaceutical and devices businesses. Mr. Ringo
is currently the non-executive chairman of the board of directors of InterMune, Inc. and served as interim Chief Executive Officer from June to September 2003. He has served
as a director on a number of biotechnology company boards and he is currently a director 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 Wolffhas served as our Chief Financial Officer and Senior Vice President, Finance, since September 2004. From 2002
to 2003, Mr. Wolff served as Chief Financial Officer of QuantumShift. From 1998 to 2002, he was Senior Vice President and Chief Financial Officer of DoubleTwist, Inc. and from 1992 to
1998, he was Senior Vice President of Finance and Administration and Chief Financial Officer of Premenos Technology Corporation. From 1985 to 1992, Mr. Wolff was an Executive Director of
Russell Reynolds Associates, Inc. From 1974 to 1985, Mr. Wolff held numerous positions with Price Waterhouse, as a certified public accountant, including Senior Audit Manager.
Mr. Wolff received a B.A. degree in Economics from the University of California at Berkeley and an M.B.A. degree from Harvard Business School.

Kristen Metza Andersonhas served as our Senior Vice President, Human Resources since January 2005. Prior to joining Abgenix,
Ms. Anderson served from 2001 to 2004 as Vice President of Human Resources at Applied Biosystems, a developer of innovative products and services for life science research, pharmaceutical
research and development, diagnostics and agriculture. From 1997 until 2001, Ms. Anderson was Vice President, Human Resources and Communications for the Digital Linear Tape Group at Quantum
Corporation, a diversified mass storage company with leadership positions in both fixed and removable storage markets. Prior to her work at Quantum, Ms. Anderson worked in human resources
leadership positions at Motorola, Inc. and Allied Signal Inc. Ms. Anderson received her B.A. degree from and completed her graduate coursework in Industrial Relations and
Organizational Psychology at the University of Minnesota.

C. Geoffrey Davis, Ph.D.has served as our Chief Scientific Officer since January 2000 and from June 1996 until
December 2000 as our Vice President, Research. From January 1995 to June 1996, Dr. Davis was Director of Immunology at the Xenotech Division of Cell Genesys. From
November 1991 to December 1994, he served at Repligen Corporation, a biotechnology company, first as Principal Investigator and then as Director of Immunology. Dr. Davis received
a B.A. degree in

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Biology
from Swarthmore College and a Ph.D. degree in Immunology from the University of California, San Francisco.

Donald R. Josephhas served as our Senior Vice President, General Counsel and Secretary since March 2005. From 2004 to 2005,
Mr. Joseph was a partner and co-founder of Alekta Group, LLC, a specialty pharmaceutical consulting group and development company. From 2001 to 2004, he served as Executive Vice
President, Commercial Development of Amarin Corporation, PLC and as Executive Vice President, Legal and Commercial Development of its U.S. subsidiary, Amarin Pharmaceuticals, Inc. From 1998 to
2001, Mr. Joseph served in a number of senior roles at Elan Pharmaceuticals, North America, most recently as Senior Vice President, Commercial and Legal Affairs and, from 1994 to 1998, Athena
Neurosciences, Inc., most recently as Vice President and General Counsel. Prior to joining Athena, Mr. Joseph was a partner at the 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 of Texas Law School.

Gayle M. Millshas served as our Senior Vice President, Business Development since June 2004 and from September 2000 to
June 2004 served 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 Vice President, Business Development and Strategic Marketing for the Neurobiology Unit at Roche Bioscience. Ms. Mills served
as Director, Business Development 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 Administration from the
College of Notre Dame and an M.B.A. degree from Santa Clara University.

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

Risk Factors That Might Affect Future Results

Risks Related to our Finances

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

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

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

We have incurred net losses since we were organized as an independent company, including in the last five years net losses of $8.8 million in 2000,
$60.9 million in 2001, $208.9 million in 2002,

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$196.4 million
in 2003 and $187.5 million in 2004. As of December 31, 2004, our accumulated deficit was $752.3 million. Our losses to date have resulted principally from:



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

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

Since our founding, we have funded our research and development activities primarily from private placements and public offerings of our securities and from
revenues generated by our licensing and other contractual arrangements.

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



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

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

We will continue to expend substantial resources to support research and development and operate our manufacturing facility, including costs associated with
preclinical development and clinical trials. In the years ended December 31, 2004, 2003 and 2002, we incurred expenses of $124.8 million, $98.2 million and $128.5 million,
respectively, on research and development. For the year ended December 31, 2004, our manufacturing start-up costs were $25.4 million. Regulatory and business factors will
require us to expend substantial funds in the course of completing required additional development, preclinical testing and clinical trials of, and attaining regulatory approvals for, product
candidates. The amounts of expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources. Our
future liquidity and capital requirements will depend on many factors, including:



We
believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other contractual arrangements, will be sufficient to
meet our operating and capital requirements for at least one year. However, because of the uncertainties in our business, including the uncertainties listed above, we cannot assure you that this will
be the case. In addition, we may choose to obtain additional financing from time to time. We may choose to raise additional funds through public or private equity or debt financing, licensing and
other agreements, a bank line of credit, sale-lease back financing, mortgage financing, asset sales or other arrangements. We cannot be sure that any additional funding, if needed, will be
available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt financing, if available, may subject us to
restrictive covenants and significant interest costs. We

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may
also choose to obtain funding through licensing and other contractual arrangements. Such agreements may require us to relinquish our rights to certain of our technologies, products or marketing
territories. Our failure to raise capital when needed would harm our business, financial condition and results of operations.

Our indebtedness may harm our financial condition and results of operations.

At December 31, 2004, we had approximately $463.6 million of outstanding notes, including $113.7 million of convertible subordinated notes
due March 15, 2007, $300.0 million of outstanding convertible senior notes due December 15, 2011 and a $50.0 million note held by AstraZeneca. In addition, at
December 31, 2004, we had accrued approximately $25.6 million in long-term liabilities to Amgen pursuant to our co-development agreement. We may incur additional
indebtedness in the future. Our level of indebtedness will have several important effects on our future operations, including, without limitation:



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



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

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

We are exposed to equity price risk on our strategic investments in CuraGen and ImmunoGen and we may elect to make additional similar investments in the future.
In 1999 and 2000, we purchased an aggregate amount of $80.0 million of the common stock of CuraGen and ImmunoGen as strategic investments. In 2002, declines in the fair value of the CuraGen and
ImmunoGen common stock were deemed to be other than temporary, primarily because the stock of each company traded below our cost basis for more than six months. Accordingly, we recorded a total
impairment charge for the year ended December 31, 2002 of $67.3 million. The public trading prices of the shares of both companies have fluctuated significantly since we purchased them
and could continue to do so. If these shares trade below their new cost bases in future periods, we may incur additional impairment charges relating to these investments. As of December 31,
2004, these investments were recorded at fair value in long-term

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investments
on the balance sheet, and any net unrealized holding gains and losses are reported as a component of stockholders' equity.

Risks Related to the Development and Commercialization of our Products

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

Our XenoMouse and XenoMax technologies are new approaches to developing antibodies as products for the treatment of diseases and medical disorders. To date,
neither we nor our customers have commercialized any antibody therapeutic products based on our technologies. Moreover, we are not aware of any commercialized, fully human antibody therapeutic
products that have been generated from any technologies similar to ours. Our antibody therapeutic product candidates are still in various stages of development and many are in an early development
stage. We have initiated clinical trials with respect to four proprietary fully human antibody therapeutic product candidates, and our
collaborators have initiated clinical trials with respect to eight other fully human antibody therapeutic product candidates generated by XenoMouse technology. We cannot be certain that either
XenoMouse technology or XenoMax technology will generate antibodies against every antigen to which they are exposed in an efficient and timely manner, if at all. Furthermore, XenoMouse technology and
XenoMax technology may not result in any meaningful benefits to our current or potential customers or in product candidates that are safe and efficacious for patients. Our failure to generate antibody
therapeutic product candidates that lead to the successful commercialization of products would materially harm our business, financial condition and results of operations.

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

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



In
certain instances, we have terminated the clinical development of product candidates when the results of clinical trials did not warrant continued development. We hope to be able to
make up for the loss of diversity in our product pipeline through the number and variety of potential new product candidates we have in preclinical development. However, to the extent that we are
unable to maintain a broad and diverse range of product candidates, our success would depend more heavily on one or a few product candidates.

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

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

Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans. We have incurred and will continue to incur
substantial expense for, and we have devoted and expect to continue to devote a significant amount of time to, preclinical testing and clinical trials.

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

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



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

In
addition, we have ongoing research projects that may lead to product candidates, but we have not submitted INDs, nor begun clinical trials for these projects. Our ability to file
additional INDs, and to build diversity and scale in our product portfolio, depends to a significant extent on our ability to identify additional potential product candidates through our preclinical
research and to conduct preclinical research efficiently. Our preclinical or clinical development efforts may not be successfully completed, we may not file further INDs and clinical trials may not
commence as planned.

Two
of our proprietary product candidates, panitumumab and ABX-PTH, are in various stages of clinical trials. We have discontinued development of three proprietary product
candidates, ABX-CBL, ABX-IL8 and ABX-MA1. To date, data obtained from these clinical trials have been insufficient to demonstrate safety and efficacy under
applicable FDA guidelines. As a result, these data will not support an application for regulatory approval without further clinical trials or further results from ongoing trials. Clinical trials that
we conduct or that third parties conduct on our behalf may not

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demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates. We expect to commence new clinical trials from time to time in the course of
our business as our product development work continues. However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates. In addition, the FDA,
other regulatory authorities, our partners, the institutional review boards for clinical trial sites or we may suspend or terminate clinical trials at any time.

Our
product candidates may fail to demonstrate safety or efficacy in clinical trials. For example, in 2002 we completed analysis of a Phase 2b clinical trial of ABX-IL8 in
psoriasis, concluded that the results did not warrant continued development in psoriasis and decided not to proceed with studies in other disease indications. Similarly, in February 2003, we
completed a preliminary analysis of the results from the Phase 2/3 clinical trial of ABX-CBL and concluded that the study did not meet its primary endpoint. Therefore, we and our
co-developer, SangStat (now a subsidiary of Genzyme Corporation) do not plan any further development of ABX-CBL. Failures of clinical trials of any product candidate could
delay the development of other product candidates or hinder our ability to obtain additional financing. In addition, failures in our clinical trials can lead to additional research and development
expenses. Any delays in, or termination of, our clinical trials could impede our ability to commercialize our product candidates and materially harm our business, financial condition and results of
operations.

Success in early clinical trials may not be indicative of results obtained in subsequent trials.

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

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

We have limited experience manufacturing antibody therapeutic product candidates in our manufacturing facility. We intend to use our manufacturing facility for
the manufacture of product candidates for clinical trials and to support the potential early commercial launch of a limited number of products, in each case, in compliance with FDA and European good
manufacturing practices. In May 2000, we signed a long-term lease for the building that contains this manufacturing facility. Construction has been completed and portions of the
facility are operational and validated. In October 2003, following an inspection by the California State Department of Health Services, we received a State Drug Manufacturing License. The
license permits us to manufacture and ship clinical material from our manufacturing facility. The total cost of the facility was approximately $150 million. The costs of completing validation
of this facility, making the remaining portions of the facility operational and qualifying the facility for regulatory compliance may be higher than expected. We currently have excess production
services capacity and this condition may persist for an extended period. However, if the commercial launch of one or more of our product candidates proves successful, we will likely experience
capacity shortages and may need to use one or more third-party facilities to produce these products in sufficient quantities.

The
process of manufacturing antibody therapeutic products is complex. While the managers of the facility have gained extensive manufacturing experience in prior positions with other
companies, we

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have
limited experience in the clinical or commercial scale manufacturing of our existing product candidates, or any other antibody therapeutic products, in our facility. We will need to hire, train
and retain additional qualified manufacturing, quality control and quality assurance personnel. Also, we will need to manufacture such antibody therapeutic products in a facility and by an
appropriately validated process that comply with FDA, European and other regulations. Our manufacturing operations will be subject to ongoing, periodic unannounced inspection by the FDA and state
agencies to ensure compliance with good manufacturing practices. If we are unable to manufacture product or product candidates in accordance with FDA and European good manufacturing practices we may
not be able to obtain regulatory approval for our products and to supply our clinical trial needs. Any significant manufacturing changes for the production of our product candidates could result in
delays in development or regulatory approval or in the reduction or interruption of commercial sales of our product candidates. Our inability to maintain our manufacturing operations in compliance
with applicable regulations within our planned time and cost parameters could materially harm our business, financial condition and results of operations.

We
also may encounter problems with the following:



In
addition, the FDA and other regulatory authorities will require us to register any manufacturing facilities in which our antibody therapeutic products are manufactured. These
facilities will be subject to periodic and unannounced inspections to confirm compliance with FDA good manufacturing practices or other equivalent regulations. The FDA or foreign regulatory bodies
will not grant pre-market approval of our product candidates, including panitumumab, if our facilities cannot pass a pre-license inspection. Therefore, both the filing and
approval of a BLA for panitumumab could be delayed if we are unable to meet the relevant pre-license requirements and or if our facilities do not pass a pre-license inspection.
In complying with these regulations and foreign regulatory requirements, we will be obligated to expend time, money and effort in production, record keeping and quality control in an effort to ensure
that our product
candidates meet applicable specifications and other requirements. Our failure to maintain regulatory compliance would materially harm our business, financial condition and results of operations.

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

Previously, we relied on contract manufacturers to produce candidates under good manufacturing practice regulations for use in our clinical trials. While we have
established our own manufacturing facility, we cannot assure you that we will be able to qualify this facility for compliance with FDA and European good manufacturing practices or manufacture
sufficient quantities of our product candidates

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for
clinical trials or a potential early commercial launch. We continually evaluate our options for commercial production of our product candidates, including third-party manufacturers.

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

The successful growth of revenues from our manufacturing services depends to a large extent on our ability to find third parties who agree to use our services and our ability
to provide those services successfully.

We intend to enhance our contract revenues by entering into agreements to provide antibody production services to third parties. Potential third parties include
our existing collaborators, as well as other pharmaceutical and biotechnology companies, technology companies, academic institutions and other entities. We must enter into these agreements to
successfully develop this aspect of our business. To date, we have entered into only a few production services agreements and we cannot assure you that we will be able to enter into additional
agreements.

We
may not be able to secure manufacturing agreements on favorable terms. If we do obtain such agreements, we may encounter difficulties in performing as agreed. We may encounter
difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, training of personnel, compliance with FDA good
manufacturing practices and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls. The failure to deliver required quantities of
product on a timely basis and at commercially reasonable prices could materially harm our business, financial condition and results of operations.

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

Our strategy for the development and commercialization of antibody therapeutic products depends, in large part, upon the formation of collaboration agreements
with third parties. Potential third parties include pharmaceutical and biotechnology companies, technology companies, academic institutions and other entities. We must enter into these agreements to
successfully develop and commercialize product candidates. These agreements are necessary in order for us to:



Our
ability to continue our current collaborations and to enter into additional third party collaborations is dependent in large part on our ability to successfully demonstrate that our
XenoMouse technology is an attractive method of developing antibody therapeutic products. We have generated only a limited number of fully human antibody therapeutic product candidates pursuant to

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our
collaboration agreements that have advanced to the clinical stage. Our failure to maintain our existing collaboration agreements or to enter into additional agreements could materially harm our
business, financial condition and results of operations.

Our
dependence on licensing, collaboration, manufacturing and other agreements with third parties subjects us to a number of risks. These agreements may not be on terms that prove
favorable to us, and we typically afford our collaborators significant discretion in electing whether to pursue any of the planned activities. Licensing and other contractual arrangements may require
us to relinquish our rights to certain of our technologies, products or marketing territories. To the extent we agree to work exclusively with one collaborator in a given therapeutic area, our
opportunities to collaborate with other entities could be curtailed. For example, our collaboration with AstraZeneca for the identification and development of therapeutic antibodies in oncology
contains exclusivity provisions that significantly restrict our ability to enter into arrangements with third parties in the field of oncology as well as our ability to conduct research and
development activities in that field. To the extent that our collaboration with AstraZeneca is not successful, our ability to develop antibodies for use in oncology applications through other
collaborations will be severely curtailed. Our collaboration with AstraZeneca also limits our ability to develop such antibodies through our own independent development.

