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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549
   FORM 10-K   x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For fiscal year ended: December 31, 2003
 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: 000-50425   Genitope Corporation (Exact name of registrant as specified in its charter)
 Delaware
    
    77-0436313(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 525 Penobscot Drive
Redwood City, CA 94063
(Address of principal executive offices, including zip code) (650) 482-2000
(Registrants telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
(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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes x No 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 Annual Report on
Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes o No x There was no established public trading market for the registrants common
equity as of the last business day of the registrants most recently
completed second fiscal quarter. As of December 31, 2003, there were 16,819,501 shares of the registrants
common stock outstanding. As of that date, there were approximately
11,110,202 shares held by non-affiliates of the registrant, with an




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approximate aggregate market value of $101,991,654 based upon the $9.18
closing price of the registrants common stock listed on the Nasdaq
National Market on December 31, 2003.** DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrants definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than April 29, 2004 in connection with the registrants 2004 Annual
Meeting of Stockholders, are incorporated herein by reference into Part III
of this Annual Report on Form 10-K.   **Excludes 5,709,299 shares of the Registrants common stock held by
current executive officers, directors and stockholders whose ownership
exceeds 5% of the common stock outstanding at December 31, 2003. Exclusion
of such shares should not be construed to indicate that any such person
possesses the power, director or indirect, to director or cause the
direction of the management or policies of the Registration or that such
person is controlled by or under common control with the Registrant.




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GENITOPE CORPORATION FORM 10-K INDEX PAGEPART IItem 1.
    
    Business
    
    
    1Item 2.
    
    Properties
    
    
    31Item 3.
    
    Legal Proceedings
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31PART IIItem 5.
    
    Market for
Registrants Common Equity and Related Stockholder  Matters
    
    
    32Item 6.
    
    Selected Financial Data
    
    
    34Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    35Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 8.
    
    Financial Statements and Supplementary Data
    
    
    42Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and  Financial Disclosure
    
    
    62Item 9A.
    
    Controls and Procedures
    
    
    62PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    62Item 11.
    
    Executive Compensation
    
    
    63Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    63Item 13.
    
    Certain Relationships and Related Transactions
    
    
    63Item 14.
    
    Principal Accountant Fees and Services
    
    
    63PART IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    63SIGNATURES
    
    
    
    
    64CERTIFICATIONSEXHIBIT 23.1EXHIBIT 31.1EXHIBIT 32.1
  The terms Genitope, we, us and our as used in this report refer to
Genitope Corporation. Genitope, Hi-GET, our logo and MyVax are our trademarks. In addition to
Hi-GET, our logo and MyVax, we have applied to register Genitope with the
United States Patent and Trademark Office. Other service marks, trademarks and
trade names referred to in this report, such as Rituxan, are the property of
their respective owners.




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PART I Forward-Looking Statements This annual report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
subject to the safe harbor created by those sections. These forward looking
statements include, but are not limited to, statements about the progress of
our clinical trials and research programs and the sufficiency of our cash
resources and the timing of the completion of patient registration for our
Phase 3 trial, immunization of the last patient registered in the Phase 3
trial and the first interim analysis of the data from the Phase 3 trial. These
forward-looking statements are generally identified by words such as
believes, anticipates, plans, expects, will, intends and other
similar words and expressions. Discussions containing these forward-looking
statements may be found in Business and Managements Discussion and Analysis
of Financial Condition and Results of Operations. These forward-looking
statements involve risks and uncertainties that could cause our actual results
to differ materially form those expressed or implied in the forward-looking
statements. The risks discussed in Risk-Factors, among other things, should
be considered in evaluating our prospects and future financial performance.
Genitope undertakes no obligation to revise or update any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this report. 
 ITEM 1. BUSINESS BUSINESS Overview We are a biotechnology company focused on the research and development of
novel immunotherapies for the treatment of cancer. Immunotherapies are
treatments that utilize the immune system to combat diseases. Our lead product
candidate, MyVax personalized immunotherapy, is a patient-specific active
immunotherapy that is based on the unique genetic makeup of a patients tumor
and is designed to activate a patients immune system to identify and attack
cancer cells. MyVax is currently in a pivotal Phase 3 clinical trial and
additional Phase 2 clinical trials for the treatment of B-cell non-Hodgkins
lymphoma, or B-cell NHL. B-cells, also called B lymphocytes, are one of the two
major classes of lymphocytes, which are types of white blood cells. In the
United States, B-cell NHL represents approximately 85% to 90% of over 300,000
existing and approximately 55,000 newly diagnosed NHL patients each year. NHL
is clinically classified as either slow-growing, referred to as indolent, or
fast-growing, referred to as aggressive. There are approximately 25,000
patients diagnosed with indolent B-cell NHL in the United States each year. Our
pivotal Phase 3 clinical trial is for the treatment of follicular B-cell NHL,
which represents approximately half of the cases of indolent B-cell NHL. We
believe that patient-specific active immunotherapies can also be applied
successfully to the treatment of other cancers. As a result, we are also
developing MyVax for the treatment of chronic lymphocytic leukemia, or CLL. We have exclusive worldwide sales and marketing rights for MyVax. Subject
to regulatory approval, we intend to manufacture and commercialize MyVax and to
establish a North American sales force to market and sell MyVax. Due to the
concentrated nature of the oncology market, we believe that we can sell MyVax
in North America with a small sales force. Results from our completed and
ongoing clinical trials of MyVax for the treatment of B-cell NHL indicate that
MyVax is generally safe and well tolerated. To date, we have successfully
manufactured MyVax in a timely manner to support our clinical trials. Active immunotherapies similar to MyVax have been studied in clinical
trials for over 14 years. Results from clinical trials at Stanford University
Medical Center and the National Cancer Institute, or NCI, suggest that active
immunotherapies may induce long-term remission and may improve survival in
indolent B-cell NHL patients. Remission is the period of time during which
patients have a partial or complete reduction in the amount or severity of the
symptoms of their disease. Despite the results of the Stanford and NCI clinical
trials, further development of an active immunotherapeutic approach to the
treatment of NHL historically has been limited by significant manufacturing
difficulties. We have developed a proprietary manufacturing process, which
includes our patented Hi-GET gene amplification technology, that is designed to
overcome many of these historical manufacturing limitations. As compared to
other existing manufacturing methods for active immunotherapies, we believe
that our process is efficient, modular and reproducible, which we believe will
enable us to manufacture and commercialize 1




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patient-specific active immunotherapies for the treatment of NHL and
potentially other cancers. We were incorporated in the State of Delaware on August 15, 1996. Our
website address is www.genitope.com. The Immune System and Cancer The immune system is the bodys natural defense mechanism to prevent and
combat disease. The primary disease fighting functions of the immune system are
carried out by white blood cells. In response to the presence of disease, white
blood cells can mediate two types of immune responses, referred to as innate
immunity and adaptive immunity. Together the innate and adaptive arms of the
immune system generally provide an effective defense against a broad spectrum
of diseases. Innate immunity is mediated by the white blood cells that engulf and
digest infecting microorganisms known as pathogens. These white blood cells are
the first line of defense against many common infections because they do not
require that the body be previously exposed to the pathogens. The role of the
innate immune system is to control infections while adaptive immunity is being
established for that pathogen. Adaptive immunity is generated by the immune system throughout a persons
lifetime as he or she is exposed to particular pathogens. As a person is
exposed to a pathogen, the adaptive immune response will, in many cases, confer
life-long protection from re-infection by the same pathogen. This adaptive
immune response is the basis for preventative vaccines that protect against
viral and bacterial infections such as measles, polio, diphtheria and tetanus. Adaptive immunity is mediated by a subset of white blood cells called
lymphocytes, which are divided into two types, B-cells and T-cells. B-cells and
T-cells recognize molecules, usually proteins, known as antigens. An antigen is
a molecule or substance that reacts with an antibody or a receptor on a T-cell.
When a B-cell recognizes a specific antigen, it secretes proteins, known as
antibodies, which in turn bind to a target containing that antigen and tag it
for destruction by other white blood cells. When a T-cell recognizes an
antigen, it either promotes the activation of other white blood cells or
initiates destruction of the target cells directly. The collective group of
B-cells and T-cells can recognize a wide array of antigens, but each individual
B-cell or T-cell will recognize only one specific antigen. Because of this
specificity, few lymphocytes will recognize the same antigen. Despite the effectiveness of the immune system in defending the body
against infectious disease, it is generally ineffective in defending the body
against a cancer once it has appeared. The immune system has developed numerous
immune suppression mechanisms to prevent it from destroying a persons normal
tissue, and these same mechanisms are believed to prevent an immune response
from being mounted against cancer cells. In addition, the cancer cells
themselves can make changes that reduce the ability of the immune system to
attack the tumor. Immunotherapy and Cancer Immunotherapies utilize a persons immune system in an attempt to combat
diseases, including cancer. There are two forms of immunotherapy used to treat
various diseases: passive and active. Both types of immunotherapy have been
used with success to treat a number of different diseases. For example, active
immunotherapies in the form of preventative vaccines have enabled the complete
or virtual elimination of viral diseases such as smallpox and polio. Passive immunotherapy is characterized by the introduction into a patient
of antibodies specific to a particular antigen. When antibodies are infused
into a cancer patient, they attach to any cell that displays the antigen. The
patients immune system then responds to eliminate those specific cells tagged
by the antibody. Alternatively, radioactive molecules or toxins can be attached
to an antibody before it is infused into the patient to kill the tagged cells
directly. Although the protection that is provided by a passive immunotherapy
is immediate, it is invariably temporary. Consequently, while passive
immunotherapies have shown clinical benefits in some cancers, and some have
improved safety profiles compared to existing therapies, they require repeated
infusions and can cause the destruction of normal cells as well as cancer
cells. An active immunotherapy generates an adaptive immune response by
introducing an antigen into a patient, often in combination with other
components that can enhance an immune response to the antigen. The specific
adaptive immunity generated can include both the production of antigen-specific
antibodies made by B-cells, known as humoral immunity, and the production of
antigen-specific T-cells, known as cellular immunity. Active immunotherapies have been successful in preventing many infectious
diseases, such as measles, mumps or diphtheria, but the approach has been less
successful in treating cancer. Historically, the reasons that effective active
immunotherapies for cancer have been difficult to develop included the: 2