We
cannot control the amount or timing of resources our collaborators may devote to a collaboration, and collaborators may not perform their obligations as expected. Additionally,
business combinations or significant changes in a collaborator's business strategy may adversely affect a collaborator's willingness or ability to complete its obligations under the arrangement. Even
if we fulfill our obligations under an agreement, typically our collaborators can terminate the agreement at any time following proper written notice. The termination or breach of agreements by our
collaborators, or the failure of our collaborators to complete their obligations in a timely manner, could materially harm our business, financial condition and results of operations. If we are not
able to establish further collaboration agreements or any or all of our existing agreements are terminated, we may be required to seek new collaborators or to undertake product development and
commercialization at our own expense. Such an undertaking may:



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

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

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

Securing
FDA approval requires the submission of extensive preclinical and clinical data, manufacturing data and supporting information to the FDA for each indication to establish the
product candidate's safety and efficacy. The generation of data supporting the approval process takes many years, requires the expenditure of substantial resources, and may involve
post-marketing surveillance and requirements for post-marketing studies. As we conduct clinical trials for a given
product candidate, we may decide or the FDA may require us to make changes 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 materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We
may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials. The approval of a product
candidate may depend on the acceptability to the FDA of data from clinical trials conducted outside the United States. Regulatory requirements are subject to frequent change. Delays in obtaining
regulatory approvals may:



Our
product candidates may not be approved or may be approved with limitations or for indications that differ from those we initially target. Even if marketing approval from the FDA is
received, the FDA may impose post-marketing requirements, such as:



The
discovery of previously unknown problems with our future products may result in restrictions of the products, including withdrawal from manufacture. Additionally, certain material
changes affecting an approved product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. The FDA may revisit and change its prior determination
with

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regard
to the safety or efficacy of our products and withdraw any required approvals after we obtain them. Even prior to any formal regulatory action requiring labeling changes or affecting
manufacturing, we could voluntarily decide to cease the distribution and sale or recall any of our future products if concerns about their safety and efficacy develop.

In
their regulation of advertising, the FDA and the Federal Trade Commission ("FTC") may issue correspondence alleging that particular advertising or promotional practices are false,
misleading or deceptive. The FDA or FTC may impose a wide array of sanctions on companies for such advertising practices. Additionally, physicians may prescribe pharmaceutical or biologic products for
uses that are not described in a product'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 regulate
physicians' choice of treatments, the FDA does restrict a manufacturer's communications on the subject of "off-label" use. Companies cannot promote FDA-approved pharmaceutical
or biologic products for off-label uses. If our advertising or promotional activities fail to comply with the FDA's or FTC's regulations or guidelines, we may be subject to warnings from,
or enforcement action by, the FDA or FTC.

If
we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we or our third-party manufacturers may be subject to sanctions,
including:



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

If we are unable to manufacture our product candidates in compliance with current good manufacturing practices requirements, we will not be able to commercialize our product
candidates.

We are required to comply with the applicable FDA current good manufacturing practice, or "cGMP" regulations and other regulatory requirements. Good manufacturing
practice regulations

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include
requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities, including our facility, must
pass a pre-license inspection by the FDA before initiating commercial manufacturing of any product. The FDA enforces post-marketing regulatory requirements such as cGMP
requirements, through periodic unannounced inspections. We do not know whether we will pass any future FDA inspections. Failure to pass an inspection could disrupt, delay or shut down our
manufacturing operations. In addition, cGMP requirements are constantly evolving and new or different requirements may apply in the future. Manufacturing facilities in California, including our
facility, are also subject to the licensing requirements of and inspection by the State of California Department of Health Services. In October 2003, following an inspection, we received a Drug
Manufacturing License from the State of California. The license, which must be renewed annually, permits us to manufacture and ship clinical material. We are responsible for manufacturing clinical
and, for the first five years after launch, commercial supplies for panitumumab with Amgen's support and assistance. We may not be able to comply with applicable cGMP requirements and other regulatory
requirements. Our failure to comply with these requirements could delay or prevent the approval of our product candidates and would materially harm our business, financial condition and results of
operations.

If our products do not gain market acceptance among the medical community, our revenues would greatly decline and might not be sufficient to support our operations.

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



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

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

Although we have been marketing our XenoMouse technology to potential customers and collaborators for several years, we do not have marketing, sales or
distribution experience or capability with respect to our therapeutic product candidates. We intend to enter into arrangements with third parties to market and sell most of our therapeutic product
candidates when we commercialize them. For example, pursuant to our amended joint development agreement for panitumumab, Amgen has decision-making authority for development and commercialization
activities relating to any products developed under the collaboration, although we have the right to co-promote any products. Should we exercise this right to co-promote, it
will take significant resources to develop the appropriate sales capabilities and there can be no assurance that we will be able to do this successfully. We may not be able to enter into additional
marketing and sales arrangements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales arrangements with other companies, our revenues, if any, will depend
on the efforts of others. These efforts may not be successful. If we are unable to enter into third-party arrangements, we will need to develop a marketing and sales force, which may need to be
substantial in size, in order to achieve commercial success for any product candidate approved by the FDA. We may not successfully develop marketing and sales capabilities or have sufficient resources
to do so. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations. Our failure to enter into
successful marketing arrangements with third parties and our inability to conduct such activities ourselves would materially harm our business, financial condition and results of operations.

Risks Related to Intellectual Property

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

Our success depends in part on our ability to:



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

37

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

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

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

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



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

Risks Related to Our Industry

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

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We face competition in several
different forms. Our antibody

38

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generation
activities currently face competition from several companies and technologies. In addition, the product candidates that we or our customers are developing also face competition. Finally, we
compete with companies that currently offer antibody production services, and may compete with companies that currently only manufacture their own antibodies but could offer antibody production
services to third parties.

We
are aware of several pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antibody therapy. Many of these companies
have
commenced clinical trials of antibody therapeutic product candidates or have successfully commercialized antibody therapeutic products for use on their own or in combination therapies. Many of these
companies are addressing the same diseases and disease indications as we or our customers are.

We
compete with companies that offer the services of generating monoclonal antibodies for antibody-based therapeutics. These competitors have specific expertise or technology related to
antibody development and introduce new or modified technologies from time to time.

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



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

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



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

We
also face competition from companies that provide production services. These include contract manufacturers, such as Lonza, Avid Bioservices, Inc., Diosynth Biotechnology, DSM
N.V., Cangene Corporation and Goodwin Biotechnology Inc., and other pharmaceutical and biotechnology companies

39

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that
manufacture their own product candidates but can make extra capacity available to collaborators and customers, such as Boehringer Ingelheim GmbH, Biogen Idec Inc., ICOS Corporation, Abbott
and Novartis AG.

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

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

We may experience pressure to lower the prices of any prescription pharmaceutical products we are able to obtain approval for because of new and/or proposed federal
legislation.

New federal legislation, enacted in December 2003, has added an outpatient prescription drug benefit to Medicare, effective January 2006. In the
interim, Congress has established a discount drug card program for Medicare beneficiaries. Both benefits will be provided primarily through private entities, which will attempt to negotiate price
concessions from pharmaceutical manufacturers. These negotiations may increase pressures to lower prices. While the new law specifically prohibits the United States government from interfering in
price negotiations between manufacturers and Medicare drug plan sponsors, some members of Congress are pursuing legislation that would permit the United States government to use its enormous
purchasing power to demand discounts from pharmaceutical companies, thereby creating de facto price controls on prescription drugs. In addition, the new law contains triggers for Congressional
consideration of cost containment measures for Medicare in the event Medicare cost increases exceed a certain level. These cost containment measures could include some sorts of limitations on
prescription drug prices. The new legislation also modified the methodology used for reimbursement of physician administered and certain other drugs already covered under Medicare Part B. This
new methodology would likely apply to certain of our products if and when commercialized. Experience with new reimbursement methodology is limited, and could be subject to change in the future. Our
results of operations could be materially harmed by the different features of the Medicare prescription drug coverage legislation, by the potential effect of such legislation on amounts that private
insurers will pay for our products and by other healthcare reforms that may be enacted or adopted in the future.

Other Risks Related to Our Company

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

For us to pursue product development, manufacturing, marketing and commercialization plans, we will need to hire additional qualified scientific, manufacturing,
quality control, quality assurance, and key management personnel, including a vice president of quality and a vice president of process science. We may also need to hire personnel with expertise in
clinical testing, government regulation,

40

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marketing,
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 given the competition
for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. The inability to attract and retain qualified personnel
could materially harm our business, financial condition and results of operations.

We
grant stock options as a method of attracting and retaining employees, to motivate performance and to align the interests of management with those of our stockholders. Due to
fluctuations in the trading price of our common stock in recent years, a substantial portion of the stock options held by our employees have an exercise price that is higher than the current trading
price of our common stock. We may elect to grant additional stock options at the current lower market price, pay higher cash compensation, or provide some combination of these alternatives to retain
and attract qualified employees, but we cannot be sure that any of these actions would be successful. If we issue additional stock options, this would dilute existing stockholders. In addition, the
expensing of stock options and other stock-based awards may increase any net losses or decrease any net income recorded in any given period and could affect the price that investors might be willing
to pay in the future for shares of our common stock.

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

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

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



In
addition, our past and future acquisitions of companies and businesses and expansion of operations may result in dilutive issuances of equity securities, the incurrence of additional
debt, U.S. or foreign tax liabilities, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense or other
charges to expense. For example, we recorded a one-time charge of $17.2 million in the quarter ended June 30, 2004, as a result of our determination that an impairment of our
acquired technology in the field of catalytic antibodies had occurred and that the estimated value had declined to zero. This technology was acquired in 2001 through the acquisition of Hesed
Biomed, Inc. After assessing the associated patent position and the likelihood of sale or license of the technology to a third party, we further determined that the possibility of generating
positive future cash flows from the technology was remote. We continue to evaluate our internal programs and assets. Further changes in our plans or strategy could result in additional
one-time charges.

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

In June 1999, our board of directors adopted a stockholder rights plan, which we amended and restated in November 1999 and May 2002, and
amended in October 2003. The stockholder rights plan

41

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and
certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. This could affect the price that certain investors might be willing to pay in the future for our common stock. Certain provisions
of our amended and restated certificate of incorporation and amended and restated bylaws allow us to:



In
October 2003, we entered into a collaboration and license agreement with AstraZeneca for the purpose of identifying and developing antibody products for use in oncology
therapeutics. The collaboration agreement includes provisions that would allow AstraZeneca to accelerate its selection of target antigens and, in certain situations, terminate the collaboration
agreement, or specific programs or activities conducted under it, in the event of a change in control in us, particularly if we were acquired by a competitor of AstraZeneca. In the event of a change
in control of us, AstraZeneca could also acquire control over the development programs and various intellectual property rights in respect of antigens that are the subject of the collaboration
agreement. This would result in a reduction in the royalties and milestones to be paid by AstraZeneca to us under the collaboration agreement and the release of AstraZeneca from certain exclusivity
provisions. In addition, certain exclusivity provisions
contained in the collaboration agreement would apply to an acquirer of our company and would restrict the acquirer's ability to operate its business in the oncology field after the acquisition, except
with respect to pre-existing development programs. These and other provisions of the collaboration agreement could make our company less attractive to a potential acquirer, particularly an
acquirer that conducts or expects to conduct significant operations in the field of oncology therapeutics.

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

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

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

42

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product
liability claim or series of claims against us for uninsured liabilities or in excess of insured liabilities, our business, financial condition and results of operations may be materially
harmed.

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

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

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

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

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

The market price and trading volume of our common stock are volatile, and we expect such volatility to continue for the foreseeable future. For example, during
the period between December 31, 2003 and December 31, 2004, our common stock closed as high as $18.55 per share and as low as $7.77 per share. This may impact your decision to buy or
sell our common stock. Factors affecting our stock price include:



Available Information

Our Internet address ishttp://www.abgenix.com. We make available free of charge on
or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports

43

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on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. Other than the information expressly set forth in this annual report, the information contained, or referred to, on our website is
not incorporated into this annual report.

Item 2. Properties

We currently lease approximately 516,000 square feet of office, laboratory and manufacturing facilities in Fremont, California and British Columbia, Canada. Our
leases expire in the years 2010 through 2015 and each includes an option to extend, other than the leases for our facilities in Canada. We believe that our current facilities are adequate for our
needs for the foreseeable future and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations on commercially reasonable terms.

Item 3. Legal Proceedings

We are involved from time to time in ordinary and routine litigation in connection with our business. We do not believe that there is any pending litigation in
which we are involved or threatened claim against us that will materially harm, our business, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our stockholders, either through the solicitation of proxies or otherwise, during the quarter ended December 31,
2004.

44

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Price Range of Common Stock

Our common stock trades on the Nasdaq National Market under the symbol "ABGX." The following table lists quarterly information on the price range of our common
stock based on the high and low reported closing prices for our common stock as reported on the Nasdaq National Market for the periods indicated below. These prices do not include retail markups,
markdowns or commissions. As of February 28, 2005, there were 228 holders of record of our common stock.

High

LowFiscal 2003:First Quarter

$
8.86

$
4.58Second Quarter


12.28


7.80Third Quarter


16.58


10.36Fourth Quarter


15.05


10.56Fiscal 2004:First Quarter

$
16.53

$
12.42Second Quarter


18.55


11.22Third Quarter


11.36


7.77Fourth Quarter


10.83


8.25


45

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Item 6. Selected Consolidated Financial Data

|                                                              |                                                                        | Year Ended December 31,       |         
|------------------------------------------------------------- | ---------------------------------------------------------------------- | ----------------------------- | --------
|
|
|Consolidated Statement of Operations Data:                    |                                                                        |                               |         
|Revenues:                                                     |                                                                        |                               |         
|                                                              | Contract revenue                                                       |                               | $       
|                                                              | Contract manufacturing revenue                                         |                               |         
|                                                              |                                                                        |                               |         
|                                                              |                                                                        | Total revenues                |         
|                                                              |                                                                        |                               |         
|Operating expenses:                                           |                                                                        |                               |         
|                                                              | Cost of goods manufactured                                             |                               |         
|                                                              | Research and development                                               |                               |         
|                                                              | Manufacturing start-up costs                                           |                               |         
|                                                              | Amortization of intangible assets, related to research and development |                               |         
|                                                              | General and administrative                                             |                               |         
|                                                              | Impairment of intangible assets                                        |                               |         
|                                                              | Restructuring charge                                                   |                               |         
|                                                              | In-process research and development charge                             |                               |         
|                                                              |                                                                        |                               |         
|                                                              |                                                                        | Total operating expenses      |         
|                                                              |                                                                        |                               |         
|Loss from operations                                          |                                                                        |                               | (185,627
|Other income (expenses):                                      |                                                                        |                               |         
|                                                              | Interest and other income (expense), net                               |                               |         
|                                                              | Interest expense                                                       |                               |         
|                                                              | Impairment of investments                                              |                               |         
|                                                              |                                                                        |                               |         
|                                                              |                                                                        | Total other income (expenses) |         
|                                                              |                                                                        |                               |         
|Loss before income tax expense                                |                                                                        |                               | (187,478
|                                                              | Foreign income tax expense                                             |                               |         
|                                                              |                                                                        |                               |         
|Net loss                                                      |                                                                        | $                             | (187,478
|                                                              |                                                                        |                               |         
|Basic and diluted net loss per share                          |                                                                        | $                             | (2.11   
|                                                              |                                                                        |                               |         
|Shares used in computing basic and diluted net loss per share |                                                                        |                               | 88,710  
|                                                              |                                                                        |                               |         

|                                                 |  | December 31, |         
|------------------------------------------------ |  | ------------ | --------
|
|
|Consolidated Balance Sheet Data*:                |  |              |         
|Cash, cash equivalents and marketable securities |  | $            | 416,329 
|Working capital                                  |  |              | 400,567 
|Total assets                                     |  |              | 812,718 
|Long-term debt                                   |  |              | 489,256 
|Redeemable convertible preferred stock           |  |              | 49,869  
|Accumulated deficit                              |  |              | (752,254
|Total stockholders' equity                       |  |              | 231,125 

---

46

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements
based upon current expectations that involve risks and uncertainties. When used in this Annual Report on Form 10-K, the words "intend," "anticipate," "believe," "estimate," "plan"
and "expect" and similar expressions as they relate to Abgenix are included to identify forward-looking statements. Our actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain factors, including those set forth below and under "Risk Factors that Might Affect Future Results" set forth in
Item 1 of Part I of this Annual Report on Form 10-K and elsewhere in this Annual Report on Form 10-K.

Overview

The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand our company.



We are a biopharmaceutical company that is focused on the discovery, development and manufacture of human therapeutic antibodies for the treatment of a variety of
diseases. We intend to use our proprietary technologies to build a diversified product portfolio that we expect to develop and commercialize internally or through joint development and
commercialization arrangements with pharmaceutical and biotechnologies companies.

We
are co-developing our most advanced proprietary product candidate, panitumumab, with Amgen. Panitumumab is in pivotal trials, and we have one other product candidate,
ABX-PTH, in early stage clinical trials. In addition, we have entered into a variety of contractual arrangements with pharmaceutical, biotechnology and genomics companies involving our
technologies. We use our closely integrated process sciences and manufacturing capabilities for the manufacture of our own proprietary product candidates and also offer these services to our
collaborators and others.

We
have entered into joint development arrangements with companies such as Chugai, U3 Pharma and Dendreon, and intend to enter into additional joint development agreements. We generally
expect to self-fund preclinical and clinical activities to determine preliminary safety and efficacy before deciding whether to conduct further product development internally or enter into
joint development and commercialization agreements. Our strategy is designed to diversify the risks associated with our research and development spending and to continue to focus our activities on
product development and commercialization.

We
also have a broad collaboration in oncology with AstraZeneca UK Limited. Pursuant to this collaboration we are providing preclinical and clinical research support and process
development for up to 36 product candidates to be developed by AstraZeneca, and have the opportunity to co-develop up to 18 additional products with AstraZeneca.



We derive our revenues from our technology out-licensing contracts, our proprietary product development agreements, our target sourcing contracts and
our production services contracts. Prior to the potential marketing approval of panitumumab, we expect that substantially all of our revenues for the foreseeable future will result from payments under
these and similar arrangements and that payments we receive under these arrangements will continue to be subject to significant fluctuation in both timing and amount.

We
have incurred and expect to continue to incur substantial expenses in connection with our product development activities, both under contractual arrangements with third parties and
related to

47

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our
independent research and development efforts. Regulatory and business factors will require us to expend substantial funds in the course of completing required additional development, preclinical
testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous
uncertainties that may adversely affect our liquidity and capital resources.

We
have incurred net losses since we were organized as an independent company, including a net loss of $187.5 million in 2004. We expect to incur additional losses for the
foreseeable future as a result of our research and development costs and manufacturing start-up costs, including costs associated with conducting preclinical development and clinical
trials, and charges related to purchases of technology or other assets. We expect that the amount of our operating losses will fluctuate significantly from quarter to quarter.

At
December 31, 2004, we had cash, cash equivalents and marketable securities of $416.3 million, which included proceeds from the issuance of the convertible senior notes
due 2011, net of initial purchasers' discount and commission, in December 2004. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous
uncertainties that may adversely affect our liquidity and capital resources to a significant extent. We plan to continue to make significant expenditures to staff and operate our own manufacturing
facility and support our research and development activities, including preclinical product development and clinical trials. We expect that these activities may increase our operating expenses over
the next few years in comparison to prior periods. We may also repurchase a portion of our outstanding convertible subordinated notes due 2007.

Results of Operations

Years Ended December 31, 2004, 2003 and 2002



Contract revenues totaled $16.1 million, $16.8 million and $19.3 million in 2004, 2003 and 2002, respectively. Because contract revenues
depend to a large extent on the success or failure of research and development efforts undertaken by our collaborators and licensees, our year-to-year contract revenues can
fluctuate significantly and are inherently difficult to predict.

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



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Contract manufacturing revenues totaled $1.7 million in 2004. These revenues consisted primarily of manufacturing services for the manufacture of an
antibody product for a customer under a production services agreement. In 2003 and 2002, we did not recognize any revenues from manufacturing services.



Cost of goods manufactured was $2.2 million in 2004. Cost of goods manufactured included material, direct labor, outside testing and overhead costs
associated with manufacturing an antibody product for a customer under a production services agreement. In 2003 and 2002, we did not have any cost of goods manufactured.



Research and development expenses increased to $124.8 million in 2004 from $98.2 million in 2003 and decreased from $128.5 million in 2002.
The major components of research and development expenses for 2004, 2003 and 2002 were as follows:

December 31,2004

2003

2002(in thousands)Product development

$
88,873

$
62,236

$
85,381Research


33,423


32,557


38,280In-licensing


2,462


3,366


4,833Total research and development costs

$
124,758

$
98,159

$
128,494


Product
development costs include costs of preclinical development, cell line development and conducting clinical trials for our proprietary product candidates. Additionally, starting in
2003, product

49

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development
includes costs related to cell line development activities we perform under our production services contracts. The primary components of product development include the costs of Abgenix
personnel, drug supply costs, research fees charged by outside contractors, co-development costs, and facility expenses including depreciation. Our product development costs increased in
2004 as compared to 2003, primarily due to a significant increase in the development costs for the panitumumab program. To a lesser extent, the increase was due to costs related to new preclinical and
clinical product candidates including ABX-PTH. In 2003, our product development costs decreased in comparison 2003 to 2002. Development costs for the panitumumab program increased
significantly in 2003; however, offsetting this increase were decreases that were primarily related to discontinuing the development of ABX-IL8 and ABX-CBL, as well as
decreases in costs for ABX-PTH, ABX-MA1 and other pipeline product candidates. Product development costs can vary significantly from period to period depending on the progress
of the development activities in the period. Overall, we expect costs associated with product development to increase in 2005 as we and our co-development partner Amgen continue to focus
our development efforts on the panitumumab program. In addition, we expect product development costs related to ABX-PTH to increase in 2005.

Research
costs include costs associated with research, and testing of antibodies we generate, whether for ourselves or for our customers, prior to the development stage which begins with
the commencement of preclinical activities. Research costs also include the costs of research relating to proprietary technologies, including enhancements to those technologies. The primary components
of research costs include the costs of Abgenix personnel, facilities, including depreciation, and lab supplies. Our research costs generally remained at the same level in 2004 as compared to 2003.
Beginning in October of 2002, we implemented a restructuring of our operations and reduced many of our research and testing activities including those related to new target validation. As a result,
our research costs decreased in 2003 as compared to 2002. We expect research costs to increase in 2005 due to increased research activities related to our proprietary and partner pipelines.

In-licensing
costs include costs to acquire licenses to develop and commercialize various technologies and product candidates. In-licensing costs decreased in
2004 and 2003 primarily due to a reduction in costs associated with licensing charges from arrangements with research institutions and others. We expect in-licensing costs to decrease in
2005.

Major
components of research and development costs for 2004 and 2003 were as follows:



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Manufacturing start-costs were $25.4 million and $72.5 million in 2004 and 2003, respectively. We began manufacturing antibody therapeutic
candidates in portions of our manufacturing facility in the second quarter of 2003, at which time we began to depreciate the portions of the facility that were placed into service. Manufacturing
start-up costs include certain costs associated with our new manufacturing facility, including depreciation, outside contractor costs and personnel costs for activities such as quality
assurance and quality control. The primary component of this cost in 2003 was a fee of approximately $28.0 million for the negotiated cancellation of a manufacturing supply agreement with an
outside contractor, Lonza Biologics plc. The manufacturing agreement was for a production suite held exclusively for us, which we were not using. In addition to the absence of the cancellation fee in
2004, the decrease in 2004 as compared to 2003 was primarily due to the increased use of our manufacturing facility for the manufacture of panitumumab and other development activities, including
process validation for the manufacture of panitumumab conformance lots.



Our identified intangible assets consist primarily of existing technology (including patents and certain royalty rights) we acquired through the acquisitions of
Hesed Biomed in 2001, Abgenix Biopharma and IntraImmune in 2000, and JT America's interest in Xenotech in 1999. Amortization of intangible assets totaled $6.5 million, $7.2 million and
$7.3 million in 2004, 2003 and 2002, respectively. Beginning January 1, 2002, upon our adoption of Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets," we no longer amortize goodwill. Instead, we will perform impairment tests annually, or earlier if indications of impairment
exist. We conducted an initial test for impairment of our goodwill in 2002 and an annual impairment test in 2004, 2003 and 2002, and concluded that no impairment charge was required. All

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other
intangible assets will continue to be amortized over their estimated useful lives. The decrease in amortization in 2004 from 2003 was due to a reduction in intangible assets due to the
write-off in the second quarter of 2004 of the remaining value of the catalytic antibody technology that we acquired through the acquisition of Hesed Biomed Inc.



General and administrative expenses include compensation, professional services, consulting and other expenses related to information systems, legal, finance, and
an allocation of facility costs. General and administrative expenses totaled $27.3 million in 2004, $30.2 million in 2003 and $31.6 million in 2002. The decrease in 2004 as
compared to 2003 was primarily due to a charge of $2.1 million in 2003 related to the sublease of one of our facilities. The decrease in 2003 as compared to 2002 was primarily due to a decrease
in consulting services related to the implementation of our new information systems in 2002 and in legal costs, partially offset by a charge of $2.1 million in 2003 due to the sublease of one
of our facilities for less than our obligation under the lease.



In June 2004, we determined that an impairment of the Company's acquired technology in the field of catalytic antibodies had occurred and that the
estimated value had declined to zero. This technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc. We decided to focus our resources
on other research and development projects and to wind down our
catalytic antibody program. Additionally, after assessing the associated patent position and the likelihood of sale or license of the technology to a third party, we further determined in 2004 that
the possibility of generating positive future cash flows from the technology was remote. As a result of this determination, we recorded an impairment charge of $17.2 million in 2004.

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



In October 2002, we announced a restructuring plan, which consisted primarily of a 15% reduction in employees. A restructuring charge of
$1.8 million was recorded in 2002 to account for severance, medical and other benefits associated with this restructuring. Of the $1.8 million, $0.7 million was paid in 2002 and
the remainder in 2003.



Interest and other income (expense), net, consists primarily of interest from cash, cash equivalents and marketable securities and loss from early extinguishment
of debt. Interest and other income (expense), net, totaled $5.4 million in 2004, $10.0 million in 2003 and $20.1 million in 2002. The decrease in 2004 as compared to 2003 was due
to the $1.0 million of loss from early extinguishment of debt related to the repurchase of $86.3 million of our convertible subordinated notes due 2007 and the result of lower average
cash, marketable securities and cash equivalent balances. The decrease in 2003 as compared to 2002 was primarily due to lower interest rates and lower average investment balances.



Interest expense is primarily related to interest and amortization of issuance costs on our convertible subordinated notes due 2007. Interest expense totaled
$7.2 million in 2004, $5.8 million in 2003 and $4.8 million in 2002. The increase in 2004 as compared to 2003 was primarily due to the

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interest
related to the credit facility with Amgen and a decrease in the amount of capitalized interest. The interest expense increase in 2003 as compared to 2002 was primarily due to the
$200.0 million of convertible notes due 2007 we issued in March 2002, which accrue interest at an annual rate of 3.5%, payable semi-annually. Interest expense in the amount
of $1.7 million, $2.5 million and $1.9 million related to the convertible notes was capitalized in 2004, 2003 and 2002, respectively. Capitalized interest decreased in 2004 and
the third and fourth quarters of 2003 because we placed into service a portion of our manufacturing facility in 2003 when we began manufacturing antibody therapeutic candidates in that portion of the
facility. In December 2004, we issued $300.0 million of convertible senior notes due 2011, which accrue interest at an annual rate of 1.75% payable semi-annually, and used a
portion of the proceeds to repurchase $86.3 million of the outstanding notes due 2007. In 2005, we expect to pay and record expense of approximately $9.2 million in interest related to
our convertible notes assuming we do not repurchase or otherwise retire any additional notes due 2007. Additionally, we will record interest at 12% on the amounts we draw on our credit facility with
Amgen until we repay the balance in full. For the year ended December 31, 2004, the amount of interest expense recorded under the Amgen arrangement was $517,000. The amount of any such
advances, plus interest, may be repaid out of profits resulting from future product sales; however, we are generally not obligated to repay any portion of the outstanding balance if panitumumab does
not reach commercialization.



In 2001, we invested $15.0 million in equity securities of MDS Proteomics, a privately held company, in connection with our collaboration with that
company. As of December 31, 2003 and June 30, 2002, we determined that an impairment of our investment had occurred and estimated that the value of our investment had declined to zero
and $7.9 million, respectively. Accordingly, we recorded impairment charges of $7.9 and $7.1 million, respectively, in the fourth quarter of 2003 and second quarter of 2002. The amount
of the charge was based on the difference between the estimated value as determined by our management and our revised or original cost basis.

We
purchased an aggregate amount of $80.0 million of common stock of CuraGen and ImmunoGen as strategic investments at various times in 1999 and 2000. In 2002, declines in the
fair value of the CuraGen and ImmunoGen common stock were deemed to be other than temporary. Accordingly, we
recorded a total impairment charge of $67.3 million for the year ended December 31, 2002. As of December 31, 2004, these investments were recorded at fair value in
long-term investments on the balance sheet, and the net unrealized holding gain of $10.6 million is included as a component of stockholders' equity. If we deem these investments
further impaired at the end of any future period, we may incur an additional impairment charge on these investments.



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

Liquidity and Capital Resources

At December 31, 2004, we had cash, cash equivalents and marketable securities of $416.3 million. We invest our cash equivalents and marketable
securities primarily in highly liquid, interest bearing, investment grade and government securities in order to preserve principal. We have also invested in certain marketable equity securities of
ImmunoGen and CuraGen for strategic reasons. These securities had a fair value of $23.3 million at December 31, 2004.

Cash Used in Operating Activities.Net cash used in operating activities was $130.8 million, $118.2 million and
$118.7 million in 2004, 2003 and 2002, respectively. This reflects an increase of

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$12.6 million
in 2004 and a decrease of $0.5 million in 2003. The major components of the changes in cash used in operating activities were primarily the following:



Cash Provided by (Used in) Investing Activities.Net cash provided by investing activities was $50.5 million and
$30.5 million in 2004 and 2002, respectively. Net cash used in investing activities was $173.5 million in 2003. Net cash provided by and used in investing activities primarily consisted
of the following:



Cash Provided by Financing Activities.Net cash provided by financing activities was $210.1 million,
$102.8 million and $196.5 million in 2004, 2003 and 2002, respectively. In 2004, net cash provided by financing activities included $291.0 million of net proceeds from our
issuance of convertible senior notes due 2011, as described below. A portion of the net proceeds was used to repurchase $86.3 million principal amount of convertible subordinated notes due
2007, which we issued in March 2002. In 2003, cash provided by financing activities included $99.7 million of net proceeds from our issuance of Series A-1 and
A-2 redeemable convertible preferred stock, as described below. In 2002, cash provided by financing activities included $194.0 million of net proceeds from our issuance of
convertible subordinated notes due 2007, as described below. In 2004, 2003 and 2002 we received proceeds of $5.1 million, $3.1 million and $2.5 million, respectively from the
issuance of our common stock upon exercise of stock options and pursuant to our employee stock purchase plan.

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In
December 2004, we issued $300.0 million principal amount of convertible senior notes due 2011 in a private placement. The notes are senior in right to any existing
indebtedness which is subordinated by its terms, including our 3.5% convertible subordinated notes due 2011 and convertible subordinated note due 2013. The notes are convertible into shares of our
common stock at an initial conversion rate of 78.0153 shares per each $1,000 principal amount of notes (which is equivalent to a conversion price of approximately $12.82 per share), subject to
adjustment in certain circumstances. The notes accrue interest at an annual rate of 1.75% payable on June 15 and December 15 of each year. The notes will mature on December 15,
2011 and are redeemable at our option on or after December 20, 2009 at the specified redemption prices. In addition, the holders of the notes may require us to repurchase the notes at their
principal amount plus accrued and unpaid interest, subject to certain conditions, if we undergo certain changes in control. In addition, upon certain changes in control and subject to certain
conditions, additional shares of common stock may become issuable to holders upon conversion of the notes. Holders of the notes also may require us to repurchase their notes for their principal amount
plus accrued and unpaid interest upon the occurrence of an event of default. Proceeds from issuance of the notes, net of commissions payable to the initial purchasers, were $291.0 million.