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
    
    inability of tumor antigens to elicit an effective immune response;
    
    difficulty in identifying suitable target tumor antigens;
    
    inability to manufacture tumor antigens in sufficiently pure form;
    
    inability to manufacture sufficient quantities of tumor antigens;
    
    failure to identify effective components to combine with tumor
antigens to enhance an immune response; and
    
    failure to employ immunization methods that elicit an effective
immune response. We believe that an effective active immunotherapeutic approach for cancer
would result from immunizing patients with sufficient quantities of purified,
tumor-specific antigens administered with additional components to increase the
immunogenicity of these antigens. Immunogenicity is the ability of an antigen
to evoke an immune response within an organism. Utilizing this type of
immunotherapy should allow a patients own immune system to produce both
B-cells and T-cells which recognize numerous portions of the tumor antigen and
generate clinically significant immune responses. During the late 1980s,
physicians at Stanford began development of an active immunotherapy with these
characteristics for the treatment of indolent B-cell NHL. Non-Hodgkins Lymphoma Background.NHL is a cancer of B-cell and T-cell lymphocytes. Currently,
in the United States there are over 300,000 patients diagnosed with NHL, with
approximately 55,000 newly diagnosed cases annually. Approximately 85% to 90%
of patients diagnosed with NHL in the United States have B-cell NHL. The
international market for NHL is estimated to be at least equal in size to the
United States market. NHL is the sixth most common cancer and the sixth leading
cause of death among cancers in the United States. NHL is clinically classified as being either slow-growing, referred to as
indolent, or fast-growing, referred to as aggressive, depending on whether the
patients survival time after relapse from the initial therapy is measured in
years or in months. Indolent and aggressive NHL each constitute approximately
half of all newly diagnosed B-cell NHL, and roughly half of the indolent B-cell
NHL is follicular B-cell NHL. Although indolent B-cell NHL progresses at a slow
rate, it is inevitably fatal and there is no cure currently available.
According to the American Cancer Society, the median survival time from
diagnosis for patients with indolent B-cell NHL having stage III/IV follicular
B-cell NHL is between seven and ten years. Unlike indolent B-cell NHL,
approximately 40% of aggressive B-cell NHL cases are cured by standard
chemotherapy. The remaining patients with aggressive B-cell NHL relapse and
cannot be effectively treated. Current Treatments.Chemotherapy is widely used as a first-line therapy
for NHL and has been effective in managing some forms of these cancers.
Although chemotherapy can substantially reduce the tumor mass and in most cases
achieve a clinical remission, the remissions have not been durable. Indolent
B-cell NHL patients relapse within a few months or years of initial treatment,
and the cancer becomes increasingly resistant to further chemotherapy
treatments. Eventually, patients may become refractory to chemotherapy, meaning
their response to therapy is so brief that further chemotherapy regimens would
offer no significant benefit. Several passive immunotherapies, such as Rituxan, have demonstrated the
ability to induce remission in patients with indolent B-cell NHL. To date,
these therapies administered alone have failed to provide long-term remissions
for most patients. Salvage therapy consisting of high-dose chemotherapy may be performed to
treat refractory indolent B-cell NHL patients or those at high risk for relapse
from primary therapy. This therapy results in the destruction of essential
levels of red and white blood cells and requires stem cell transplants to be
performed to restore a patients blood count. Stem cell transplants continue to
be expensive and associated with high morbidity and significant mortality.
Ultimately, even these very aggressive treatment regimens do not provide
long-term remission for most patients. Active Idiotype Immunotherapy The active immunotherapy developed at Stanford was focused on the
treatment of a cancer of B-lymphocytes known as indolent B-cell NHL. This
immunotherapy consists of a patient-specific tumor protein and a foreign
carrier protein administered with an adjuvant to enhance the immune response.
Patient-specific tumor proteins, which include idiotype proteins, are proteins
expressed by a tumor cell that are unique to an individuals tumor cell. 3




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A foreign carrier protein is a type of protein, which when coupled to a
non-immunogenic or weakly immunogenic antigen, increases the immunogenicity of
the antigen. An adjuvant is a substance that is administered with an antigen to
enhance or increase the immune response to that antigen. The key to the cancer immunotherapy developed at Stanford is the fact that
the patient-specific tumor protein is the antibody expressed by the cancerous
B-cells. Because the patients cancerous B-cells are replicates of a single
malignant B-cell, all of the cancerous B-cells express the same antibody. Each
antibody has unique portions, collectively known as the idiotype, which can be
recognized by the immune system. This type of active immunotherapy is referred
to as an active idiotype immunotherapy. It utilizes the patient- and
tumor-specific antibody, or idiotype protein, as an antigen to direct the
patients immune system to mount an immune response against the targeted tumor
cells. Because the antigen is specific to the cancerous B-cells and not found
on normal B-cells, the immune system should target the cancerous B-cells for
destruction while leaving normal B-cells unharmed. The Stanford clinical trials began in 1988 for the treatment of a slower
growing, or indolent, form of B-cell NHL. Indolent B-cell NHL has no cure and
is treated primarily with chemotherapy. The first clinical trial involved 41
patients with indolent B-cell NHL who commenced their course of immunizations
between November 1988 and December 1995. These patients were immunized while in
remission following chemotherapy. The treated patients had either a complete
response to chemotherapy, defined as no detectable tumor, or a partial response
to chemotherapy, defined as at least a 50% reduction in their tumor volume. Of
the 41 patients treated, 32 were in remission following their first course of
chemotherapy, while the remaining patients were in remission following two or
three courses of chemotherapy. Positive immune responses to the patient-specific active idiotype
immunotherapy were detected in 20 of the 41 immunized patients, including 14 of
the 32 patients in first remission following chemotherapy. The median time to
disease progression for all 41 patients in the clinical trial was reported to
be 4.4 years from the last chemotherapy regimen. Time to disease progression
measures the interval of time between response to chemotherapy and recurrence
of disease. The median time to disease progression was further analyzed by
dividing patients into two groups based upon the presence or absence of an
immune response. The median time to disease progression was calculated to be
7.9 years for the 20 immune response positive patients and 1.3 years for the 21
immune response negative patients. The median time to disease progression for
the 32 patients in first remission was virtually identical to that for the 41
total patients, which suggests that patient-specific active idiotype
immunotherapy may be as effective in the larger population of relapsed patients
as in the smaller population of newly diagnosed patients. Median survival time
was also measured for patients treated in the clinical trial. At the time of
publication, the median survival time of all 41 immunized patients had not been
reached, and the investigators reported that the median survival time of all 41
patients was significantly longer than the median survival time seen in
patients having the same type of NHL who were treated with chemotherapy alone.
NHL patients treated at Stanford with chemotherapy alone had a median survival
time of 10.9 years. The fact that the median survival time had not been reached
for the 41 immunized patients demonstrates that these patients have a median
survival time that is greater than 10.9 years. The median survival time of the
20 immune response positive patients had not been reached versus a median
survival time of seven years calculated for the 21 immune response negative
patients. The results are statistically significant and suggest that an active
idiotype immunotherapy, similar to MyVax, may induce long term remission and
improve survival in NHL patients. Long-term results from the first Stanford clinical trial were published in
the medical journal Bloodin May 1997 and are presented in the following table. MedianTime to
    
    MedianDisease
    
    SurvivalPatients
    
    Progression
    
    TimeTotal.
    
    
    41
    
    
    4.4 years
    
    Not ReachedImmune Response Positive
    
    
    20
    
    
    7.9 years*
    
    Not ReachedImmune Response Negative
    
    
    21
    
    
    1.3 years
    
    7.0 years*
 * Indicates a median calculated based on available data using
Kaplan-Meier analysis. Kaplan-Meier analysis is a statistical
calculation that allows for the estimation of a median time when not all
of the patients have reached the event being measured (e.g., survival or
progression) at the time of analysis. An independent clinical trial of a patient-specific active idiotype
immunotherapy similar to the one tested at Stanford was conducted at the NCI to
treat patients with indolent B-cell NHL. The NCI clinical trial results were
published in Nature Medicinein October 1999. Patients treated in the NCI
clinical trial had previously achieved a clinical complete response following
an initial course of chemotherapy, that is, no tumor was apparent by physical 4