In
October 2003, in connection with a collaboration agreement, we entered into a securities purchase agreement with AstraZeneca. Pursuant to the agreement, we issued to
AstraZeneca $50.0 million of Series A-1 and $50.0 million of Series A-2 convertible preferred stock which mature 7 and 10 years,
respectively, from the date of issuance. The net proceeds from the securities were $99.7 million. Due to the redemption feature, we do not record the redeemable convertible preferred stock in
stockholders' equity on our consolidated balance sheet. Pursuant to its terms, the Series A-2 preferred stock was redeemed at the option of AstraZeneca in February 2004 and
we issued AstraZeneca a convertible subordinated note with a principal amount of $50.0 million, which matures on October 29, 2013. No interest is payable on the note except in the event
of a payment default by us. Subject to various terms and conditions, if a certain milestone event is reached, we will have the option to issue to AstraZeneca up to $30.0 million of
Series A-3 preferred stock and if a further milestone event is reached, we will have the option to issue to AstraZeneca up to $30.0 million of Series A-4
preferred stock. Each of the Series A-3 preferred stock and the Series A-4 preferred stock will have a maturity date that is five years from issuance.

Subject
to certain conditions, we can convert each series of preferred stock and can convert the convertible subordinated note issued to AstraZeneca into shares of our common stock at a
conversion price equal to the lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market
price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share. AstraZeneca may convert each series of
preferred stock and the convertible subordinated note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the earlier of (a) the redemption date or
(b) the maturity date, as applicable. We must redeem all outstanding shares of the Series A-1 preferred stock, if any, at a cash redemption price per share equal to the
liquidation preference by October 29, 2010, the mandatory redemption date. The note matures on October 29, 2013, if still outstanding. In addition, we can, upon at least 15 days'
notice to the holder, redeem the shares of Series A-1 preferred stock and the convertible subordinated note for cash in an amount equal to its liquidation preference or face amount,
as the case may be, at any time prior to maturity of the instrument. In addition to the mandatory redemption and maturity dates of these securities, certain events can give rise to an earlier
redemption. In certain circumstances, we have certain rights to convert the securities into common stock instead of redeeming the securities for cash. See Note 9 to the financial statements for
a full description of the conversion, redemption, and liquidation rights.

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

In
March 2000 and February 2001, we obtained stand-by letters of credit for $2.0 million and $3.0 million, respectively, from a commercial bank as
security for our obligations under two facility leases. These were increased in January 2002 to $2.5 and $3.2 million, respectively, in connection with amendments to our facility leases.
In December 2003, the $3.2 million stand-by letter of credit increased to $3.5 million. The outstanding stand-by letters of credit are secured by an
investment account, in which we must maintain a balance of approximately $7.0 million.

Financing Uncertainties Related to Our Business Plan.We plan to continue to make significant expenditures to staff and
operate our own manufacturing facility and support our research and development activities, including preclinical product development and clinical trials. We also intend to look for opportunities to
acquire new technology through in-licensing, collaborations or acquisitions. We may spend additional amounts to support new production services contracts.

We
currently intend to use our available cash on hand to finance these projects and business developments, but we might also pursue other financing alternatives, such as equity,
equity-linked debt or debt financing, a bank line of credit, sale-lease back financing, asset sales, funding by one or more collaborators or a mortgage financing, that may become available
to us. We have a currently effective shelf registration that allows us to issue from time to time up to $250 million in equity or debt securities. Whether we use cash on hand or choose to
obtain financing will depend on, among other things, the future success of our business, the prevailing interest rate environment and the condition of financial markets generally.

In
October 2003, we entered into an amendment of our joint development and commercialization agreement with Amgen for the co-development of panitumumab. Under the
agreement, Amgen is obligated to make available in 2004 and 2005 up to $60.0 million in advances that we may use to fund a portion of our share of development and commercialization costs after
we have contributed
$20.0 million toward development costs in 2004. As of December 31, 2004 we had a carrying balance of $25.6 million and had drawn an additional $9.0 million under this
facility in February 2005. We expect to continue to make use of this credit facility in 2005 up to the $60.0 million limit.

The
amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources to
a significant extent. Two of our proprietary product candidates, panitumumab and ABX-PTH, are in various stages of clinical trials which may require significant expenditures in the
foreseeable future. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a
product candidate.

We
test our potential product candidates in numerous preclinical studies to identify disease indications for which they may be product candidates. We may conduct multiple clinical trials
on our own or with our collaborators to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product
candidates or for one or more indications for a given product candidate in order to focus our resources on more

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promising
product candidates or indications. For example, in January 2002 and May 2002, we announced that clinical trials of our proprietary product candidate ABX-IL8 as a
treatment for rheumatoid arthritis and psoriasis, respectively, did not support further clinical studies of that product candidate. Additionally in February 2003, we announced that the clinical
trial of our proprietary product candidate ABX-CBL as a treatment for graft versus host disease, did not support further clinical studies of that product candidate.

An
important element of our business strategy is to pursue the research and development of a diverse range of product candidates for selected disease indications in our areas of focus.
We may enter co-development agreements, similar to our agreement with Amgen for panitumumab, and may enter into additional joint development agreements earlier in the development life
cycle of product candidates than we did in our existing co-development agreements. We have begun to implement our collaboration strategy through co-development arrangements
with companies such as Chugai, U3 and Dendreon. Our strategy is designed to diversify the risks associated with our research and development spending. The decisions to terminate or wind down our
clinical programs for developing ABX-IL8, ABX-CBL and ABX-MA1 have reduced the diversity of our product portfolio. We believe that this effect is temporary in view
of the number and diversity of potential product candidates we have in preclinical development. For example, we recently advanced ABX-PTH from the preclinical stage into a clinical study
in patients with secondary hyperparathyrodism. To the extent, however, that we are unable to maintain a diverse and broad range of product candidates; our success would depend to a greater extent on
the success of one or a few product candidates.

Our
proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to
subsequent clinical
trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. The number, size and type of clinical trials we conduct for a
particular product candidate are also affected by the policies of the FDA and European regulatory agencies regarding the availability of possible expedited approval procedures, which we may seek to
utilize. These policies may change from time to time. As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes 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 materials is
proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing,
which could delay the expected time line for concluding clinical trials. In addition, the results from preclinical testing and early clinical trials have often not been predictive of results obtained
in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain
necessary regulatory approvals.

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

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



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

History of Net Losses.We have incurred net losses since our organization as an independent company, including in the last
five years net losses of $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $187.5 million in 2004. As of
December 31, 2004, our accumulated deficit was $752.3 million. Our losses to date have resulted principally from:



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

Net Operating Loss Carryforwards.As of December 31, 2004, we had net operating loss carryforwards for federal and
state income tax purposes of approximately $670.0 million and $194.0 million, respectively. Our net operating loss carryforwards exclude losses incurred prior to our formation in
July 1996. Further, we have capitalized the amounts associated with the 1997 patent cross-license and settlement agreement with GenPharm, which we have expensed for financial statement
accounting purposes and we are amortizing those amounts over a period of approximately 15 years for tax purposes. The federal and state net operating loss and credit carryforwards will expire
in the years 2006 through 2024, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Critical Accounting Estimates

Several estimates and judgments involved in the application of accounting principles impact the financial results that we report. We are required to estimate the
effect of matters that are inherently uncertain. Changes in our estimates or judgments could materially impact our results of operations, financial condition and cash flows in future years. We believe
our most critical accounting estimates include revenue recognition, and accounting for goodwill, intangible assets, income taxes and stock option valuation.



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

Abgenix
enters into revenue arrangements with multiple deliverables in order to meet its customer's needs. For example, the arrangements may include a combination of up-front
fees, license payments, research and development services, milestone payments, future royalties, and manufacturing arrangements. Multiple element revenue agreements entered into on or after
July 1, 2003 are evaluated under Emerging Issues Task Force No. 00-21, "Revenue Arrangements with Multiple Deliverables," or EITF 00-21, to determine
whether the delivered item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the undelivered item exists. Deliverables in an arrangement
that do not meet the separation criteria in EITF 00-21 must be treated as one unit of accounting for purposes of revenue recognition. Generally, the revenue recognition guidance
applicable to the final deliverable is followed for the combined unit of accounting. For certain arrangements, the period of time over which certain deliverables will be provided is not contractually

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defined.
Accordingly, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.



As a result of the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," in 2002, we no longer amortize goodwill but instead review goodwill
for impairment on an annual basis, or sooner if indications of impairment exist. Under our accounting policy, we have adopted the beginning of the fourth quarter as an annual goodwill impairment test
date. Following this approach, we compare the carrying values available as of September 30 with the estimated fair value of the reporting unit to assess if there has been a potential
impairment, and, if impairment is indicated, complete the measurement of impairment under the procedures established by SFAS 142. Because we have determined that we have one reporting unit
under SFAS No. 142, our market capitalization is considered to be a reasonable proxy for the fair value of the reporting unit. We also consider whether current business and general market
conditions suggest that the fair value of the reporting unit has likely declined below its carrying value.

For
a brief period during the first quarter of 2003, our common stock had traded at a price that represented a market capitalization less than our book value. However this condition did
not persist for long and since March 31, 2003, our common stock has traded at a price that represents a market capitalization higher than our book value. Our market capitalization at
December 31, 2004 was $921.8 million based on the December 31, 2004 stock price of $10.34 per share. Accordingly, no impairment has occurred.

If
we were to determine in a future period that an impairment of goodwill existed, the impairment measurement procedures could result in a charge for the impairment of goodwill.
Furthermore, a change in our determination of reporting units could result in a charge for the impairment of goodwill in future periods. A change in the determination of reporting units could occur
should we reorganize into reporting units such that each unit constitutes a business for which discrete financial information is available that is regularly reviewed by management to evaluate the
performance of that unit. As of December 31, 2004, the carrying value of our goodwill was $34.8 million.

As
a result of the adoption of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," intangible assets held and used must be tested for
impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable. Factors that are considered important in determining whether impairment might exist include
a significant change in the manner in which an asset is being used, a significant adverse change in legal factors or the business climate that could affect the value of an asset, including an adverse
action or assessment by a regulator, a current expectation that, more likely that not, an asset will be sold or otherwise disposed of before the end of its previously estimated useful life.

During
2003, we decided to discontinue the development of therapeutic antibodies to the complement protein properdin. Accordingly, we recorded an impairment charge of approximately
$1.4 million related to the license to develop and commercialize antibodies to properdin. The impairment charge was included in research and development expenses on our statement of operations.

In
2004, management determined that an impairment of our acquired technology in the field of catalytic antibodies had occurred and that the estimated value had declined to zero. This
technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc. We decided to focus our resources on other research and development projects
and decided to wind down our catalytic antibody program. Additionally, after assessing the associated patent position and the likelihood of sale or license of the technology to a third party,
management further determined that the possibility of generating positive future cash flows from the technology was remote.

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As
a result of this determination, we recorded an impairment charge of $17.2 million in the quarter ended June 30, 2004.

As
of December 31, 2004, we have determined that no changes in circumstances have occurred that would indicate that an additional impairment of an intangible asset had occurred.
If we were to determine in a future period that an impairment of intangible assets has occurred, the impairment measurement procedures could result in a charge for the impairment of
long-lived assets. As of December 31, 2004 the carrying value of our intangible assets was $60.0 million.



Significant management judgment is required in developing our provision for income taxes, including the calculation of tax liabilities, the determination of
deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. Results of operations in each jurisdiction involve intercompany agreements
between our Canadian subsidiary and U.S. parent. Such agreements could be unfavorably interpreted by the applicable taxing authorities, causing an increase in the income tax provision and an increase
in our net loss. The assessment of the income tax implications of this intercompany relationship requires significant management judgment.



The preparation of the notes to our consolidated financial statements requires us to estimate the fair value of stock options granted to employees. While fair
value may be readily determinable for awards of stock, market quotes are not available for long-term, nontransferable stock options because these instruments are not traded. We currently
use the Black-Scholes option pricing model to estimate the fair value of employee stock options. However, the Black-Scholes option pricing model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock
price volatility. Because our employee stock options have characteristics significantly different from those of traded options and because changes to the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of our employee stock options. We are currently evaluating our
option valuation methodologies and assumptions in lights of evolving accounting standards related to employee stock options.

Contractual Obligations and Commercial Commitments

As of December 31, 2004, future minimum payments for certain contractual obligations for years subsequent to December 31, 2004 were as follows:

|                                       |       | Total |         | Less than
1 year |   | 1-3
years |        | 4-5
years |         | After 5
years(1)
|-------------------------------------- | ----- | ----- | ------- | ---------------- | - | --------- | ------ | --------- | ------- | ----------------
|
|Operating leases                       |       | $     | 130,757 |                  | $ | 13,848    |        | $         | 29,151  |                 
|Convertible notes due 2007 & interest  |       |       | 123,537 |                  |   | 3,981     |        |           | 119,556 |                 
|Convertible notes due 2011 & interest  |       |       | 336,692 |                  |   | 5,250     |        |           | 10,500  |                 
|Convertible note due 2013              |       |       | 50,000  |                  |   |          |        |           |        |                 
|Redeemable convertible preferred stock |       |       | 50,000  |                  |   |          |        |           |        |                 
|Amgen(2)                               |       |       | 25,626  |                  |   |          |        |           |        |                 
|Purchase orders                        |       |       | 2,451   |                  |   | 2,451     |        |           |        |                 
|                                       |       |       |         |                  |   |           |        |           |         |                 
|                                       | Total |       | $       | 719,063          |   | $         | 25,530 |           | $       | 159,207         
|                                       |       |       |         |                  |   |           |        |           |         |                 

---

61

---



We
have a commitment to share equally all development and commercialization costs for panitumumab pursuant to our development and commercialization agreement with Amgen. As amended in
October 2003, that agreement provides that Amgen will have decision-making authority for development and commercialization activities and will make available to us in 2004 and 2005 up to
$60.0 million in advances that we may use to fund our share of development and commercialization costs for panitumumab after we have contributed $20.0 million toward development costs in
2004. As of December 31, 2004, we had a carrying balance of $25.6 million under this facility consisting of $25.1 million in advances and $517,000 of interest accrued at the
contract rate of 12% per annum. We have drawn a cash advance of an additional $9.0 million in February 2005. We expect to continue to draw on this credit facility up to the
$60.0 million limit in 2005. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales and we are generally not obligated to repay any
portion of the loan if panitumumab does not reach commercialization.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123(R), "Share-Based
Payment", which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee
stock options, be recognized in the financial statements based on their fair values. Pro forma disclosure previously permitted under SFAS No. 123 will no longer be an alternative. SFAS
No. 123(R) does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS No. 123 as originally issued and EITF Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

SFAS
No. 123(R), which is effective July 1, 2005, permits public companies to adopt its requirements using either the modified prospective or modified retrospective
transition method. We expect to use the modified prospective transition method, which requires that compensation cost is recognized for all awards granted, modified or settled after the effective date
as well as for all awards granted to employees prior to the effective date that remain unvested as of the effective date.

As
permitted by SFAS No. 123, we currently account for our share-based payments to employees using APB Opinion No. 25's intrinsic value method and do not recognize
compensation costs for our employee stock options. Accordingly, we expect that the adoption of SFAS No. 123(R)'s fair value method will have a significant impact on our result of operations,
although it will have no impact on our overall financial position. The impact of adopting SFAS No. 123(R) cannot be predicted at this time because it 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 would approximate the impact of SFAS No. 123 as shown in Note 1 of our
consolidated financial statements under the heading of "Stock-Based Compensation."

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk.We are exposed to interest rate sensitivity on our investments in debt securities and our outstanding
fixed rate debt. The objective of our investment activities is to preserve principal, while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we
invest in highly liquid, investment grade and government debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in
interest rates, we invest in short-term securities and our goal is to maintain an average maturity of approximately one year. In addition, as of December 31, 2004, we had
$113.7 million of outstanding

62

---



3.5%
convertible subordinated notes due in 2007, and $300.0 million of outstanding 1.75% convertible senior notes due in 2011. The fair value of these convertible notes may fluctuate with
changes in market interest rates, as well as changes in the market price of our common stock. A hypothetical 1.0% per annum decrease in interest rates would result in an adverse net change in the fair
value of our interest rate sensitive assets and liabilities of approximately $16.6 million and $3.2 million at December 31, 2004 and 2003, respectively.

Equity Price Risk.We are exposed to equity price risk on strategic investments, such as those we have made in CuraGen and
ImmunoGen. We typically do not attempt to reduce or eliminate our market exposure on these securities. With respect to CuraGen and ImmunoGen, each of whose common stock is publicly traded, the
aggregate market value of our investments in these securities was approximately $23.3 million and $20.7 million as of December 31, 2004 and 2003, respectively. Due to decreases in
the market prices of the shares of CuraGen and ImmunoGen, we recorded impairment charges of $67.3 million in 2002 related to these investments. The trading prices of shares of CuraGen and
ImmunoGen have fluctuated significantly since we purchased these securities. Each additional 10% decrease in market value of these securities would result in a decrease in value of approximately
$2.3 million and $2.1 million from the fair value of those investments at December 31, 2004 and 2003, respectively. Additional price declines could cause us to record additional
impairment charges in future periods.

63

---





Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                                                                                                     |  | Page
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  |     
|Abgenix, Inc., Audited Consolidated Financial Statements                                             |  |     
|Reports of Independent Registered Public Accounting Firm                                             |  | 65  
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                         |  | 67  
|Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002           |  | 68  
|Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2004, 2003 and 2002 |  | 69  
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002           |  | 70  
|Notes to Consolidated Financial Statements                                                           |  | 71  

64

---





Report of Independent Registered Public Accounting Firm  On Internal Control Over Financial Statements

The Board of Directors and Stockholders of Abgenix, Inc.

We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting included in Item
9A., that Abgenix, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Abgenix, Inc.'s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

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

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

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

In
our opinion, management's assessment that Abgenix, Inc. maintained effective internal control over financial reporting as of December 31, 2004, 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, 2004, based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Abgenix, Inc. as of
December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2004,
of Abgenix, Inc. and our report dated February 25,2005 expressed an unqualified opinion thereon.

| |  | /s/ERNST & YOUNG LLP
| |  | --------------------

Palo
Alto, California
February 25, 2005

65

---



Report of Independent Registered Public Accounting Firm  On Consolidated Financial Statements

The Board of Directors and Stockholders of Abgenix, Inc.

We have audited the accompanying consolidated balance sheets of Abgenix, Inc. as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of
Abgenix, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Abgenix, Inc. at December 31,
2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Abgenix, Inc.'s internal control over
financial reporting as of December 31, 2004, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 25, 2005 expressed an unqualified opinion thereon.

| |  |                     
| |  | --------------------
| |  | /s/ERNST & YOUNG LLP

Palo
Alto, California
February 25, 2005

66

---





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

|                                                                                       |                                                                                                                                                                                                   | December 31,               |        
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------
|
|ASSETS                                                                                 |                                                                                                                                                                                                  
|Current assets:                                                                        |                                                                                                                                                                                                   |                            |        
|                                                                                       | Cash and cash equivalents                                                                                                                                                                         |                            | $      
|                                                                                       | Marketable securities                                                                                                                                                                             |                            |        
|                                                                                       | Interest receivable                                                                                                                                                                               |                            |        
|                                                                                       | Accounts receivable, net                                                                                                                                                                          |                            |        
|                                                                                       | Prepaid expenses and other current assets                                                                                                                                                         |                            |        
|                                                                                       |                                                                                                                                                                                                   |                            |        
|                                                                                       |                                                                                                                                                                                                   | Total current assets       |        
|Property and equipment, net                                                            |                                                                                                                                                                                                   |                            | 223,004
|Long-term investments                                                                  |                                                                                                                                                                                                   |                            | 23,300 
|Goodwill                                                                               |                                                                                                                                                                                                   |                            | 34,780 
|Identifiable intangible assets, net                                                    |                                                                                                                                                                                                   |                            | 60,010 
|Deposits and other assets                                                              |                                                                                                                                                                                                   |                            | 36,108 
|                                                                                       |                                                                                                                                                                                                   |                            |        
|                                                                                       |                                                                                                                                                                                                   | $                          | 812,718
|                                                                                       |                                                                                                                                                                                                   |                            |        
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY           |                                                                                                                                                                                                  
|Current liabilities:                                                                   |                                                                                                                                                                                                   |                            |        
|                                                                                       | Accounts payable                                                                                                                                                                                  |                            | $      
|                                                                                       | Deferred revenue                                                                                                                                                                                  |                            |        
|                                                                                       | Accrued liabilities                                                                                                                                                                               |                            |        
|                                                                                       | Contract cancellation obligation                                                                                                                                                                  |                            |        
|                                                                                       | Accrued interest payable                                                                                                                                                                          |                            |        
|                                                                                       |                                                                                                                                                                                                   |                            |        
|                                                                                       |                                                                                                                                                                                                   | Total current liabilities  |        
|Deferred rent                                                                          |                                                                                                                                                                                                   |                            | 7,519  
|Convertible notes                                                                      |                                                                                                                                                                                                   |                            | 463,630
|Other long-term liabilities                                                            |                                                                                                                                                                                                   |                            | 25,626 
|Redeemable convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized |                                                                                                                                                                                                   |                            |        
|                                                                                       | Series A-1 50,000 shares issued and outstanding at December 31, 2004 and December 31, 2003, respectively; liquidation preference $50,000 at December 31, 2004 and December 31, 2003, respectively |                            |        
|                                                                                       | Series A-2 50,000 shares issued and outstanding at December 31, 2003; liquidation preference $50,000 at December 31, 2003; no shares outstanding at December 31, 2004                             |                            |        
|Commitments                                                                            |                                                                                                                                                                                                   |                            |        
|Stockholders' equity:                                                                  |                                                                                                                                                                                                   |                            |        
|                                                                                       | Common stock, $0.0001 par value; 220,000,000 shares authorized; 89,146,380 and 88,262,457 shares issued and outstanding at December 31, 2004 and 2003, respectively                               |                            |        
|                                                                                       | Additional paid-in capital                                                                                                                                                                        |                            |        
|                                                                                       | Accumulated other comprehensive income                                                                                                                                                            |                            |        
|                                                                                       | Accumulated deficit                                                                                                                                                                               |                            |        
|                                                                                       |                                                                                                                                                                                                   |                            |        
|                                                                                       |                                                                                                                                                                                                   | Total stockholders' equity |        
|                                                                                       |                                                                                                                                                                                                   |                            |        
|                                                                                       |                                                                                                                                                                                                   | $                          | 812,178
|                                                                                       |                                                                                                                                                                                                   |                            |        

See accompanying notes

67

---





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

|                                                              |                                                                        | Year ended December 31,  |         
|------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------ | --------
|
|Revenues:                                                     |                                                                        |                          |         
|                                                              | Contract revenue                                                       |                          | $       
|                                                              | Contract manufacturing revenue                                         |                          |         
|                                                              |                                                                        |                          |         
|                                                              |                                                                        | Total revenues           |         
|                                                              |                                                                        |                          |         
|Operating expenses:                                           |                                                                        |                          |         
|                                                              | Cost of goods manufactured                                             |                          |         
|                                                              | Research and development                                               |                          |         
|                                                              | Manufacturing start-up costs                                           |                          |         
|                                                              | Amortization of intangible assets, related to research and development |                          |         
|                                                              | General and administrative                                             |                          |         
|                                                              | Impairment of intangible assets                                        |                          |         
|                                                              | Restructuring charge                                                   |                          |         
|                                                              |                                                                        |                          |         
|                                                              |                                                                        | Total operating expenses |         
|                                                              |                                                                        |                          |         
|Loss from operations                                          |                                                                        |                          | (185,627
|Other income (expenses):                                      |                                                                        |                          |         
|                                                              | Interest and other income (expense), net                               |                          |         
|                                                              | Interest expense                                                       |                          |         
|                                                              | Impairment of investments                                              |                          |         
|                                                              |                                                                        |                          |         
|                                                              |                                                                        | Total other expenses     |         
|                                                              |                                                                        |                          |         
|Loss before income tax expense                                |                                                                        |                          | (187,478
|                                                              | Foreign income tax expense                                             |                          |         
|                                                              |                                                                        |                          |         
|Net loss                                                      |                                                                        | $                        | (187,478
|                                                              |                                                                        |                          |         
|Basic and diluted net loss per share                          |                                                                        | $                        | (2.11   
|                                                              |                                                                        |                          |         
|Shares used in computing basic and diluted net loss per share |                                                                        |                          | 88,710  
|                                                              |                                                                        |                          |         

See
accompanying notes

68

---





ABGENIX, INC.  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  (in thousands, except share and per share data)

|                                                                                                |  | Common Stock |  |   |   |  |   |         |  |   |        
|----------------------------------------------------------------------------------------------- |  | ------------ |  | - | - |  | - | ------- |  | - | -------
|
|Balance at December 31, 2001                                                                    |  | 86,835,165   |  | $ | 9 |  | $ | 961,456 |  | $ | (11,046
|Change in unrealized gains on available-for-sale securities                                     |  |             |  |   |  |  |   |        |  |   | 15,202 
|Net loss                                                                                        |  |             |  |   |  |  |   |        |  |   |       
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Comprehensive loss                                                                              |  |              |  |   |   |  |   |         |  |   |        
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Issuance of common stock at $29.79 per share in connection with the acquisition of Hesed Biomed |  | 61,506       |  |   |  |  |   | 1,832   |  |   |       
|Assumption of warrants for common stock in connection with the acquisition of Hesed Biomed      |  | 2,680        |  |   |  |  |   | 49      |  |   |       
|Issuance of common stock upon exercise of stock options                                         |  | 548,367      |  |   |  |  |   | 725     |  |   |       
|Issuance of common stock pursuant to the employee stock purchase plan                           |  | 207,624      |  |   |  |  |   | 1,759   |  |   |       
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Balance at December 31, 2002                                                                    |  | 87,655,342   |  |   | 9 |  |   | 965,821 |  |   | 4,156  
|Change in unrealized gains on available-for-sale securities                                     |  |             |  |   |  |  |   |        |  |   | 4,705  
|Net loss                                                                                        |  |             |  |   |  |  |   |        |  |   |       
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Comprehensive loss                                                                              |  |              |  |   |   |  |   |         |  |   |        
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Issuance of common stock upon exercise of stock options                                         |  | 280,844      |  |   |  |  |   | 1,052   |  |   |       
|Issuance of common stock pursuant to the employee stock purchase plan                           |  | 326,271      |  |   |  |  |   | 2,049   |  |   |       
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Balance at December 31, 2003                                                                    |  | 88,262,457   |  |   | 9 |  |   | 968,922 |  |   | 8,861  
|Change in unrealized gains on available-for-sale securities                                     |  |             |  |   |  |  |   |        |  |   | 530    
|Net loss                                                                                        |  |             |  |   |  |  |   |        |  |   |       
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Comprehensive loss                                                                              |  |              |  |   |   |  |   |         |  |   |        
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Issuance of common stock upon exercise of stock options                                         |  | 437,267      |  |   |  |  |   | 2,103   |  |   |       
|Issuance of common stock pursuant to the employee stock purchase plan                           |  | 446,656      |  |   |  |  |   | 2,954   |  |   |       
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        
|Balance at December 31, 2004                                                                    |  | 89,146,380   |  | $ | 9 |  | $ | 973,979 |  | $ | 9,391  
|                                                                                                |  |              |  |   |   |  |   |         |  |   |        

See
accompanying notes

69

---





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

|                                                                                                 |                                              | Year ended December 31,                   |         
|------------------------------------------------------------------------------------------------ | -------------------------------------------- | ----------------------------------------- | --------
|
|Operating activities                                                                             |                                              |                                           |         
|Net loss                                                                                         |                                              | $                                         | (187,478
|Adjustments to reconcile net loss to net cash used in operating activities:                      |                                              |                                           |         
|                                                                                                 | Depreciation                                 |                                           |         
|                                                                                                 | Amortization of identified intangible assets |                                           |         
|                                                                                                 | Impairment of identified intangible asset    |                                           |         
|                                                                                                 | Impairment of investments                    |                                           |         
|                                                                                                 | Amortization of debt issuance costs          |                                           |         
|                                                                                                 | Loss on sale and disposal of equipment       |                                           |         
|                                                                                                 | Loss on early extinguishment of debt         |                                           |         
|                                                                                                 | Changes for certain assets and liabilities:  |                                           |         
|                                                                                                 |                                              | Interest receivable                       |         
|                                                                                                 |                                              | Accounts receivable                       |         
|                                                                                                 |                                              | Prepaid expenses and other current assets |         
|                                                                                                 |                                              | Deposits and other assets                 |         
|                                                                                                 |                                              | Accounts payable                          |         
|                                                                                                 |                                              | Deferred revenue                          |         
|                                                                                                 |                                              | Accrued liabilities                       |         
|                                                                                                 |                                              | Accrued interest payable                  |         
|                                                                                                 |                                              | Contract cancellation obligation          |         
|                                                                                                 |                                              | Deferred rent                             |         
|                                                                                                 |                                              | Other long-term liabilities               |         
|                                                                                                 |                                              |                                           |         
|Net cash used in operating activities                                                            |                                              |                                           | (130,842
|                                                                                                 |                                              |                                           |         
|Investing activities                                                                             |                                              |                                           |         
|Purchases of marketable securities                                                               |                                              |                                           | (287,857
|Maturities of marketable securities                                                              |                                              |                                           | 49,342  
|Sales of marketable securities                                                                   |                                              |                                           | 297,696 
|Purchases of property and equipment                                                              |                                              |                                           | (8,633  
|Investment in note receivable                                                                    |                                              |                                           |        
|Payments for acquisition liabilities                                                             |                                              |                                           |        
|                                                                                                 |                                              |                                           |         
|Net cash provided by (used in) investing activities                                              |                                              |                                           | 50,548  
|                                                                                                 |                                              |                                           |         
|Financing activities                                                                             |                                              |                                           |         
|Net proceeds from issuance of convertible notes                                                  |                                              |                                           | 291,000 
|Repurchase of convertible subordinated notes                                                     |                                              |                                           | (85,975 
|Net proceeds from issuance of series A-1 redeemable convertible preferred stock                  |                                              |                                           |        
|Net proceeds from issuance of series A-2 redeemable convertible preferred stock                  |                                              |                                           |        
|Net proceeds from issuance of common stock                                                       |                                              |                                           | 5,057   
|                                                                                                 |                                              |                                           |         
|Net cash provided by financing activities                                                        |                                              |                                           | 210,082 
|                                                                                                 |                                              |                                           |         
|Net increase (decrease) in cash and cash equivalents                                             |                                              |                                           | 129,788 
|Cash and cash equivalents at the beginning of the year                                           |                                              |                                           | 19,141  
|                                                                                                 |                                              |                                           |         
|Cash and cash equivalents at the end of the year                                                 |                                              | $                                         | 148,929 
|                                                                                                 |                                              |                                           |         
|Supplemental disclosures of cash flow information                                                |                                              |                                           |         
|Cash paid during the year for interest, net of capitalized interest of $1,687, $2,470 and $1,924 |                                              | $                                         | 6,164   
|                                                                                                 |                                              |                                           |         

See accompanying notes

70

---





ABGENIX, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Organization

Abgenix, Inc. (Abgenix or the Company), is a biopharmaceutical company that focuses on discovery, development and manufacturing of human therapeutic
antibody products for the treatment of a variety of disease conditions. The Company has proprietary technologies that facilitate rapid generation of highly specific, fully human antibody therapeutic
product candidates that bind to disease targets appropriate for antibody therapy.

In
November 2001, the Company acquired Hesed Biomed Inc. (Hesed Biomed). In November     2000, in two separate transactions, the Company acquired Abgenix
Biopharma Inc. (Abgenix Biopharma, formerly known as ImmGenics Pharmaceuticals, Inc.) and IntraImmune Therapies, Inc. (IntraImmune).