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examination and CT scans. Positive immune responses to the patient-specific
active idiotype immunotherapy were reported for 19 of 20 immunized patients.
Despite the fact that all 20 patients were in clinical complete remission, 11
of these 20 patients were shown to have lymphoma cells in their peripheral
blood following chemotherapy using a very sensitive DNA-based test. After
completing the course of immunization with the active idiotype immunotherapy,
eight of these 11 patients were shown to have no lymphoma cells in their
peripheral blood using the DNA-based test. These results suggest that active
idiotype immunotherapy was able to induce a molecular complete response in
patients that had minimal residual disease following chemotherapy. Despite the results of the Stanford and NCI clinical trials, further
development of an active immunotherapeutic approach to the treatment of NHL
historically has been limited by significant manufacturing difficulties. The
production technology that was used to manufacture these active idiotype
immunotherapies at Stanford and NCI is known as rescue fusion. Rescue fusion is
a method that generates cell lines, referred to as hybridomas, which are
created by combining, or fusing, the patients live tumor cells with cells from
a cell line that grows indefinitely in culture. The resulting hybridomas are
screened to identify those which secrete the idiotype protein present on the
patients tumor cells. We believe that rescue fusion cannot be used to produce
these patient-specific immunotherapies for the number of patients and at a cost
that would enable widespread commercial use. The barriers to commercialization
using the rescue fusion method include:  
    
    the need for a relatively large sample of fresh tumor cells, requiring a surgical biopsy;
    
    the need for rapid processing, as viable tumor cells are required;
    
    a 10% to 20% failure rate;
    
    inconsistent and variable manufacturing timelines which frequently
fall outside the desired clinical treatment timeline; and
    
    low productivity on a per technician basis. MyVax Personalized Immunotherapy MyVax is an injectable patient-specific active idiotype immunotherapy that
we are developing initially for the treatment of indolent and aggressive B-cell
NHL. MyVax combines a patient and tumor-specific antibody, or idiotype protein,
with a foreign carrier protein and is administered with an adjuvant. We have
developed a proprietary manufacturing process for MyVax, which includes our
patented Hi-GET gene amplification technology. Our manufacturing process is
designed to overcome the barriers to commercialization of active idiotype
immunotherapies that are associated with the use of a hybridoma-based process
such as rescue fusion. In comparison to other cancer therapies, MyVax is
designed to provide: Efficacious and lasting treatment:We believe, based on our analysis of
our clinical trials, that (1) MyVax has the potential to provide durable
remissions and extend survival in a substantial percentage of the B-cell NHL
patients that are treated with MyVax and (2) this therapeutic benefit could be
greater than the benefit that is provided by currently available therapies,
including passive immunotherapies such as Rituxan. Safety:MyVax has demonstrated an excellent safety profile to date. MyVax
has been well tolerated in clinical trials, with the majority of side effects
being only mild to moderate. In our clinical trials, these side effects have
included injection site and systemic effects. The most commonly reported
injection site effects were bruising, swelling, redness, itching, inflammation,
pain and other similar reactions at the injection site. The most commonly
reported systemic effects were fatigue, influenza-like illness, fever, chills,
nausea, pain, back, chest or muscle pain, rash and diarrhea. Furthermore, MyVax
is designed to target only the idiotype protein unique to tumor cells and,
thus, should not harm normal cells or impair a patients immune system. With an
intact immune system, patients are less likely to develop significant
complications, such as infections which have been reported in patients treated
with Rituxan. Ease of administration:The administration of MyVax can be accomplished
during a 30-minute outpatient visit, which includes the immunizations followed
by an observation period, with each injection taking less than a minute. In
comparison, currently available passive immunotherapies such as Rituxan must be
administered via a series of lengthy, intravenous infusions. Each infusion of a
passive immunotherapy takes hours, requires patients to be monitored for
infusion reactions on multiple occasions during the infusion and can have
serious complications for patients. Ease of sample collection:The tumor samples used to produce MyVax are
collected using standard medical 5




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procedures that are commonly used in the
diagnosis and staging of cancer patients. Our manufacturing process is designed
to require only a small number of tumor cells, which need not be living cells,
in order to produce MyVax or any other active idiotype immunotherapies that we
may develop. The required tumor samples can be acquired by surgical or
non-surgical means, can be frozen and are shipped to our central facility,
eliminating the need for on-site processing. Efficient manufacturing:Our manufacturing process is designed to enable
MyVax to be produced within a clinically relevant time-frame for virtually
every B-cell NHL patient whose tumor expresses an idiotype protein, enabling an
oncologist to schedule a patients therapy with a high degree of certainty. In
addition, our manufacturing process is designed to enable the reliable
production of patient-specific active immunotherapies utilizing a less
labor-intensive process than is associated with rescue fusion, permitting us to
produce MyVax at cost levels that can yield margins that are competitive with
current cancer treatments. Finally, our manufacturing process is designed to
permit the expansion of production capacity to meet market demand. Commercial feasibility:We believe that our ability to combine a
potentially safe and efficacious active idiotype immunotherapy that offers ease
of administration and ease of sample collection with an efficient, scalable and
reproducible manufacturing process should make MyVax a commercially feasible
treatment for indolent and aggressive B-cell NHL. The safety and ease of
administration of MyVax compared to currently available passive immunotherapies
such as Rituxan should reduce the medical intervention required on behalf of
patients during and after treatment and subsequently reduce the associated cost
of care for patients with B-cell NHL. Our Strategy Our objective is to commercialize MyVax for the treatment of NHL, as well
as other immunotherapies for the treatment of other types of cancer. Our
strategy to achieve this objective includes the following: Commercialize MyVax for NHL.In order to commercialize MyVax for NHL, we
plan to: Obtain regulatory approval of MyVax.We are focused on completing
clinical trials, filing a Biologics License application, or BLA, and
obtaining regulatory approval for MyVax, initially in North America. Expand manufacturing capacity.We plan to expand our manufacturing
capacity to meet anticipated demand upon commercialization. We believe that
our scalable manufacturing process will enable us to expand our manufacturing
capacity in an efficient and timely manner. Build North American sales and marketing infrastructure.Our goal is to
directly commercialize MyVax in North America. We plan to build a small,
highly-focused sales and marketing infrastructure to market MyVax to the
relatively small and well-established community and institutional referral
networks of cancer treatment physicians. We believe that the oncology market
in North America is readily accessible by a limited sales and marketing
presence due to the concentration of prescribing physicians. Commercialize MyVax internationally.We plan to commercialize MyVax in
markets outside North America. As appropriate, we intend to establish
collaborations to assist in the international commercialization of MyVax. Commercialize MyVax for other types of B-cell cancers.We believe that
MyVax has potential applications beyond B-cell NHL. We plan to develop MyVax
for additional types of B-cell cancers where we believe that it is a
potentially effective treatment. In particular, we are currently developing
MyVax for the treatment of CLL and intend to commence a Phase 2 clinical trial
in 2004. We believe that the favorable safety profile of MyVax could accelerate
the clinical development and approval of MyVax for additional types of B-cell
cancers. Leverage our technology to other types of immunotherapies for other
diseases.We believe that our patented Hi-GET technology has potential
applications beyond MyVax. We believe our technology could be used to produce
target proteins for other immunotherapies, such as monoclonal antibodies used
in passive immunotherapies, and other therapeutic proteins. We plan to leverage
our technology in these areas. MyVax Clinical Development Program The following chart summarizes the results of our ongoing, recently
completed and currently planned clinical trials for MyVax. 6




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No. of
    
    Median TimeClinical
    
    Patients
    
    to DiseaseIndication
    
    Trial No.
    
    Phase
    
    Treated
    
    Progression
    
    StatusFollicular B-cell NHL
    
    Patients in first remission following
chemotherapy; 7 immunizations over 24
weeks
    
    
    2000#03
    
    
    Phase 3
    
    360
expected
    
    Treatment
phase in
process
    
    Enrolling patients
    
    Patients in first remission following
chemotherapy; 5 immunizations over 24
weeks
    
    
    9901
    
    
    Phase 2
    
    
    21
    
    
    37.7 months
    
    Treatment phase
completed; patients
in long-term follow-up
    
    Patients in first remission following
chemotherapy, administered with reduced
amount of adjuvant; 5 immunizations over 24 weeks
    
    
    2000#07
    
    
    Phase 2
    
    
    11
    
    
    23.8 months
    
    Treatment phase
completed; patients
in long-term follow-up
    
    Sole initial therapy; 5 immunizations over
24 weeks, with patients demonstrating
either a clinical or an immune response receiving 3 additional immunizations over
8 Weeks
    
    
    2000#04
    
    
    Phase 2
    
    
    16
    
    
    Not
applicable
    
    Treatment phase
completed; patients
in long-term follow-up
    
    Patients who relapsed following
chemotherapy and were subsequently
treated with Rituxan; 8 immunizations
over 14 weeks
    
    
    2002#09
    
    
    Phase 2
    
    40
expected
    
    Treatment
phase in
process
    
    Enrolling patientsAggressive B-cell NHL
    
    Patients in first remission following
chemotherapy
    
    
    9902
    
    
    Phase 2
    
    
    27 Schedule A:
5 immunizations over 24 weeks
    
    
    9902-A
    
    
    Phase 2
    
    
    14
    
    
    10.8 months
    
    Treatment phase
completed; patients
in long-term follow-up Schedule B:
8 immunizations over 18 weeks
    
    
    9902-B
    
    
    Phase 2
    
    
    13
    
    
    15.7 months
    
    Treatment phase
completed; patients
in long-term
follow-upChronic Lymphocytic
Leukemia
    
    To be
determined
    
    Phase 2
    
    To be
determined
    
    
    
    Phase 2 planned
 Pivotal Phase 3 Follicular B-cell NHL Clinical Trial  the 2000#03 Trial We filed an Investigational New Drug application, or IND, for MyVax with
the Food and Drug Administration, or FDA, in April 1999. In November 2000,
based on positive interim Phase 2 results from our 9901 trial, we initiated a
pivotal, double-blind, controlled Phase 3 clinical trial, our 2000#03 trial, to
treat patients with a type of indolent B-cell NHL known as follicular B-cell
NHL, which represents approximately half of the cases of indolent B-cell NHL.
Patients entering the clinical trial have previously untreated follicular
B-cell NHL, are then treated with standard chemotherapy and are in their first
remission. The clinical trial is being conducted at 34 treatment centers in the
United States and Canada.. Two-thirds of the patients will be randomized to
receive MyVax, while the remaining patients will receive the control substance
consisting only of the foreign carrier protein used in MyVax and the adjuvant
administered with MyVax. 7