Accounts
denominated in foreign-currency have been remeasured using the U.S. dollar as the functional currency. The aggregate exchange loss included in determining net loss was
$0.8 million, $1.7 million and $0.5 million in 2004, 2003 and 2002, respectively. Significant intercompany accounts and transactions have been eliminated.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123(R), "Share-Based
Payment", which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee
stock options, be recognized in the financial statements based on their fair values. Pro forma disclosure previously permitted under SFAS No. 123 will no longer be an alternative. SFAS
No. 123(R) does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS No. 123 as originally issued and EITF Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

SFAS
No. 123(R), which is effective July 1, 2005, permits public companies to adopt its requirements using either the modified prospective or modified retrospective
transition method. The Company expects to use the modified prospective transition method, which requires that compensation cost is recognized for all awards granted, modified or settled after the
effective date as well as for all awards granted to employees prior to the effective date that remain unvested as of the effective date.

As
permitted by SFAS No. 123, the Company currently accounts for its share-based payments to employees using APB Opinion No. 25's intrinsic value method and does not
recognize compensation costs for its employee stock options. Accordingly, the Company expects that the adoption of SFAS No. 123(R)'s fair value method will have a significant impact on the
Company's result of operations, although it will have no impact on the Company's overall financial position. The impact of adopting SFAS No. 123(R) cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123(R) in prior periods, the impact would approximate the impact of SFAS
No. 123 as shown in the table below under the heading of "Stock-Based Compensation."

Cash Equivalents, Marketable Securities and Long-Term Investments

The
Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents.

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Marketable
securities consist of highly liquid debt securities with a maturity of greater than three months when purchased and marketable equity securities. The Company's marketable
securities have
been classified as "available-for-sale," and are carried at fair value based on quoted market prices. The Company considers its investments in marketable debt securities as
available for use in current operations. Accordingly, the Company has classified these investments as short-term, even though the stated maturity date may be one year or more beyond the
current balance sheet date. Unrealized gains and losses are reported as accumulated other comprehensive income (loss), which is a separate component of stockholders' equity. Unrealized losses on
available-for-sale securities that are deemed to be other than temporary are included in earnings.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash equivalents, marketable securities and accounts
receivable. The Company has established investment policies to limit its credit risk exposure by investing in highly liquid, high credit quality investment grade debt securities and maintaining a
diversified portfolio. The Company's customers are primarily pharmaceutical and biotechnology companies, and the Company has not experienced any significant credit losses and does not generally
require collateral on receivables.

Property and Equipment

The Company records property and equipment at cost and provides depreciation using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the remaining life of the facility lease, manufacturing equipment is depreciated over 15 years, and all other assets are generally
depreciated over two to five years.

Goodwill and Intangible Assets

As a result of its adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," in 2002, the Company no longer amortizes goodwill but instead reviews
goodwill for impairment on annual basis, or sooner if indications of impairment exist. Under the Company's accounting policy, the Company has adopted the beginning of the fourth quarter as an annual
goodwill impairment test date. Following this approach, the Company compares the carrying values as of September 30 with the estimated fair value of the reporting unit to assess if there has
been a potential impairment, and, if impairment is indicated, complete the measurement of impairment under the procedures established by SFAS No. 142. Because the Company has determined that it
has one reporting unit under SFAS No. 142, its market capitalization is considered to be a reasonable proxy for the fair value of the reporting unit. The Company also considers whether current
business and general market conditions suggest that the fair value of the reporting unit has likely declined below its carrying value.

Intangible
assets held and used must be tested for impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable. Factors that are
considered important in determining whether impairment might exist include a significant change in the manner in which an asset is being used, a significant adverse change in legal factors or the
business climate that could affect the value of an asset, including and adverse action or assessment by a regulator, and a current expectation that, more likely that not, an asset will be sold or
otherwise disposed of before the end of its previously estimated useful life.

As
of December 31, 2004, the Company has determined that no changes in circumstances have occurred that would indicate that an additional impairment of an intangible asset had
occurred. If the Company were to determine in a future period that an impairment of intangible assets had occurred,

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the
impairment measurement procedures could result in a charge for the impairment of long-lived assets. As of December 31, 2004 the carrying value of the Company's intangible assets
was $60.0 million.

Long-Lived Assets

The carrying value of the Company's long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the asset
may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying
amount. Long-lived assets include property and equipment, and identified intangible assets.

Revenue Recognition

The Company receives payments from customers for license, option, service and milestone fees, as well as for contract manufacturing the Company performs. These
payments, which are generally non-refundable, are recognized as revenue or reported as deferred revenue until they meet the criteria for revenue recognition. The Company recognizes revenue
when (1) persuasive evidence of the arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable and (4) the
collectibility is reasonably assured, in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, "Revenue Recognition". In addition, the Company has followed the
following principles in recognizing revenue:



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Research and Development

Research and development expenses consist primarily of compensation and other expenses related to research and development personnel; costs associated with
preclinical testing and clinical trials of the Company's product candidates, including the costs of manufacturing the product candidates; expenses for research and services rendered under
co-development agreements; and facilities expenses. Expenses for research services rendered under co-development arrangements exceed fees received from such
co-developers as reimbursements. All research and development costs are charged to expense when incurred.

Manufacturing Start-up Costs

Manufacturing start-up costs include certain costs associated with the Company's new manufacturing facility, including depreciation, outside
contractor costs and personnel costs for activities such as quality assurance and quality control. In 2003, the manufacturing start-up costs included a cancellation fee for the negotiated
cancellation of an agreement with an outside contractor, Lonza Biologics plc (Lonza). Effective June 30, 2003, the Company canceled the November 2000 agreement with Lonza for the
exclusive use of a cell culture production suite because the Company determined that with the opening of its manufacturing facility, the Company no longer needed access to the Lonza facility.

Stock-Based Compensation

The Company accounts for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Accordingly, the Company does not recognize compensation expense for employee stock options granted at fair market value. For purposes of
disclosures pursuant to SFAS 123 as amended by SFAS 148, the estimated fair value of options is amortized to expense on a straight-line basis over the options' vesting
period. The following table illustrates what net loss would have been had

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the
Company accounted for its stock-based awards under the provisions of SFAS 123. Pro forma amounts may not be representative of future years.

|                                                                                                                                                                    |  | December 31, |         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------
|
|
|Net loss                                                                                                                                                            |  | $            | (187,478
|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 |  |              | (41,980 
|                                                                                                                                                                    |  |              |         
|Pro forma net loss as if the fair value based method had been applied to all awards                                                                                 |  | $            | (229,458
|                                                                                                                                                                    |  |              |         
|Basic and diluted net loss per share                                                                                                                                |  | $            | (2.11   
|                                                                                                                                                                    |  |              |         
|Pro forma basic and diluted loss per share as if the fair value based method had been applied to all awards                                                         |  | $            | (2.59   
|                                                                                                                                                                    |  |              |         

Net Loss Per Share

Basic net loss per share is calculated based on the weighted average number of shares outstanding during the period. The impact of common stock options, warrants
and shares issuable upon the conversion of the convertible subordinated notes due 2007, the convertible senior notes due 2011, the convertible subordinated note due 2013 and the redeemable convertible
preferred stock was excluded from the computation of diluted net loss per share, as their effect is antidilutive for the periods presented.

The
following table sets forth potential shares of common stock that are not included in the computation of diluted net loss per share because to do so would be antidilutive for the year
ended December 31, 2004 (in thousands):

Outstanding options

13,230Warrants

16Convertible subordinated notes due 2007

4,124Convertible senior notes due 2011

23,401Convertible subordinated note due 2013

4,958Redeemable convertible preferred stock

4,95850,687


Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain prior-year balances have been reclassified to conform to the current-year presentation.

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2.    ACQUISITIONS

Hesed Biomed

In November 2001, the Company acquired Hesed Biomed, a privately held biotechnology company with intellectual property and technology in the field of
catalytic antibodies. Abgenix acquired all of the common stock of Hesed Biomed for 537,436 shares of Abgenix common stock and warrants for the purchase of 18,731 shares of Abgenix common stock and
cash. The total purchase price was valued at $21.6 million, including transaction costs. As a contingency for pre-acquisition liabilities of the former Hesed Biomed discovered after
the acquisition date, 61,506 shares of the Company's common stock were not issued until November 2002. The value of these contingency shares at the time of acquisition was $1.9 million
and was included in acquisition liabilities on the balance sheet at December 31, 2001. There were no acquisition liabilities remaining as of December 31, 2002. This acquisition was
accounted for as the purchase of technology.

3.    IDENTIFIED INTANGIBLE ASSETS

Identified intangible assets as of December 31, 2004 and 2003 consisted of the following (in thousands):

|                                         |  | Gross
Assets |         | Accumulated
Amortization |   | Net   
|---------------------------------------- |  | ------------ | ------- | ------------------------ | - | ------
|As of December 31, 2004:                 |  |              |         |                          |   |       
|Acquisition-related developed technology |  | $            | 85,142  |                          | $ | 26,264
|Other intangible assets                  |  |              | 1,442   |                          |   | 310   
|                                         |  |              |         |                          |   |       
|Identified intangible assets             |  | $            | 86,584  |                          | $ | 26,574
|                                         |  |              |         |                          |   |       
|As of December 31, 2003:                 |  |              |         |                          |   |       
|Acquisition-related developed technology |  | $            | 106,183 |                          | $ | 23,689
|Other intangible assets                  |  |              | 1,442   |                          |   | 220   
|                                         |  |              |         |                          |   |       
|Identified intangible assets             |  | $            | 107,625 |                          | $ | 23,909
|                                         |  |              |         |                          |   |       

Amortization
of acquisition-related intangibles was $6.4 million, $7.1 million and $7.1 million for 2004, 2003 and 2002, respectively. Amortization of other
intangible assets was $90,000, $113,000 and $185,000
for 2004, 2003 and 2002, respectively. All of the Company's acquired identified intangibles other than goodwill are subject to amortization.

Expected
amortization expense related to identified intangible assets for each of the fiscal years after December 31, 2004 is as follows (in thousands):

|                                |  | Year Ending December 31, |       |  |   |      
|------------------------------- |  | ------------------------ | ----- |  | - | -----
|
|Acquisition-related intangibles |  | $                        | 5,674 |  | $ | 5,674
|Other intangible assets         |  | $                        | 90    |  | $ | 90   

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4.    INVESTMENTS

Marketable Securities

The following is a summary of marketable securities at December 31, 2004 and 2003:

|                                                    |                       | 2004 |         | 2003
|--------------------------------------------------- | --------------------- | ---- | ------- | ----
|
|
|U.S. corporate obligations                          |                       | $    | 101,318 |     
|Non-U.S. corporate obligations                      |                       |      | 2,567   |     
|Asset-backed securities                             |                       |      | 35,314  |     
|Obligations of the U.S. government and its agencies |                       |      | 136,155 |     
|Repurchase agreements                               |                       |      | 137,007 |     
|Municipal obligations                               |                       |      |        |     
|Money market funds                                  |                       |      | 4,416   |     
|Marketable equity securities                        |                       |      | 12,723  |     
|                                                    |                       |      |         |     
|Total                                               |                       | $    | 429,500 |     
|                                                    |                       |      |         |     
|Classified as:                                      |                       |      |         |     
|                                                    | Cash equivalents      |      |         |     
|                                                    | Marketable securities |      |         |     
|Deposits and other assets                           |                       |      |         |     
|Long-term investments                               |                       |      |         |     
|                                                    |                       |      |         |     
|                                                    |                       |      |         |     
|                                                    |                       |      |         |     

The
Company's available-for-sale debt securities have the following maturities at December 31, 2004 (in thousands):

Due in one year or less

$
279,364Due after one year but less than five years


131,811$
411,175


The
unrealized gains and losses as of December 31, 2004 and 2003 were reported as accumulated other comprehensive income/(loss), which is a separate component of stockholders'
equity. Unrealized losses, which were primarily due to increase in interest rates, represented less than one percent of the total fair value of the Company's investment portfolio. The Company has
concluded that unrealized losses are not other-than-temporary and that the Company has the intent and ability to hold temporarily impaired investments to maturities or call
date. As of December 31, 2004, $274.2 million of marketable securities had a total unrealized loss of $1.2 million, and the majority of these marketable securities were purchased
within the last 12 months.

The
cost of securities sold is based on the specific identification basis. There was no material gross realized gain or loss in 2004, 2003 and 2002.

Other Investments

In August 2001, the Company 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 $2.8 million was made in

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July 2002.
The amount is included in deposits and other assets on the balance sheet. The loan bears interest at a rate of 8.5% per year and is payable monthly. The loan matures in
August 2011 and the entire principal balance and accrued interest are due on the maturity date.

In
2001, the Company invested $15.0 million in equity securities of MDS Proteomics, a privately held company, in connection with a collaboration with that company. As of
December 31, 2003 and June 30, 2002, the Company determined that an impairment of the investment had occurred and estimated that the value of the investment had declined to zero and
$7.9 million, respectively. Accordingly, the Company recorded an impairment charge of $7.9 and $7.1 million, respectively, in 2003 and 2002. The amount of the charge was based on the
difference between the estimated value as determined by management and the revised or original cost basis. At December 2002, the investment was recorded in long-term investments on
the balance sheet.

5.    RELATED PARTY TRANSACTIONS

At December 31, 2004 and 2003, the Company had notes receivable from certain officers and employees totaling $550,000 for both years, which are included in
deposits and other assets on the balance sheet. The notes were issued in connection with employee relocation agreements. The notes begin to accrue interest beginning in May 2005 through
June 2008 and bear interest at rates ranging from 2.34% to 6.70%. The notes are secured by personal assets, and have due dates ranging from June 2010 through June 2013, or
30 days from the date of termination of employment, if earlier.

6.    BALANCE SHEET COMPONENTS

December 31,2004

2003(in thousands)Accounts receivable:Accounts receivable

$
5,729

$
2,726Less: allowances





(552
)Accounts receivable, net

$
5,729

$
2,174Property and equipment:Furniture, machinery and equipment

$
91,239

$
88,430Leasehold improvements


156,090


155,208247,329


243,638Less: Accumulated depreciation


(80,645
)

(51,476
)Construction-in-progress


56,320


54,115Property and equipment, net

$
223,004

$
246,277Accrued liabilities:Accrued product development costs

$


$
643Accrued employee benefits


5,838


4,737Accrued clinical costs


3,944


2,846Other accrued liabilities


5,499


5,748Accrued liabilities

$
15,281

$
13,974


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7.    CONVERTIBLE NOTES

Convertible notes consisted of the following (in thousands):

December 31,2004

20031.75% convertible senior notes due 2011

$
300,000

$
3.5% convertible subordinated notes due 2007


113,750


200,000Convertible subordinated note due 2013


49,880


$
463,630

$
200,000


1.75% Convertible Senior Notes due 2011

On December 21, 2004, the Company issued $300.0 million principal amount of convertible senior notes in a private placement. The notes are senior in
right to any existing indebtedness which is subordinated by its terms, including the Company's 3.5% convertible subordinated notes due 2007 and convertible subordinated note due 2013. The notes are
convertible into shares of the Company's common stock at an initial 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). The notes accrue interest at an annual rate of 1.75% payable on June 15 and December 15 of each year. The notes will mature on December 15, 2011 and are
redeemable at the Company's option on or after December 20, 2009 at the specified redemption prices. In addition, the holders of the notes may require the Company to repurchase the notes,
subject to certain conditions, if the Company undergoes certain changes in control. In addition, upon certain changes in control and subject to certain conditions, additional shares of common stock
may become issuable to holders upon conversion of the notes. Holders of the notes may also require the Company to repurchase their notes for their principal amount plus accrued and unpaid interest
upon the occurrence of an event of default. The Company received proceeds of $291.0 million from the issuance of the notes, net of initial purchasers' discount and commissions. As of
December 31, 2004, the fair value of the notes was $327.5 million. The fair value was based on the quoted market price at December 31, 2004.

3.5% Convertible Subordinated Notes due 2007

In March 2002, the Company issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are
convertible into shares of Abgenix common stock at a conversion price of $27.58 per share subject to certain adjustments. The notes accrue interest at an annual rate of 3.5% and the Company is
obligated to pay interest by March 15 and September 15 of each year. In December 2004, the Company repurchased a portion of the notes totaling $86.3 million. In connection
with this repurchase, the Company recorded a loss on early extinguishment of debt of $1.0 million, which was included in the interest and other income (expense), net, in the Company's
consolidated statements of operations. The notes will mature on March 15, 2007, and are redeemable at the Company's option on or after March 20, 2005, or earlier if the price of the
Company's common stock exceeds specified levels. In addition, the holders of the notes may require the Company to repurchase the notes if the Company undergoes a change in control. Holders of the
notes may also require the Company to repurchase their notes for their principal amount plus accrued and unpaid interest upon the occurrence of an event of default. As of December 31, 2004 and
2003, the fair value

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of
the notes was $113.2 million and $186.2 million, respectively. The fair value was based on the quoted market price at December 31, 2004 and 2003.

Convertible Subordinated Note due 2013

On February 19, 2004, the Company issued to AstraZeneca a convertible subordinated note with a principal amount of $50.0 million in connection with
the redemption by AstraZeneca 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 a
payment default by the Company, the note will bear interest at a rate equal to the 10-year U.S. treasury rate plus 3%, compounded annually. The note is senior to the redeemable convertible
preferred stock and the common stock and is junior to all senior indebtedness, including the 1.75% convertible senior notes due 2011 and the 3.5% convertible subordinated notes due 2007.

The
note has the following terms similar to that of the redeemable convertible preferred stock issued to AstraZeneca in October 2003: conversion rights, redemption rights and
aggregate ownership limitation. The note contains the events of default that pertain to the redeemable convertible preferred stock and an additional event of default in the case of a
cross-acceleration of $25 million or more of other indebtedness of the Company. See Note 9 for detail description of redeemable convertible preferred stock issued to AstraZeneca.

8.    OTHER LONG-TERM LIABILITIES

In 2000, the Company entered into a joint development and commercialization agreement with Immunex Corporation, a wholly-owned subsidiary of Amgen Inc.,
for the co-development of ABX-EGF, now known as panitumumab, a fully human antibody directed against epidermal growth factor receptor (EGFr) the Company created. The parties
amended this agreement in October 2003. Under the amended agreement, Amgen has decision-making authority for development and commercialization activities. As under the original agreement, the
Company is obligated to pay 50% of the development and commercialization costs and is entitled to receive 50% of any profits from sales of panitumumab. Under the amended agreement, Amgen is required
to make available in 2004 and 2005 up to $60.0 million in advances that the Company may use to fund a portion of its share of development and commercialization costs for panitumumab after the
Company has contributed $20.0 million toward development costs in 2004. As of December 31, 2004, the Company has a carrying balance of $25.6 million under this facility consisting
of $25.1 million in advances and $517,000 of interest accrued at the contract rate of 12% per annum. The Company drew an additional $9.0 million under this facility in
February 2005. The amount of the advances, plus interest, may be repaid out of profits resulting from future product sales; however, the Company is generally not obligated to repay any portion
of the outstanding balance if panitumumab does not reach commercialization.

9.    REDEEMABLE CONVERTIBLE PREFERRED STOCK

In October 2003, in connection with a collaboration agreement, the Company entered into a securities purchase agreement with AstraZeneca. Pursuant to the
agreement, the Company issued to AstraZeneca $50.0 million of Series A-1 and $50.0 million of Series A-2 convertible 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 its terms, the Series A-2 preferred
stock was redeemed at the option of AstraZeneca on February 19, 2004 and the Company issued AstraZeneca a convertible subordinated note with a principal amount of $50.0 million, which
matures 10 years from the initial issuance of the Series A-2 convertible preferred stock. Subject to various terms and conditions, if a certain milestone event is reached,
the Company will have the option to issue to AstraZeneca up to

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$30.0 million
of Series A-3 preferred stock and if a further milestone event is reached, the Company will have the option to issue to AstraZeneca up to $30.0 million
of Series A-4 preferred stock. Each of the Series A-3 preferred stock and the Series A-4 preferred stock will have a maturity date that is five
years from issuance. Due to the mandatory redemption feature, the Company does not record the redeemable convertible preferred stock in stockholders' equity on its consolidated balance sheet. The
carrying value of the redeemable convertible preferred stock approximates its fair value.



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

AstraZeneca
may convert each series of preferred stock into shares of common stock at a conversion price of $30.00 per share, at any time prior to the earlier of (a) the
redemption date or (b) the maturity date, as applicable.



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

The
Company can, upon at least 15 days' notice to the holder, redeem the preferred stock for cash in an amount equal to its liquidation preference, at any time prior to maturity.

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

AstraZeneca
has the right to require Abgenix to redeem a specified portion of the outstanding shares of preferred stock upon the occurrence of (a) a material breach by Abgenix of
a material obligation under the Collaboration Agreement between the Company and AstraZeneca or (b) a change in control of Abgenix or an acquisition by Abgenix in which the other party to the
change in control or acquisition, as the case may be, is a competitor of AstraZeneca, in each case that occurs during a defined research period and results in AstraZeneca's termination of all research
programs and future programs under the collaboration agreement. The amount that AstraZeneca may require Abgenix to redeem will be based upon the extent of completion of the research programs that are
the subject of the collaboration between the Company and AstraZeneca. At its option, and subject to certain conditions, Abgenix may deliver shares of its common stock in lieu of cash upon such events.

Upon
the occurrence of certain events of default, (1) the holders of the Series A-1 preferred stock shall have the right to make the entire liquidation value of
the Series A-1 preferred stock due and payable and (2) if the event of default is a payment default, quarterly cash dividends shall begin to accrue on the
Series A-1 preferred stock at a default rate equal to the 10-year U.S. treasury rate plus three percent (3%) compounded annually. Events of default for purposes of this
provision include, but are not limited to, the following: (i) a failure to make a required payment, or a breach by the Company of any of the Company's other obligations under, the
Series A-1 preferred stock, the convertible

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subordinated
note or any subordinated promissory note that may be issued by the Company in the circumstances described below under "Aggregate ownership limitation"; (ii) a breach of the Company
of specified obligations under the securities purchase agreement with AstraZeneca; (iii) the securities purchase agreement, or any other agreement or instrument contemplated by the securities
purchase agreement, is asserted by the Company not to be a legal, valid and binding instrument; and (iv) certain bankruptcy and insolvency events involving the Company.



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

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

The
preferred stock is subordinate and junior to all indebtedness and senior to the Company's common stock.



At no time may any holder of Series A-1 preferred stock beneficially own, following the conversion of the preferred stock more than 19.9% of
the Company's common stock then outstanding. If any shares of common stock are issuable to a holder upon conversion of the preferred stock that would result in any holder (together with its
affiliates) owning common stock in excess of the ownership threshold described above, then the Company will be required to redeem the shares in excess of the ownership threshold for a price equal to
(1) the number of such excess shares times (2) the average market price of the common stock for the 30 consecutive days ending on the 15th trading day prior to the
conversion date (such price, the "Excess Shares Redemption Price"). Upon such a redemption of the Series A-1 preferred stock, the Company will have the right, upon delivery of
notice to the holder, to receive a loan from the holder in the form of a interest-free subordinated promissory note. The face amount of the promissory note shall be the Excess Shares
Redemption Price.

10.    COMMITMENTS

Facility Leases

The Company has several operating leases for its office, research and development and manufacturing facilities in California and British Columbia, Canada. The
leases expire in the year 2010 through 2015 and each includes an option to extend, other than the leases for our facilities in Canada.

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Future
minimum payments under noncancelable operating leases at December 31, 2004 are as follows (in thousands):

Year ending December 31,2005

$
13,8482006


14,3082007


14,8432008


15,3552009


15,858Thereafter


56,545Total lease payments


130,757Less aggregate future minimum rentals to be received under sublease


1,921$
128,836


Rent
expense was $14.1 million, $14.4 million and $13.6 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Purchase Commitments

As of December 31, 2004, the Company had committed approximately $2.5 million for the purchase of equipment and leasehold improvements for its
manufacturing facility.

Letters of Credit and Capital Lease

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

License and Collaboration Agreements

In October 2003, the Company entered into a collaboration and license agreement with AstraZeneca UK Limited ("AstraZeneca") to provide for the joint
discovery and development of therapeutic antibodies against up to 36 oncology targets to be commercialized exclusively worldwide by AstraZeneca. The agreement provides that the Company will conduct
early stage preclinical research on behalf of AstraZeneca with respect to these targets. Under the agreement, the Company also may conduct clinical, process development and manufacturing activities
for which AstraZeneca is to compensate the Company at competitive market rates. The collaboration agreement also includes a co-development component under which Abgenix will be able to
generate additional antibody product candidates against up to 18 targets that AstraZeneca will have the option to co-develop with Abgenix. The companies will share development costs and
responsibilities for any co-development candidates selected by AstraZeneca. During the three-year period of selection of targets for development the Company will work
exclusively with AstraZeneca to generate and develop antibodies for therapeutic use in oncology subject to various exceptions, including among others for generation and development of antigens in
accordance with existing collaborations, for antigens that the Company and AstraZeneca

83

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decide
not to pursue in the collaboration, and for certain process development and manufacturing services.

Product Manufacturing

In June 2003, the Company canceled its November 2000 agreement with Lonza Biologics plc ("Lonza") for the exclusive use of a cell culture production
suite, because the Company determined that with the opening of its own manufacturing plant and due to changes in its portfolio of product candidates, it no longer needed access to the Lonza facility.
Upon canceling the agreement, the Company became obligated to pay Lonza four equal installments of 4,250,000 British pounds on October 1, 2003, February 1, 2004, May 1, 2004 and
August 1, 2004. The value of this obligation on the effective date of June 30, 2003 was approximately $28.0 million. In July 2004, the Company made the final installment
payment to Lonza. As of December 31, 2004 the Company had no remaining obligations to Lonza.

11.    COMPREHENSIVE INCOME/(LOSS)

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

|                                         |                                                                     | December 31, |         
|---------------------------------------- | ------------------------------------------------------------------- | ------------ | --------
|
|
|Net loss                                 |                                                                     | $            | (187,478
|Other comprehensive income (loss):       |                                                                     |              |         
|                                         | Unrealized holding gains (losses) arising during the period         |              |         
|                                         | Less: reclassification adjustment for losses recognized in net loss |              |         
|                                         |                                                                     |              |         
|Change in unrealized gains on securities |                                                                     |              | 530     
|                                         |                                                                     |              |         
|Comprehensive loss                       |                                                                     | $            | (186,948
|                                         |                                                                     |              |         

12.    IMPAIRMENT OF IDENTIFIED INTANGIBLE ASSETS

In the quarter ended June 30, 2004, management determined that an impairment of the Company's acquired technology in the field of catalytic antibodies had
occurred and that the estimated value had declined to zero. This technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc. The Company
decided to focus its resources on other research and development projects and decided to wind down its catalytic antibody program. Additionally, after assessing the associated patent position and the
likelihood of sale or license of the technology to a third party, management further determined in the quarter ended June 30, 2004 that the possibility of generating positive future cash flows
from the technology was remote. As a result of this determination, the Company recorded an impairment charge of $17.2 million in the second quarter of 2004.

In
the quarter ended March 31, 2003, the Company decided to discontinue the development of anti-properdin antibodies. As a result, the Company recorded an impairment
charge of $1.4 million for previously capitalized costs related to licenses and research funding for the development of therapeutic antibodies to the complement protein properdin, which the
Company licensed from Gliatech, Inc. Such charge is included in 2003.

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13.    IMPAIRMENT OF INVESTMENTS

In 2001, the Company invested $15.0 million in equity securities of MDS Proteomics, a privately held company, in connection with its collaboration with
that company. As of December 31, 2003 and June 30, 2002, the Company determined that an impairment of the investment had occurred and estimated that the value of the investment had
declined to zero and $7.9 million, respectively. Accordingly, the Company recorded an impairment charges of $7.9 and $7.1 million, respectively, in the fourth quarter of 2003 and second
quarter of 2002. The amount of the charge was based on the difference between the estimated value as determined by the management and the revised or original cost basis.

The
Company purchased an aggregate amount of $80.0 million of common stock of CuraGen and ImmunoGen as strategic investments at various times in 1999 and 2000. In 2002, declines
in the fair value of the CuraGen and ImmunoGen common stock were deemed by the Company management to be other than temporary. Accordingly, the Company recorded a total impairment charge for the year
ended December 31, 2002 of $67.3 million. As of December 31, 2004, these investments were recorded at fair value in long-term investments on the balance sheet, and the
net unrealized holding gains of $10.6 million are reported as a component of stockholders' equity. If the Company deems these investments further impaired at the end of any future period, the
Company may incur an additional impairment charge on these investments.

14.    RESTRUCTURING CHARGE

In October 2002, the Company announced a restructuring plan, which consisted primarily of a 15% reduction in employees. A restructuring charge of
$1.8 million was recorded in 2002 to account for severance pay, medical benefits and other costs associated with this restructuring. Of the $1.8 million, $0.7 million was paid in
2002 and the remainder was paid in 2003.

15.    INTEREST AND OTHER INCOME (EXPENSE), NET

Interest and other income (expense), net, consisted of the following:

|                                         |  | December 31,
|---------------------------------------- |  | ------------
|
|
|Interest income                          |  | $           
|Loss on early extinguishment of debt     |  |             
|Other income                             |  |             
|                                         |  |             
|Interest and other income (expense), net |  | $           
|                                         |  |             

In
December 2004, the Company recorded a loss on early extinguishment of debt of $1.0 million in connection with the repurchase of $86.3 million of the 3.5%
convertible subordinated notes due 2007.

16.    INCOME TAXES

No federal or state income tax expense or benefit was recorded for the years ended December 31, 2004, 2003 and 2002, as the Company incurred net operating
losses during these periods and potential tax benefits associated with net operating loss carryforwards and other deferred tax assets were completely offset by a full valuation allowance. The Company
recorded a foreign income tax expense of $84,000 in 2003 but did not incur any foreign income tax expense in 2004 and 2002.

85

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets as of December 31, 2004 and 2003 are as follows:

December 31,2004

2003(in thousands)Deferred tax assets:Net operating loss carryforwards

$
239,500

$
165,500Investment reserve


32,900


32,900Capitalized research and development


21,300


17,000Research credit carryforwards


28,000


24,100Other


19,300


20,500Total deferred tax assets


341,000


260,000Valuation allowance


(325,600
)

(237,500
)Net deferred tax assets


15,400


22,500Deferred tax liabilities:Purchased intangibles


(11,200
)

(19,300
)Other


(4,200
)

(3,200
)Net deferred taxes

$


$



Realization
of deferred tax assets is dependent upon future 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 $88.1 million and $68.5 million during the years ended December 31, 2004 and 2003, respectively.
Approximately $43.9 million of the valuation allowance for deferred tax assets relates to benefits of stock option deductions, the benefit of which will be credited to equity when realized. As
of December 31, 2004, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $670.0 million and $194.0 million, respectively,
which expire in the years 2006 through 2024. As of December 31, 2004, the company had federal and state research and development tax credit carryforwards of approximately $16.0 million
and $18.0 million, respectively. The federal credits expire in the years 2006 through 2024. The state credits do not expire. Utilization of the Company's net operating loss and tax credit
carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by Internal Revenue Code and similar state provisions. Such an annual limitation could
result in the expiration of these carryforwards before utilization.

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

17.    SEGMENT INFORMATION

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

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Information
about customers who provided 10% or more of contract revenues for the period is as follows:

Year Ended

Number of Customers and Percentage of Contract
Revenues for each of the CustomersDecember 31, 2004

3 customers, 26%, 24% and 23%, respectivelyDecember 31, 2003

4 customers, 29%, 21%, 18% and 12%, respectivelyDecember 31, 2002

4 customers, 44%, 17%, 12% and 10%, respectively


18.    STOCKHOLDERS' EQUITY

Common Stock

Initial Public OfferingIn July 1998, the Company completed an initial public offering of 10,000,000 shares of its common stock to the public,
at a price of $2.00 per share. On July 27, 1998, the Company's underwriters exercised an option to purchase 1,500,000 additional shares of common stock at a price of $2.00 per share to cover
over-allotments. The Company received net proceeds from the offerings of approximately $20.1 million. Upon the closing of the initial public offering, each of the outstanding
31,377,408 shares of redeemable convertible preferred stock was automatically converted into one share of common stock.