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The following chart summarizes the treatment schedule of patients in the
clinical trial. (TREATMENT CHART) Patients are receiving seven immunizations over a 24-week period, which
represents two more immunizations than were administered in our 9901 Phase 2
clinical trial described below. Physical evaluations of the patients are
conducted monthly during the immunization period and every three months after
completion of the course of immunizations. A CT scan occurs prior to the first
immunization and every six months following the last immunization for the two
years of follow-up and then once a year to detect disease progression. CT scans
are read by an independent, central radiology group, which is designed to
ensure a consistent determination of patients responses to MyVax. The primary
endpoint of the clinical trial is progression free survival, which is the
interval of time measured from enrollment during which a patient is alive with
no evidence of disease progression. Enrollment occurs when the patient is
assigned to receive either MyVax or the control substance. The clinical trial
is designed to evaluate whether a statistically significant increase in
progression free survival is observed in patients receiving MyVax compared to
patients receiving the control substance. We anticipate that patient
registration, the process during which a patient is screened and a biopsy is
taken to determine whether the patient is eligible to participate in the
clinical trial, will be completed by March 31, 2004. The two planned interim
analyses are expected to be conducted approximately 12 and 24 months after the
last patient is registered, with the detailed follow-up period of the clinical
trial scheduled to conclude approximately 42 months after the last patient is
registered. Upon completion of the detailed follow-up period of the pivotal
Phase 3 clinical trial, we intend to continue to follow the patients for
survival. We believe that, if successful, the results of the trial will support
regulatory approval of MyVax for the treatment of follicular B-cell NHL. Supporting Phase 2 Follicular B-cell NHL Clinical Trial  the 9901 Trial In June 2001, we completed the treatment of 21 patients in a Phase 2
clinical trial, our 9901 trial, to evaluate the ability of patients to mount an
immune response to MyVax and to examine its safety profile. The clinical trial
involved patients with follicular B-cell NHL in first remission following

chemotherapy. The clinical trial was conducted at Stanford University Medical
Center and University of Nebraska Medical Center. The primary endpoint of the
clinical trial was the generation of a specific anti-idiotype immune response.
Positive immune responses were observed. Patients who participated in this
clinical trial continue to be monitored for safety, disease progression and
survival. The clinical protocol for this Phase 2 clinical trial was based on the
original treatment protocols used in the Stanford and NCI clinical trials. We
used MyVax, which is comprised of the same basic components of active idiotype
immunotherapy used in the Stanford and NCI trials. MyVax includes the
tumor-specific idiotype protein linked to a foreign carrier protein called
keyhole limpet hemocyanin, or KLH, which is derived from a giant sea snail, and
was given in the same dose as used in the Stanford and NCI clinical trials. The
adjuvant administered with MyVax was Leukine, a recombinant human granulocyte
macrophage colony stimulating factor, or GM-CSF, which was also used in the NCI
clinical trial. In addition, we produced MyVax using our proprietary
manufacturing process instead of rescue fusion. Upon diagnosis, a biopsy was
obtained to provide a tumor sample sufficient to produce the patient-specific
active idiotype immunotherapy. After obtaining an adequate biopsy, a
four-to-seven month regimen of conventional chemotherapy was administered to
reduce the tumor mass in the patient. Following an approximately six month rest
period to allow the immune system to recuperate from the chemotherapy, the
patient received a series of five immunizations over 24 weeks. Patients were
evaluated for an immune response during the course of immunizations and two
weeks following the final immunization. The entire treatment protocol from the
initiation of chemotherapy through the final immunization lasted about 18
months. A median time to disease progression of 37.7 months has been reached in
the patients in this clinical trial, compared to a median time to disease
progression of 15 months observed in another clinical trial in which follicular
B-cell NHL patients were treated with chemotherapy alone. MyVax was generally
well tolerated in our trial, with 8




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patients reporting side effects of injection site reactions and flu-like symptoms. Additional Phase 2 Follicular B-cell NHL Clinical Trials  the 2000#07,
2000#04 and 2002#09 Trials We have completed the treatment phase of two additional Phase 2 clinical
trials to study the use of MyVax in treating follicular B-cell NHL. One Phase 2
clinical trial, our 2000#07 trial, evaluated the use of a reduced amount of the
GM-CSF administered with MyVax. Patients in this clinical trial were in first
remission following chemotherapy after initial diagnosis. This clinical trial
is being conducted at the University of Nebraska Medical Center. The 11
patients in this clinical trial received five immunizations over 24 weeks
between March 2001 and January 2002. The primary endpoint of the clinical trial
was the generation of an anti-idiotype immune response using MyVax. Positive
immune responses were observed. A median time to disease progression of 23.8
months has been reached in the patients in this clinical trial. Patients who
participated in this clinical trial continue to be monitored for safety,
disease progression and survival. A second Phase 2 clinical trial, our 2000#04 trial, evaluated the use of
MyVax as the sole initial therapy for patients with follicular B-cell NHL. This
clinical trial is being conducted at Stanford University Medical Center. A
significant percentage of patients with follicular B-cell NHL do not clinically
require immediate treatment upon diagnosis. As there is no curative treatment,
many physicians elect to monitor this population of patients until their
clinical symptoms require treatment. Patients in this clinical trial were
initially administered five immunizations over 24 weeks. For those
demonstrating an immune response or a clinical response, three additional
immunizations were administered. The primary endpoint of the clinical trial was
the generation of an anti-idiotype immune response using MyVax. Positive immune
responses were observed. Patients who participated in this clinical trial
continue to be monitored for safety, disease progression and survival. We initiated a Phase 2 clinical trial in March 2003, our 2002#09 trial, to
treat approximately 40 patients with follicular B-cell NHL who have relapsed
following chemotherapy. These patients will be treated with MyVax following a
course of treatment with Rituxan. This clinical trial is designed to evaluate
the use of MyVax in patients treated with Rituxan after relapsing following
chemotherapy. The primary endpoint of the clinical trial is time to disease
progression. The clinical trial will also evaluate whether an anti-idiotype
immune response can be generated. Phase 2 Aggressive B-cell NHL Clinical Trial  the 9902 Trial We also have an ongoing Phase 2 clinical trial, our 9902 trial, to treat
patients initially diagnosed with aggressive B-cell NHL. This is the first
clinical trial of an active idiotype immunotherapy in newly diagnosed
aggressive B-cell NHL patients. Patients enrolled are in first remission
following chemotherapy after initial diagnosis. The clinical trial is being
conducted at Stanford University Medical Center, University of Nebraska Medical
Center and Weill Medical College of Cornell University. We have enrolled 27
patients in first remission following chemotherapy. The primary endpoint of the
clinical trial is the generation of an anti-idiotype immune response using
MyVax. Patients are also being monitored for safety, disease progression and
survival. Because patients with aggressive B-cell NHL tend to relapse much sooner
following the completion of chemotherapy than patients with indolent B-cell
NHL, the treatment regimen was altered from the one used in indolent B-cell NHL
clinical trials. Patients began immunization three months after the end of
their chemotherapy, as opposed to after a six-month rest period. Two different
administration schedules were examined: 14 patients on Schedule A received five
immunizations over a 24-week period and 13 patients on Schedule B received
eight immunizations over an 18-week period. Positive immune responses were
observed on both Schedule A and Schedule B. The patients on Schedule A have a median time to disease progression of
10.8 months, which suggests that giving five immunizations over a 24-week
period does not allow for the establishment of a clinically effective response
before the fast-growing aggressive B-cell NHL reappears following chemotherapy.
In contrast, patients on Schedule B have a median time to disease progression
of 15.7 months. The results from Schedule B are encouraging as 10 of the 13
patients treated on Schedule B have a form of aggressive B-cell NHL called
mantle cell lymphoma, which is a type of B-cell NHL that is widely viewed as
incurable. Based on these results, we plan to initiate a larger clinical trial
for patients with mantle cell lymphoma in 2005. This trial will be designed to
obtain regulatory approval for the use of MyVax for the treatment of mantle
cell lymphoma. Additional Clinical Programs We believe active immunotherapy can be applied successfully to the
treatment of other cancers. We are developing MyVax for the treatment of
chronic lymphocytic leukemia, or CLL. Like NHL, CLL is primarily a B-cell
cancer. We believe CLL can be treated with MyVax, and the same method of
manufacturing would be used to 9




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produce active idiotype immunotherapies for CLL
as is currently used for aggressive and indolent B-cell NHL patients. We plan
to initiate a clinical program for an active immunotherapy to treat CLL during
2004. Manufacturing Process Our manufacturing process is divided into three phases: molecular biology,
cell culture and production, as illustrated below. (MANUFACTURING PROCESS) Each phase of our manufacturing process uses standard procedures that
apply to each personalized immunotherapy that we produce. The manufacturing of
each patients active idiotype immunotherapy begins with the collection of a
tumor sample by routine biopsy of the patient. The tumor samples can be
acquired by surgical or non-surgical means, can be frozen and are shipped via
an overnight courier to our manufacturing facility for
processing. After processing, each patients active idiotype immunotherapy
is shipped to the clinical site or the treating physician for immunization of
the patient. Molecular Biology Upon arrival of the tumor sample at our manufacturing facility, we extract
genetic material from the sample and isolate the genes that encode the two
unique regions of a patients tumor-specific idiotype protein. Our proprietary
knowledge allows us to identify the genes encoding the idiotype protein
generally within a few weeks. We then generate a pair of expression vectors
encoding the idiotype protein. An expression vector is a DNA molecule that
contains all of the elements required for the production of the tumor-derived
idiotype protein in a host cell. Cell Culture The expression vectors encoding the idiotype protein are then introduced
into mammalian cells. Individual mammalian cell lines producing the idiotype
protein are then generated using a series of cycles of growth and selection
steps. These cycles of growth and selection, known as gene amplification, are
completed using our patented Hi-GET technology that provides for the rapid and
efficient isolation of mammalian cell lines expressing increased levels of the
idiotype protein. These cell lines are referred to as manufacturing cell lines. In comparison to alternative methods of gene amplification, our Hi-GET
technology more efficiently and reproducibly generates stable cell lines
containing increased copies of the expression vectors that encode the patients
idiotype protein. Consequently, fewer candidate cell lines must be subjected to
selection techniques in order to identify a suitable manufacturing cell line,
thus reducing the amount of time a technician must spend to identify a cell
line that is expressing sufficient levels of idiotype protein. This allows each
of our technicians to work on the development of ten to 20 different
manufacturing cell lines at the same time. Production Upon isolation of a manufacturing cell line, the size of the culture is
expanded to allow for the production of an 10