Collaborator
or Private PlacementIn January 1999, a collaborator acquired 1,981,424 shares of the Company's common stock for an aggregate purchase price of
$8.0 million.

Follow-on
Public OfferingIn March 1999, the Company completed a follow-on public offering of 12,000,000 shares of its common stock to the
public, at a price of $3.75 per share. On April 7, 1999 the Company's underwriters exercised an option to purchase 832,000 additional shares of common stock at a price of $3.75 per share to
cover over-allotments. The Company received net proceeds from the offerings of approximately $44.5 million.

Private
PlacementIn November 1999, the Company completed a private placement of 7,112,000 shares of its common stock to qualified institutional and other accredited
investors at a net price of $10.50 per share. The Company received net proceeds of $71.1 million.

Follow-on
Public OfferingIn February 2000, the Company completed a follow-on public offering in which the Company sold 8,640,000 shares and a
stockholder sold 3,360,000 shares of the Company's common stock to the public at a price of $52.50 per share. On February 29, 2000, the Company's underwriters exercised an option to purchase
1,800,000 additional shares, of which 1,296,000 shares were sold by the Company and 504,000 shares were sold by a stockholder at a price of $52.50 per share. The Company received net proceeds from the
offerings of $496.5 million after the underwriters' discount and estimated costs of offering.

Private
PlacementIn November 2000, the Company completed a private placement of 3,300,000 shares of its common stock to qualified institutional and other accredited
investors at a net price of $70.00 per share. The Company received net proceeds of $221.0 million.

Acquisition
for Common StockIn November 2001, the Company acquired Hesed Biomed in exchange for 475,930 shares of common stock, valued at $29.79 per share. (See
Note 2 above andWarrantsbelow.)

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Abgenix
is authorized to issue up to 220,000,000 shares of common stock. At December 31, 2004, common stock issuable upon conversion or exercise is as follows (in thousands):

Stock option plans

17,805Warrants

16Employee stock purchase plans

785Convertible subordinated notes due 2007

4,124Convertible senior notes due 2011

23,401Convertible subordinated note due 2013

1,667Redeemable convertible preferred stock

1,66649,464


Stockholder Rights Plan

On June 2, 1999, the Company's Board of Directors declared a dividend of one right, or Right, to purchase one one-thousandth share of our
Series A Participating Preferred Stock, or Series A Preferred, for each of our outstanding shares of common stock, the Common Shares. On June 14, 1999, the Company entered into a
Preferred Shares Rights Agreement, or Rights Agreement, with ChaseMellon Shareholder Services, L.L.C., the predecessor to Mellon Investor Services LLC, as Rights Agent, which was amended and restated
on November 19, 1999, and on May 9, 2002 and amended on October 29, 2003. The dividend was payable to stockholders of record as of the close of business on the record date,
June 14, 1999. As amended, each Right entitles the registered holder to purchase from us one one-thousandth of a share of Series A Preferred at an exercise price of $175.00,
the Purchase Price. Each one one-thousandth of a share of Series A Preferred has rights and preferences substantially equivalent to those of one Common Share.

The
Rights will separate from the Common Shares and become exercisable upon the earlier of: (i) 10 days following a public announcement that a person or group has acquired
15% or more of the outstanding Common Shares, or (ii) 10 business days (or such later date as may be determined by our Board of Directors) following the announcement of a tender offer or
exchange offer for 15% or more of the Common Shares. Unless the Rights are earlier redeemed by our Board of Directors at a price of $0.01 per Right, if a person or group acquires 15% or more of the
Common Shares, each Right will entitle its holder to receive, upon exercise, Common Shares having a value equal to two times the Purchase Price. Similarly, unless the Rights are earlier redeemed, in
the event that, after a person or group becomes the beneficial owner of 15% or more of the Common Shares, (i) the Company is acquired in a merger, or (ii) 50% or more of the Company's
assets or earning power are sold, proper
provision must be made so that each holder of a Right which 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 two times the Purchase Price. After the acquisition of 15% or more of the Common Shares but prior to such a merger or sale, the Board of Directors may exchange each Right for one Common Share.

In
October 2003, pursuant to the securities purchase agreement between the Company and AstraZeneca, the Company amended its stockholder rights plan to prevent AstraZeneca from
becoming an "Acquiring Person" for purposes of the rights plan as a result of (1) its acquisition of securities of Abgenix pursuant to the securities purchase agreement; (2) the
beneficial ownership by AstraZeneca and its affiliates of the common stock of Abgenix issuable upon conversion of the securities issued pursuant to the securities purchase agreement; or (3) the
mandatory conversion at the Company's option of the securities issued pursuant to the securities purchase agreement into shares of common stock. The Company agreed to keep this amendment in place for
a "standstill period" designated in the

88

---



securities
purchase agreement, provided that the Company's obligation to keep the rights plan amendment in place shall lapse if AstraZeneca breaches its standstill obligations in the securities
purchase agreement. The Company has agreed to continue to keep the amendment in place after the termination of the standstill period for so long as AstraZeneca does not acquire voting securities of
Abgenix that would cause AstraZeneca's level of ownership to exceed that in effect on the date of the termination of the standstill period.

Warrants

In connection with the acquisition of Hesed Biomed in November 2001, the Company assumed obligations under outstanding warrants for the purchase of 18,731
shares of common stock. At December 31, 2004, 16,051 shares of these warrants were outstanding and expire on various dates from October 2005 through February 2010. (See
Note 2.)

19.    STOCK OPTION AND BENEFIT PLANS

Incentive Stock Plans

The Company has three stock plans, which allow for the granting of incentive and non-qualified stock options to employees, outside directors and
consultants of the Company. There are 26,365,000 shares of common stock authorized for issuance under the plans. The Company grants shares of common stock for issuance under the plans at no less than
the fair value of the stock. Options granted under the plans generally have a term of seven or ten years and vest over four years.

Information
with respect to activity under the plans is as follows:

|                              |                   | Option Shares
Available for
Grant |            | Option
Shares
Outstanding |            | Weighted
Average
Exercise Price
|----------------------------- | ----------------- | --------------------------------- | ---------- | ------------------------- | ---------- | -------------------------------
|Balances at December 31, 2001 |                   | 2,248,675                         |            | 12,823,085                |            | $                              
|Authorized                    |                   | 4,000,000                         |            |                          |            |                                
|                              | Options granted   |                                   | (1,669,541 | )                         | 1,669,541  |                                
|                              | Options exercised |                                   |           |                           | (548,367   | )                              
|                              | Options canceled  |                                   | 1,185,278  |                           | (1,185,278 | )                              
|                              |                   |                                   |            |                           |            |                                
|Balances at December 31, 2002 |                   | 5,764,412                         |            | 12,758,981                |            | $                              
|                              | Options granted   |                                   | (2,365,473 | )                         | 2,365,473  |                                
|                              | Options exercised |                                   |           |                           | (280,844   | )                              
|                              | Options canceled  |                                   | 2,478,793  |                           | (2,478,793 | )                              
|                              |                   |                                   |            |                           |            |                                
|Balances at December 31, 2003 |                   | 5,877,732                         |            | 12,364,817                |            | $                              
|                              | Options granted   |                                   | (2,128,254 | )                         | 2,128,254  |                                
|                              | Options exercised |                                   |           |                           | (437,267   | )                              
|                              | Options canceled  |                                   | 826,142    |                           | (826,142   | )                              
|                              |                   |                                   |            |                           |            |                                
|Balances at December 31, 2004 |                   | 4,575,620                         |            | 13,229,662                |            | $                              
|                              |                   |                                   |            |                           |            |                                
|Options exercisable at:       |                   |                                   |            |                           |            |                                
|                              | December 31, 2002 |                                   |            |                           | 8,259,644  |                                
|                              | December 31, 2003 |                                   |            |                           | 8,953,781  |                                
|                              | December 31, 2004 |                                   |            |                           | 10,203,794 |                                

89

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In
addition to the amounts disclosed in the table above, in June 2001, the Company granted and immediately canceled 159,413 options under the 1999 stock option plan in relation to
the cash buy-out of outstanding options held by Abgenix Biopharma employees.

The
following table summarizes information about options outstanding at December 31, 2004:

|              |  | Options Outstanding |  | Options Exercisable
|------------- |  | ------------------- |  | -------------------
|
|
|$0.15-$2.50   |  | 946,535             |  | $                  
|$3.59-$10.99  |  | 4,455,510           |  | $                  
|$11.00-$31.81 |  | 4,283,542           |  | $                  
|$32.28-$42.00 |  | 1,956,497           |  | $                  
|$45.00-$59.93 |  | 637,378             |  | $                  
|$75.17-$80.81 |  | 950,200             |  | $                  
|              |  |                     |  |                    
|              |  | 13,229,662          |  | $                  
|              |  |                     |  |                    

The
weighted-average fair values of options granted during the years ended December 31, 2004, 2003 and 2002 were $9.43, $7.25 and $15.34 per share.

Pro Forma Information

Pro forma information regarding net loss and net loss per share is required by SFAS No. 123, and has been provided in Note 1. The information has
been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following assumptions for 2004, 2003 and 2002, respectively: risk-free interest rate of 3.40%, 2.81% and 3.07%; no dividend yield in 2004,
2003 or 2002; volatility factor of 0.90, 1.00 and 1.05; and an expected life of the option of 5.63 years in 2004, 5.51 years in 2003 and 5.54 years in 2002. These same assumptions
were applied in the determination of the option values related to stock options granted to non-employees, except for the option life for which the term of the consulting contracts, 1 to
5 years, were used. The value of non-employee options has been recorded in the financial statements.

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

Employee Stock Purchase Plans

The Company's employee stock purchase plan enables eligible employees to purchase common stock at 85% of the closing sale price on the first or the last day of
each 6 month purchase period, whichever is lower. Employees may authorize periodic payroll deductions of up to 15% of eligible compensation for common stock purchases, with certain limitations.
The number of shares which may be issued under the plan is 1,000,000, plus an annual increase equal to the lesser of 1,000,000, 1% of the Company's outstanding capitalization or a lesser amount
determined by the Board. The maximum number of shares that can be issued over the 10-year term of the plan is 10,000,000. As of

90

---



December 31,
2004, 2,096,092 shares had been authorized under the plan and 1,460,934 shares had been issued.

The
Company's Canadian employee stock purchase plan enables certain eligible employees to purchase common stock at the average market price on the first or the last day of each
6 month purchase period, whichever is lower. Eligible employees may authorize periodic payroll deductions of up to 15% of eligible compensation for common stock purchases, with certain
limitations. The number of shares that may be issued under this plan is 200,000. As of December 31, 2004, 200,000 shares had been authorized under this plan and 50,104 shares had been issued.

Benefit Plan

The Company has available a 401(k) retirement plan in the United States. Eligible employees may contribute up to 100% of their compensation up to a maximum
allowable under the Internal Revenue Code. The Company does not match contributions and therefore no expense has been recorded. The Company also has available a retirement plan in Canada. Eligible
employees may contribute a percentage of their gross salary, up to the maximum dollar amount legislated by Canada Revenue Agency. After one year of employment, the Company matches employee
contributions up to a maximum of 5% of the employee's gross salary.

20.    CUSTOMER INDEMNIFICATION

The Company has certain agreements with customers and collaborators that contain indemnification provisions. In such provisions, the Company typically agrees to
indemnify the customer or collaborator against certain types of third-party claims. The Company would accrue for known indemnification issues if a loss were probable and could be reasonably estimated.
The Company would also accrue for estimated incurred but unidentified issues based on historical activity. There was no accrual for or expense related to indemnification issues as of
December 31, 2004 and 2003.

21.    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Unaudited quarterly financial information is as follows:

|                                     |  | Quarter Ended |        
|------------------------------------ |  | ------------- | -------
|
|
|2003                                 |  |               |        
|Contract revenues                    |  | $             | 6,156  
|Impairment of intangible assets      |  |               | 1,443  
|Loss from operations                 |  |               | (35,279
|Impairment of investments            |  |               |       
|Net loss                             |  |               | (33,164
|Basic and diluted net loss per share |  | $             | (0.38  
|2004                                 |  |               |        
|Contract revenues                    |  | $             | 2,890  
|Contract manufacturing revenues      |  |               |       
|Impairment of intangible assets      |  |               |       
|Loss from operations                 |  |               | (41,593
|Net loss                             |  |               | (41,566
|Basic and diluted net loss per share |  | $             | (0.47  

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Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)). Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated
Framework. Based on the assessment using those criteria, management believes that, as of December 31, 2004, our internal control over financial reporting was effective.

Our
management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, our
independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the our internal control over financial reporting during the most recently completed fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

Not applicable.

PART III

Item 10.    Directors and Executive Officers of the Registrant

The information required by this item concerning the Company's directors, compliance with Section 16 (a) of the Securities Exchange Act of 1934 and
the Company's code of ethics is incorporated by reference to the Company's Proxy Statement related to the 2005 Annual Meeting of Stockholders (the 2005 Proxy Statement.)

The
information required by this item concerning the Company's executive officers is set forth in Part I of this Form 10-K.

Item 11.    Executive Compensation

The information required by this item is incorporated by reference to the Company's 2005 Proxy Statement.

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Item 12.    Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated by reference to the Company's 2005 Proxy Statement.

Item 13.    Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the Company's 2005 Proxy Statement.

Item 14.    Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Company's 2005 Proxy Statement.

PART IV

Item 15.    Exhibits and Financial Statement Schedules

The following documents are filed as part of this Report:





All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable or the information has been disclosed in the financial statements, and therefore have been omitted.



|Number  |  | Description                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(29) |  | Amended and Restated Certificate of Incorporation of Abgenix, as currently in effect.                                                                                                                                                                                                                
|3.2(20) |  | 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.
|        |  |                                                                                                                                                                                                                                                                                                      

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|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.                                                                                            
|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.                               
|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.                                             
|10.10(32) |  | Resignation and Transition Agreement, dated August 30, 2004, between Abgenix, Inc. and Raymond M. Withy, Ph.D.                                             
|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.                                                                                            
|          |  |                                                                                                                                                            

94

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|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.                                                                                                                                                                                                                                              
|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.                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                     

95

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|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.                                                                                   
|+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.                                        
|           |  |                                                                                                                                                                                                                                  

96

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|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.                                                                                                                                                                           
|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 100)                                                                                                                                                                                                                                                                                                                                
|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.                                                                                                                                                                                                                              
|32.2       |  | 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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97

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98

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99

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Abgenix has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on the 15th day of March, 2005.

| |  | ABGENIX, INC.
| |  | -------------
| |  | By:          

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William R. Ringo and H. Ward Wolff, and each
one of them, acting individually and without the other, as his attorney-in-fact, each with full power of substitution, for him in any and all 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 connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof.

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

|Signature                                                 |  | Title                                                                                                   |  | Date          
|--------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | --------------
|                                                          |  |                                                                                                         |  |               
|/s/R. SCOTT GREERR. Scott Greer                           |  | Chairman of the Board                                                                                   |  | March 15, 2005
|/s/WILLIAM R. RINGOWilliam R. Ringo                       |  | President and Chief Executive Officer
(Principal Executive Officer)                                     |  | March 15, 2005
|/s/H. WARD WOLFFH. Ward Wolff                             |  | Chief Financial Officer and Senior Vice President, Finance
(Principal Financial and Accounting Officer) |  | March 15, 2005
|/s/M. KATHLEEN BEHRENS, PH.D.M. Kathleen Behrens, Ph.D.   |  | Director                                                                                                |  | March 15, 2005
|/s/RAJU S. KUCHERLAPATI, PH.D.Raju S. Kucherlapati, Ph.D. |  | Director                                                                                                |  | March 15, 2005
|/s/KENNETH B. LEE, JR.Kenneth B. Lee, Jr.                 |  | Director                                                                                                |  | March 15, 2005
|                                                          |  |                                                                                                         |  |               

100

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|/s/MARK B. LOGANMark B. Logan                    |  | Director |  | March 15, 2005
|------------------------------------------------ |  | -------- |  | --------------
|/s/THOMAS G. WIGGANSThomas G. Wiggans            |  | Director |  | March 15, 2005
|/s/RAYMOND M. WITHY, PH.DRaymond M. Withy, Ph.D. |  | Director |  | March 15, 2005

101

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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 100).                                                                                                          
|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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