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appropriate amount of the idiotype
protein. Following a standard purification process, the idiotype protein is
linked to KLH, a foreign carrier protein, resulting in MyVax. After release
testing, the frozen MyVax product and GM-CSF adjuvant are shipped to the
clinical trial site or the treating physician for immunization of the patient. We purchase KLH from biosyn Arzneimittel GmbH, a single source supplier.
We have entered into a supply agreement with biosyn, dated December 9, 1998,
pursuant to which biosyn has agreed to supply us with KLH. Pursuant to the
supply agreement, biosyn is obligated to supply us a maximum amount of KLH in
any one month and, up to December 9, 2003, a minimum amount of KLH per 12-month
period. Under the agreement, biosyn may, but is not required to, supply us with
KLH in excess of the contractual monthly maximum. Since early 2001, we have
purchased an average amount of KLH per month that is greater than the monthly
maximum amount and annual minimum amount of KLH that biosyn is required to
supply us under the supply agreement. We expect to continue to purchase on a
monthly basis through the next 12 months more KLH than biosyn is required to
supply us under the supply agreement. Based on our projected use of KLH over
the next 12 months and our discussions with biosyn, we believe biosyn can and
will meet our anticipated needs for KLH. The supply agreement expires on
December 9, 2005. Either party may terminate the supply agreement earlier upon
a breach that is not cured within 60 days or other events relating to
insolvency or bankruptcy. Manufacturing Safeguards We have instituted several safeguards in our manufacturing process that
are designed to ensure batch integrity and prevent patient therapies from being
sent to the incorrect patient. Throughout the process we carefully handle
manufacturing materials and record data. The DNA sequences of the
tumor-specific idiotype protein genes are determined early in the molecular
biology phase of the process. These DNA sequences serve as a reference that
permits the identification of manufacturing intermediates, such as expression
vectors, and stable cell lines containing these vectors, as belonging to a
specific patients sample. At later stages of the process, we use tests to
demonstrate that the subtype of the idiotype protein present in both purified
idiotype protein preparations and in the final MyVax product, the idiotype
protein-KLH conjugate, is in conformance with the expected subtype. In addition to safeguards designed to ensure segregation of each patients
therapy, we archive intermediates throughout the manufacturing process, which
allows us to quickly produce additional vials of a patients therapy if needed.
These archival procedures include the storage of the manufacturing cell line
produced for each patient and purified preparations of the patients
tumor-specific idiotype protein. Additional Hi-GET Technology Applications Our patented Hi-GET technology has additional potential applications,
including producing target proteins for other immunotherapies, such as
monoclonal antibodies used in passive immunotherapies, and other therapeutic
proteins. Our Hi-GET technology can also be used to produce proteins for
research, for example, to support genomic companies needs to strengthen their
patent positions by enabling them to link protein function with their DNA
sequences more quickly. Our Hi-GET technology has also been used to produce
both single and multi-chain proteins that are secreted into the culture medium,
proteins that are located in the cytoplasm of the cell and proteins that are
located in the membrane of the cell. Many proteins of therapeutic and
diagnostic interest must be produced in mammalian cells in order for the
proteins to retain their characteristic features and biologic activities. Our
Hi-GET technology can be used to efficiently produce a wide variety of proteins
in mammalian cell lines. Competition The biotechnology and biopharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. We face competition from many different sources,
including commercial pharmaceutical and biotechnology enterprises, academic
institutions, government agencies and private and public research institutions.
Due to the high demand for new cancer therapies, research is intense and new
treatments are being sought out and developed by our competitors. Many of our competitors have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical testing,
clinical trials, regulatory approvals and marketing approved products than we
do. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and
established companies. These third parties compete with us in recruiting and
retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in
acquiring technologies and technology licenses complementary to our programs or
advantageous to our business. Several companies, such as Corixa Corporation, Biogen Idec Inc. and
Immunomedics, Inc. are involved in the 11




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development of passive immunotherapies
for the treatment of NHL. Various products are currently marketed for treatment
of NHL. Rituxan, a monoclonal antibody co-marketed by Genentech, Inc. and
Biogen Idec Inc., is approved for the treatment of relapsed or refractory, low
grade B-cell NHL. In addition, IDEC has received FDA approval for marketing its
passive radioimmunotherapy product, Zevalin, and GlaxoSmithKline Plc and Corixa
Corporation recently received FDA approval for marketing their version of
passive radioimmunotherapy product, Bexxar, for the treatment of relapsed or
refractory low grade, follicular, or transformed B-cell NHL. In addition, there are several companies focusing on the development of
active immunotherapies for the treatment of NHL, including Antigenics, Inc.,
Favrille, Inc. and Large Scale Biology Corporation. These companies product
candidates are in various stages of development. In addition, we are aware that
the NCI, in collaboration with Biovest International, Inc., is currently
conducting a Phase 3 clinical trial of active immunotherapy in patients with
follicular NHL. If any are successfully developed and approved, they could
compete directly with MyVax, if it is approved. Sales and Marketing We recently began building our marketing capabilities. In order to
commercially market our active immunotherapies if we obtain regulatory
approval, we must either develop a sales and marketing infrastructure or
collaborate with third parties with more sales and marketing experience. We
plan to build a small, highly-focused sales and marketing infrastructure to
market MyVax to the relatively small and well-established community and
institutional referral networks of cancer treatment physicians. We believe that
the oncology market in North America is readily accessible by a limited sales
and marketing presence due to the concentration of prescribing physicians. To
penetrate oncology markets outside the United States, as appropriate, we may
establish collaborations to assist in the commercialization of MyVax. Intellectual Property We rely on the proprietary nature of our technology and production
processes for the protection of MyVax and any other immunotherapies that we may
develop. We plan to prosecute and defend aggressively our patents and
proprietary technology. Our policy is to patent the technology, inventions and
improvements that we consider important to the development of our business. We
hold two United States patents related to our core gene amplification
technology, including composition of matter claims directed to cell lines and
claims directed to methods of making proteins derived from patients tumors.
These patents expire in 2016. Corresponding patents,
although more constrained in scope due to rules not applicable in the
United States, have been issued in Australia, Canada and South Africa, all of
which expire in 2017. We have also filed additional United States and
corresponding foreign patent applications relating to our Hi-GET gene
amplification technology and expect to continue to file additional patent
applications. We also rely on trade secrets, technical know-how and continuing
innovation to develop and maintain our competitive position. We seek to protect
our proprietary information by requiring our employees, consultants,
contractors, outside scientific collaborators and other advisors to execute
non-disclosure and assignment of invention agreements on commencement of their
employment or engagement, through which we seek to protect our intellectual
property. Agreements with our employees also prevent them from bringing the
proprietary rights of third parties to us. We also require confidentiality or
material transfer agreements from third parties that receive our confidential
data or materials. The biotechnology and biopharmaceutical industries are characterized by
the existence of a large number of patents and frequent litigation based on
allegations of patent infringement. While our active immunotherapies are in
clinical trials, and prior to commercialization, we believe our current
activities fall within the scope of the exemptions provided by 35 U.S.C.
Section 271(e) in the United States and Section 55.2(1) of the Canadian Patent
Act, each of which covers activities related to developing information for
submission to the FDA and its counterpart agency in Canada. As our active
immunotherapies progress toward commercialization, the possibility of an
infringement claim against us increases. While we attempt to ensure that our
active immunotherapies and the methods we employ to manufacture them do not
infringe other parties patents and other proprietary rights, competitors or
other parties may assert that we infringe on their proprietary rights. In
particular, we are aware of patents held jointly by Genentech, Inc. and City of
Hope National Medical Center relating to expression of recombinant antibodies,
by British Technology Group PLC relating to expression of recombinant proteins
in mammalian cells, by the Board of Trustees of the Leland Stanford Junior
University relating to expression of recombinant antibodies and by Stratagene
relating to generation of DNA that encodes antibodies. We believe that we have valid defenses to any assertion that MyVax, or any
other similar antibody-based active immunotherapies that we may develop, or the
methods that we employ to manufacture them, infringes the claims of 12




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the patent
held jointly by Genentech, Inc. and City of Hope National Medical Center
relating to expression of recombinant antibodies. We also believe that the
patent may be invalid and/or unenforceable. The relevant patent was issued to
Genentech, Inc. in 2001 in connection with the settlement of an interference
proceeding in the United States Patent and Trademark Office between Genentech,
Inc. and Celltech R&D Ltd. We believe other biotechnology companies are aware
of and are considering the possible impact of this patent. Other companies have
negotiated license agreements for this patent. We have not attempted to obtain
such a license because we believe that properly construed claims do not cover
activities related to the manufacture of MyVax. If we decide to attempt to
obtain a license for this patent, we cannot guarantee that we would be able to
obtain such a license on commercially reasonable terms, or at all. We are aware
of a complaint filed by Medimmune, Inc. against Genentech, Inc., City of Hope
National Medical Center and Celltech in April 2003 in the United States
District Court for the Central District of California seeking, among other
things, judicial declarations that the patent is invalid and that the patent
is unenforceable due to the patent applicants inequitable conduct before the
United States Patent and Trademark Office. We cannot predict whether Medimmune
will obtain the judicial declarations that it is seeking, whether we or others
would seek or be able to obtain such or similar declarations or whether we
would otherwise be successful in demonstrating that MyVax, or any other similar
antibody-based active immunotherapies that we may develop, or the methods that
we employ to manufacture them, does not infringe the claims of the patent held
jointly by Genentech, Inc. and City of Hope National Medical Center or that the
patent is invalid and/or unenforceable. We also believe that we have valid defenses to any assertion that MyVax,
or any other active immunotherapies that we may develop, infringes the claims
of the patent held by British Technology Group PLC relating to expression of
recombinant proteins in mammalian cells, that MyVax, or any other similar
antibody-based active immunotherapies that we may develop, infringes the claims
of the patent held by the Board of Trustees of the Leland Stanford Junior
University relating to expression of recombinant antibodies or that MyVax, or
any other similar antibody-based active immunotherapies that we may develop,
infringes the claims of the patent held by Stratagene relating to generation of
DNA that encodes antibodies. The relevant British Technology Group patent was
issued in 1990 and was subsequently assigned to British Technology Group. We
believe that the patent is invalid and, therefore, that the patent does not
impact our ability to commercialize MyVax. The relevant Stanford patent was
issued in 1998. We believe that MyVax, and the methods that we employ to
manufacture MyVax, do not infringe the claims of the patent. The relevant
Stratagene patent was issued in 2002. We believe that the patent is invalid,
and that the methods that we employ to manufacture MyVax do not infringe the
claims of the patent. If any of these patents is found to cover MyVax, or any other
immunotherapies that we may develop, or the methods that we employ to
manufacture them, we could be required to pay damages and could be unable to
commercialize MyVax, or any other immunotherapies that we may develop,
unless we obtain a license from the applicable patent holder. A license may not
be available to us on acceptable terms in the future, or at all. In addition,
litigation of any intellectual property claims with any of these patent
holders, with or without merit, would likely be expensive and time-consuming
and divert managements attention from our core business. See Risk Factors  Because it is difficult and costly to protect our
proprietary rights, we may not be able to ensure their protection. Government Regulation Regulation of MyVax and Any Other Active Immunotherapies that We May
Develop in the United States and Canada MyVax and any other immunotherapies that we may develop will require
regulatory approval prior to commercialization. At the present time, we believe
that MyVax and any other immunotherapies that we may develop will be regulated
in the United States by the FDA as biologics. The Investigational New Drug application, or IND, for our lead product
candidate, MyVax personalized immunotherapy, was submitted to the FDA in April
1999. We received approval from the FDA to begin clinical trials with a Phase 2
clinical trial in May 1999. A pre-Phase 3 clinical trial meeting was held with
the FDA in August 2000. Our pivotal Phase 3 clinical trial for the treatment of
follicular B-cell NHL began in November 2000. The IND was submitted in Canada
in December 2000. Our pivotal Phase 3 clinical trial is currently ongoing in
the United States and Canada. We plan to submit marketing applications for approval of MyVax initially
in the United States and Canada. The initial application is expected to be
based on one adequate and well-controlled Phase 3 clinical trial, our 2000#03
trial, with supporting data from our Phase 2 clinical trials. In the United
States, we expect the Biologics License application, or BLA, to be reviewed
under accelerated approval, with time of progression free survival as a
surrogate for survival. We expect to follow patients for long term survival as
a post-approval commitment. We expect to 13




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conduct further clinical trials to
support BLAs for approvals of MyVax for additional indications. We have not started the regulatory approval process in any jurisdiction
other than the United States and Canada, and we are unable to estimate when, if
ever, we will commence the regulatory approval process in any other foreign
jurisdiction. In general, we will have to complete an approval process similar
to the United States approval process in foreign markets for MyVax and any
other immunotherapies that we may develop before we can commercialize them in
those countries. The approval procedure and the time required for approval vary
from country to country and can involve additional testing. Foreign approvals
may not be granted on a timely basis, or at all. Regulatory approval of product
prices is required in most countries other than the United States. The prices
approved for our products may be too low to generate an acceptable return to
us. Our manufacturing facility is currently subject to licensing requirements
of the California Department of Health Services. We anticipate applying for a
license in the first quarter of 2004. Our facility is subject to inspection by
the FDA as well as by the California Department of Health Services at any time.
Failure to obtain and maintain a license from the California Department of
Health Services, or to meet the inspection criteria of the FDA or the
California Department of Health Services, would disrupt our manufacturing
processes and would harm our business. Product Regulation Governmental authorities in the United States and other countries
extensively regulate the preclinical studies and clinical testing, manufacture,
labeling, storage, record keeping, advertising, promotion, export and
marketing, among other things, of drugs, medical devices and biological
materials, including MyVax and any other immunotherapies that we may develop.
In the United States, pharmaceutical products are regulated by the FDA under
the Federal Food, Drug, and Cosmetic Act and other laws, including, in the case
of biologics, the Public Health Service Act. The steps required before a novel
biologic may be approved for marketing in the United States generally include:  
    
    preclinical laboratory tests and preclinical studies in animals;
    
    the submission to the FDA of an IND for human clinical testing, which
must become effective before human clinical trials may commence;
    
    adequate and well-controlled human clinical trials to establish the safety and efficacy of the product;
    
    the submission to the FDA of a BLA; and
    
    FDA review and approval of such application, including a pre-approval
inspection of the manufacturing facility and FDA inspection of clinical
study sites. The testing and approval process requires substantial time, effort and
financial resources. We cannot be certain that any approval will be granted on
a timely basis, if at all. Prior to and following approval, if granted, the
establishment or establishments where the product is manufactured are subject
to inspection by the FDA and must comply with current good manufacturing
practices, or cGMP, requirements enforced by the FDA through its facilities
inspection program. In addition, drug manufacturing facilities in California
are subject to licensing requirements of the California Department of Health
Services. Facilities are subject to inspection by the FDA as well as by the
California Department of Health Services at any time. Preclinical studies generally include animal studies to evaluate the
mechanism of action of the product, as well as animal studies to assess the
potential safety and efficacy of the product. Compounds must be produced
according to applicable cGMP requirements and preclinical safety tests must be
conducted in compliance with FDA and international regulations regarding good
laboratory practices. The results of the preclinical tests, together with
manufacturing information and analytical data, are generally submitted to the
FDA as part of an IND, which must become effective before human clinical trials
may be commenced. The IND will automatically become effective 30 days after
receipt by the FDA, unless the FDA before that time requests an extension or
raises concerns about the conduct of the clinical trials as outlined in the
application. In such latter case, the sponsor of the application and the FDA
must resolve any outstanding concerns before clinical trials can proceed.
Clinical trials involve the administration of the investigational product to
healthy volunteers or to patients, under the supervision of a qualified
principal investigator, and must be conducted in accordance with good clinical
practices. Clinical trials are conducted in accordance with protocols that
detail many items, including:  
    
    the objectives of the study; 14




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
    
    the parameters to be used to monitor safety; and
    
    the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further,
each clinical study must be reviewed and approved by an independent
institutional review board, or IRB, at each institution at which the study will
be commenced, prior to the recruitment of subjects. The IRB will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution. Clinical trials typically are conducted in three sequential phases, but
the phases may overlap. In Phase 1, the initial introduction of the drug into
human subjects, the drug is tested for safety and, as appropriate, for
absorption, metabolism, distribution, excretion, pharmacodynamics and
pharmacokinetics. Phase 2 usually involves studies in a limited patient
population to evaluate preliminarily the efficacy of the drug for specific
targeted indications, determine dosage tolerance and optimal dosage and
identify possible adverse effects and safety risks. Phase 3 clinical trials are undertaken to further evaluate clinical
efficacy and to test further for safety within an expanded patient population
at geographically dispersed clinical study sites. Phase 1, Phase 2 or Phase 3
testing may not be completed successfully within any specific time period, if
at all, with respect to any products being tested by a sponsor. Furthermore,
the FDA or the IRB may suspend clinical trials at any time on various grounds,
including a finding that the healthy volunteers or patients are being exposed
to an unacceptable health risk. The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA as part of a BLA requesting approval for the marketing of
the product. The FDA may refuse to accept the BLA for review or deny approval
of the application if applicable regulatory criteria are not satisfied, or if
additional testing or information is required. Post-marketing testing and
surveillance to monitor the safety or efficacy of a product may be required,
and the FDA may limit further marketing of the product based on the results of
post-market testing. FDA approval of any application may include many delays or
never be granted. Moreover, if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if safety or manufacturing problems
occur following initial marketing. Among the conditions for approval is the
requirement that the prospective manufacturers quality control and
manufacturing procedures conform to cGMP requirements. These requirements must
be followed at all times in the manufacture of the approved product. In
complying with these requirements, manufacturers must
continue to expend time, monies and effort in the area of production and
quality control to ensure full compliance. Failure to comply may subject us to
fines and civil penalties, suspension or delay in product approval, seizure or
recall of the product, or product approval withdrawal. New products that are being developed for the treatment of serious or
life-threatening diseases where the product would provide therapeutic advantage
over the existing treatment may be considered for accelerated approval by the
FDA. In these cases, approval can be based on criteria that are indicative of
the desired clinical benefit. These products generally receive high priority
review by the FDA. Sponsors of products that receive accelerated approval must
carry out clinical trials post-approval to verify the desired clinical benefit. Both before and after the FDA approves a product, the manufacturer and the
holder or holders of the BLA for the product are subject to comprehensive
regulatory oversight. Violations of regulatory requirements at any stage,
including the preclinical and clinical testing process, the review process, or
at any time afterward, including after approval, may result in various adverse
consequences, including the FDAs delay in approving or refusal to approve a
product, suspension or withdrawal of an approved product from the market,
seizure or recall of a product and/or the imposition of criminal penalties
against the manufacturer and/or the license holder. In addition, later
discovery of previously unknown problems may result in restrictions on a
product, its manufacturer, or the BLA holder, or market restrictions through
labeling changes or product withdrawal. Also, new government requirements may
be established that could delay or prevent regulatory approval of our products
under development. With respect to post market product advertising and promotion, the FDA
imposes a number of complex regulations on entities that advertise and promote
pharmaceuticals and biologics, which include, among others, standards for and
regulations of direct-to-consumer advertising, off-label promotion, industry
sponsored scientific and educational activities, and promotional activities
involving the Internet. The FDA has very broad enforcement authority under the
Federal Food Drug and Cosmetic Act, and failure to abide by these regulations
can result in penalties, including the issuance of a warning letter directing
us to correct deviations from FDA standards, a requirement that future
advertising and promotional materials be pre-cleared by the FDA, and state and
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We are also subject to various laws and regulations regarding laboratory
practices, the experimental use of animals, and the use and disposal of
hazardous or potentially hazardous substances in connection with our research.
In each of these areas, as above, the FDA has broad regulatory and enforcement
powers, including the ability to impose fines and civil penalties, suspend or
delay issuance of approvals, seize or recall products, and withdraw approvals,
any one or more of which could have a material adverse effect upon us. No patient-specific active idiotype immunotherapeutic for cancer has been
approved by the FDA for marketing. The FDA has not yet established particular
regulatory guidelines for patient-specific immunotherapies, nor has it issued
any interim guidelines. Other Regulations We are also subject to regulation by the Occupational Safety and Health
Administration, or OSHA, and the state and federal environmental protection
agencies and to regulation under the Toxic Substances Control Act and other
regulatory statutes, and may in the future be subject to other federal, state
or local regulations. Either OSHA or the environmental protection agencies, or
all of them, may promulgate regulations that may affect our research and
development programs. We are unable to predict whether any agency will adopt
any regulation, which could limit or impede on our operations. Employees As of December 31, 2003 we had 103 employees, of whom nine have Ph.D.s,
one has a M.D., and one has a Pharm. D. Of the remaining employees, 11 are
clinical staff, 65 are manufacturing staff and 16 are management or
administrative staff. None of our employees is subject to a collective
bargaining agreement. We believe that we have good relations with our
employees. Executive Officers of the Registrant The following table sets forth, as of February 29, 2004, information about
our executive officers. Name
    
    Age
    
    Position HeldDan W. Denney, Jr., Ph.D
    
    50
    
    Chairman, Chief Executive Officer, Acting Chief Financial Officer and DirectorBonnie Charpentier, Ph.D.
    
    52
    
    Vice President, Regulatory AffairsThomas DeZao
    
    46
    
    Vice President, Strategic Marketing and SalesDiane Ingolia, J.D., Ph.D
    
    45
    
    Vice President, Technical Development and Intellectual Property CounselClaude Miller
    
    53
    
    Vice President, QualityScott M. Wheelwright, Ph. D
    
    49
    
    Vice President, BioProcessing
 Dan W. Denney Jr., Ph.D.is our founder and has served as our Chief
Executive Officer since November 1999, Chairman of the Board since August 1996
and has served as our acting Chief Financial Officer since February 2004. Dr.
Denney did his postdoctoral research in the laboratory of Dr. Harden McConnell
in the Chemistry Department at Stanford University, where he was a Merck
Fellow. Dr. Denney then served as a Visiting Scholar at the University of
Alberta in Canada prior to founding Genitope. Dr. Denney holds a B.A. from
Vanderbilt University and a Ph.D. in Microbiology and Immunology from Stanford
University School of Medicine. Bonnie Charpentier, Ph.D.has served as our Vice President of Regulatory
Affairs since December 2001. From June 1995 to December 2001, Dr. Charpentier
held a number of regulatory positions at Roche Global Development, a division
of F. Hoffman-La Roche Ltd., a pharmaceuticals and diagnostics company,
including Vice President and Regulatory Site Head. From December 1993 to June
1995, Dr. Charpentier served as Regulatory Program Director at Syntex
Corporation, a biopharmaceutical company, where she joined as a Manager of
Human Pharmaceutical Regulatory in 1991. Dr. Charpentier holds a B.A. and a
Ph.D. in Biology from the University of Houston. Thomas DeZaohas served as our Vice President of Strategic Marketing and
Sales since February 2002. From August 1999 to January 2002, Mr. DeZao was Vice
President of Marketing and Medical Affairs at Corixa Corporation, a
biopharmaceutical company, and Coulter Pharmaceutical, Inc., a wholly owned
subsidiary of Corixa Corporation, where he was responsible for all aspects of
the marketing plan for Bexxar, a radio-labeled monoclonal antibody developed to
treat non-Hodgkins lymphoma. From July 1998 to June 1999, Mr. DeZao was the
Vice President of Marketing and Sales for Asta Medica, a biopharmaceutical
company, where he developed commercialization plans for an emerging United
States oncology business. From October 1987 to March 1998, Mr. 16




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DeZao was the
Director of Marketing for Chiron Corporation, a global pharmaceutical company,
where he was responsible for product management and customer service for the
Therapeutics Division. Mr. DeZao holds a B.A. from Montclair State University. Diane Ingolia, J.D., Ph.D.currently serves as our Vice President of
Technical Development and Intellectual Property Counsel. Dr. Ingolia joined us
in May 1997 as our Senior Scientist and Intellectual Property Counsel, a
position she held until April 2000. From May 2000 to May 2002, Dr. Ingolia
served as Vice President of Product Development and Intellectual Property
Counsel. From 1994 to 1997, Dr. Ingolia was a patent attorney at Medlen &
Carroll, LLP. Dr. Ingolia holds a B.S. degree from University of New Orleans
and a Ph.D. in Biochemistry from Baylor College of Medicine. Dr. Ingolia
conducted her postdoctoral research at Stanford University School of Medicine
in the laboratory of Dr. Irving Weissman. Dr. Ingolia holds a J.D. from Santa
Clara Law School. Claude Millerhas served as our Vice President of Quality since February
2004. From September 2000 to November 2003, Mr. Miller held a number of key
management positions at Alpha Therapeutic Corporation, a plasma fractionation
biologics company, starting as Vice President of Regulatory and Quality before
being elevated to the position of President and Chief Operating Officer in
March 2002. From April 1997 to September 2000, Mr. Miller was Senior Director
of Operations at SangStat Medical Corporation, a transplant company. Prior to
joining SangStat, Mr. Miller held a number of positions in Quality and
Compliance at Somatix, Collagen Corporation and LifeScan Inc. Claude Miller
received his B.S. and M.S. in Molecular Biology/Microbiology from California
State University, Long Beach. Scott M. Wheelwright, Ph.D.has served as our Vice President of
BioProcessing since April 2002. From February 2000 to April 2002, Dr.
Wheelwright held a number of manufacturing positions at DURECT Corporation, a
pharmaceutical systems company, including Vice President of Manufacturing and
Operations. From March 1998 to February 2000, he was Vice President of
Development and Manufacturing at Calydon, Inc., a biopharmaceutical company.
From October 1992 to March 1998, Dr. Wheelwright held a number of manufacturing
positions at Scios Inc., including Senior Director of Process Development,
Manufacturing and Engineering. Prior to Scios, Dr. Wheelwright held positions
at Chiron Corporation and Abbott Laboratories. Dr. Wheelwright holds a B.S.
from the University of Utah, Salt Lake City and a Ph.D. in Chemical Engineering
from the University of California, Berkeley. Available Information We maintain a site on the world wide web at www.genitope.com; however,
information found on our website is not incorporated by reference into this
report. We make available free of charge on or through our website our SEC
filings, including our annual report of Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) 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 In 2003, we adopted a Code of Business Conduct and Ethics (Code) that
applies to all of our directors, officers and employees, including our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. We have posted
the text of our Code on our website at www.genitope.com in connection with
Investor materials. We intend to satisfy the disclosure requirement under
Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of
this Code by posting such information on our website, at the address and
location specified above. In addition, we intend to promptly disclose (1) the
nature of any amendment to our Code that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions and (2) the nature of any
waiver, including an implicit waiver, from a provision of our Code that is
granted to one of these specified officers, the name of such person who is
granted the waiver and the date of the waiver on our website in the future.
You may also request a copy of the Code of Business Conduct by contacting our
investor relations department at IR@genitope.com. 17




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RISK FACTORS Risks Related to Our Business We have incurred losses since inception and anticipate that we will incur
continued losses for the foreseeable future. We are a development stage company with a limited operating history. We
have focused primarily on conducting clinical trials and seeking regulatory
approval for our lead product candidate, MyVax personalized immunotherapy, a
patient-specific active immunotherapy that is based on the unique genetic
makeup of a patients tumor and is designed to activate a patients immune
system to identify and attack cancer cells. We have incurred losses in each
year since our inception in 1996. Net losses were $48.9 million in 2003, $19.9
million in 2002 and $9.8 million in 2001. As of December 31, 2003, we had an
accumulated deficit of $87.8 million. These losses, among other things, have
had and will continue to have an adverse effect on our stockholders equity and
working capital. We expect our research and development expenses to increase in
connection with our ongoing pivotal Phase 3 clinical trial and additional Phase
2 clinical trials for MyVax and any other clinical trials that we may initiate.
In addition, subject to regulatory approval of MyVax, we expect to incur sales,
marketing and manufacturing expenses, including expenses associated with the
construction and qualification of a commercial scale manufacturing facility. As
a result, we expect to continue to incur significant and increasing operating
losses for the foreseeable future. Because of the numerous risks and
uncertainties associated with developing immunotherapeutic drugs, we are unable
to predict the extent of any future losses or when we will become profitable,
if at all. We currently have no source of revenue and may never become profitable. Our ability to become profitable depends upon our ability to generate
revenue. To date, MyVax has not generated any revenue, and we do not know when
or if MyVax will generate revenue. Our ability to generate revenue depends on a
number of factors, including our ability to:  
    
    successfully complete our ongoing pivotal Phase 3 clinical trial for
MyVax;  
    
    develop and obtain regulatory approval for MyVax, including
regulatory approval for our commercial scale manufacturing facility and
process;  
    
    manufacture commercial quantities of MyVax at acceptable cost levels;
and  
    
    successfully market and sell MyVax. We do not anticipate that we will generate revenues until 2006, at the
earliest. We do not anticipate that we will achieve profitability for at least
several years after generating material revenues. If we are unable to generate
revenue, we will not become profitable, and we may be unable to continue our
operations. We will need substantial additional funding and may be unable to raise capital
when needed, which would force us to delay, reduce or eliminate our product
development programs or commercialization efforts. Developing patient-specific active immunotherapies, conducting clinical
trials, establishing manufacturing facilities and marketing immunotherapies
that we may develop is expensive. We will need to raise additional capital to:  
    
    fund our operations and clinical trials;  
    
    continue our research and development;  
    
    complete the construction and qualification of a commercial scale
manufacturing facility; and  
    
    commercialize MyVax, or any other immunotherapies that we may
develop, if any such immunotherapies receive regulatory approval. We anticipate that the Companys average quarterly cash used for operating
and investing activities in 2004 will be approximately $6.0 million.
Accordingly, we believe that the net proceeds from our recently completed
initial public offering, together with the interest thereon, will provide us
with sufficient financial resources to reach the first interim analysis of our
pivotal Phase 3 trial, which we anticipate will occur at the end of the first
quarter of 2005. Our forecast of the period of time through which our financial
resources will be adequate to support our operations 18




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is a forward-looking statement and involves risks and uncertainties, and
actual results could vary as a result of a number of factors, including the
risk factors discussed in this report. We have based this estimate on
assumptions that may prove to be wrong, and we could utilize our available
capital resources sooner than we currently expect. We estimate that we will
need to raise additional funds in an anticipated amount of approximately $100
million in order to commercialize MyVax, including the completion of the
construction and qualification of a commercial scale manufacturing facility, if
MyVax receives regulatory approval for the treatment of follicular B-cell NHL.
Our future funding requirements will depend on many factors, including, but not
limited to:  
    
    the rate of progress and cost of our clinical trials and other
research and development activities;  
    
    the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights;  
    
    the cost and timing of completion of a commercial scale manufacturing
facility;  
    
    the costs and timing of regulatory approval;  
    
    the costs of establishing sales, marketing and distribution
capabilities;  
    
    the effect of competing technological and market developments; and  
    
    the terms and timing of any collaborative, licensing and other
arrangements that we may establish. Future capital requirements will also depend on the extent to which we
acquire or invest in businesses, products and technologies, but we currently
have no commitments or agreements relating to any of these types of
transactions. Even if we achieve positive interim results in our pivotal Phase 3
clinical trial and receive regulatory approval for MyVax, including regulatory
approval of a commercial scale manufacturing facility, we will not have product
revenue until 2006, at the earliest. Until we can generate a sufficient amount
of product revenue, if ever, we expect to finance future cash needs through
public or private equity offerings, debt financings or corporate collaboration
and licensing arrangements, as well as through interest income earned on cash
balances. We cannot be certain that additional funding will be available on
acceptable terms, or at all. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate one or more of our research
or development programs or our commercialization efforts. Raising additional funds by issuing securities or through collaboration and
licensing arrangements may cause dilution to existing stockholders or require
us to relinquish rights to our technologies, MyVax or any other immunotherapies
that we may develop. We may raise additional funds through public or private equity offerings,
debt financings, corporate collaboration or licensing arrangements or other
arrangements. We cannot be certain that additional funding will be available on
acceptable terms, or at all. To the extent that we raise additional funds by
issuing equity securities, our stockholders may experience additional dilution,
and debt financing, if available, may involve restrictive covenants. To the
extent that we raise additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to our
technologies, MyVax or any other immunotherapies that we may develop, or grant
licenses on terms that are not favorable to us. If clinical trials of MyVax, or any other immunotherapies that we may develop,
do not produce successful clinical trial results, we will be unable to
commercialize these products. To receive regulatory approval for the commercial sale of MyVax, or any
other immunotherapies that we may develop, we must conduct, at our own expense,
extensive clinical trials to demonstrate safety and efficacy in humans.
Clinical testing is expensive, can take many years and has an uncertain
outcome. Failure can occur at any stage of the testing. We may experience
numerous unforeseen events during, or as a result of, the testing process that
could delay or prevent commercialization of MyVax, or any other immunotherapies
that we may develop, including the following:  
    
    our clinical trials may produce negative or inconclusive results,
and we may decide, or regulators may require us, to conduct additional
clinical and/or preclinical testing; 19




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
    
    registration and/or enrollment in our ongoing pivotal Phase 3
clinical trial for MyVax may be slower than we currently anticipate,
resulting in significant delays;  
    
    safety and efficacy results attained in our pivotal Phase 3
clinical trial for MyVax may be less positive than the results obtained in
our Phase 2 clinical trials for MyVax;  
    
    costs of our clinical trials may be greater than we currently
anticipate;  
    
    after reviewing test results, we may abandon projects that we
might have previously believed to be promising;  
    
    we, or regulators, may suspend or terminate our clinical trials if
the participating patients are being exposed to unacceptable health risks;
and  
    
    the effects of MyVax, or any other immunotherapies that we may
develop, on patients may not be the desired effects or may include
undesirable side effects or other characteristics that may delay or
preclude regulatory approval or limit their commercial use if approved. Success in preclinical testing and early clinical trials does not ensure
that later clinical trials will be successful. For example, positive time to
disease progression results in small scale Phase 2 clinical trials are not
necessarily indicative of the time to disease progression results in larger
Phase 3 clinical trials. Moreover, all clinical data reported from time to time
prior to the release of final results of a trial regarding time to disease
progression is not fully audited and has been taken from databases that have
not been fully reconciled against medical records kept at the clinical sites or
that may not include the most current information on patient disease
progressions. A number of companies in the pharmaceutical industry, including
biotechnology companies, have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier clinical trials. The
data collected from our clinical trials may not be sufficient to support
regulatory approval of MyVax, or any other immunotherapies that we may develop.
We do not know whether our existing or any future clinical trials will
demonstrate safety and efficacy sufficiently to result in marketable products.
Our failure to adequately demonstrate the safety and efficacy of MyVax, or any
other immunotherapies that we may develop, will prevent receipt of regulatory
approval and, ultimately, commercialization of MyVax, or any other
immunotherapies that we may develop. Delays in clinical testing could result in increased costs to us and delay our
ability to generate revenue. Significant delays in clinical testing could materially impact our product
development costs. We do not know whether planned clinical trials will begin on
time, will need to be restructured or will be completed on schedule, if at all.
Clinical trials can be delayed for a variety of reasons, including delays in
obtaining regulatory approval to commence and continue a study, delays in
reaching agreement on acceptable clinical study agreement terms with
prospective sites, delays in obtaining institutional review board approval to
conduct a study at a prospective site and delays in recruiting patients to
participate in a study. In addition, we typically rely on third-party clinical investigators to
conduct our clinical trials and other third-party organizations to oversee the
operations of such clinical trials and to perform data collection and analysis.
As a result, we may face additional delays outside of our control if these
parties do not perform their obligations in a timely fashion. If we have
significant delays in testing or regulatory approvals, our financial results
and the commercial prospects for MyVax, or any other immunotherapies that we
may develop, will be harmed, our costs could increase and our ability to
generate revenue could be delayed. We rely on third parties to conduct our clinical trials. If these third parties
do not successfully carry out their contractual duties or meet expected
deadlines, we may not be able to obtain regulatory approval for or
commercialize MyVax, or any other immunotherapies that we may develop. Our pivotal Phase 3 clinical trial of MyVax for the treatment of
follicular B-cell NHL is being conducted at 34 treatment centers in the United
States and Canada. We do not have the ability to independently conduct clinical
trials for MyVax, or any other immunotherapies that we may develop, and we must
rely on third parties, such as contract research organizations, medical
institutions, clinical investigators and contract laboratories to conduct our
clinical trials. In addition, we rely on third-party couriers to transport
patient tissue samples and MyVax. If any of our relationships with these
contract research organizations, medical institutions, clinical investigators,
contract laboratories or third-party couriers terminate, we believe that we
would be able to enter into arrangements with alternative third parties. If
certain of these third parties, such as medical institutions, clinical
investigators or contract laboratories, do not successfully carry out their
contractual duties or obligations, meet expected deadlines or need to be
replaced, or if the quality or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical protocols or for other
reasons, our clinical trials may be extended, delayed or terminated, and we may 20




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not be able to obtain regulatory approval for or successfully
commercialize MyVax, or any other immunotherapies that we may develop. If we are sued for infringing intellectual property rights of third parties, it
will be costly and time consuming, and an unfavorable outcome in that
litigation would have a material adverse effect on our business. Our ability to commercialize MyVax, or any other immunotherapies that we
may develop, depends upon our ability to develop, manufacture, market and sell
MyVax, or any other immunotherapies that we may develop, without infringing the
proprietary rights of third parties. Numerous United States and foreign issued
patents and pending patent applications, which are owned by third parties,
exist in the general field of immunotherapy and gene expression. In addition,
because patent applications can take many years to issue, there may be
currently pending applications, unknown to us, which may later result in issued
patents that MyVax, or any other immunotherapies that we may develop, may
infringe. There could also be existing patents of which we are not aware that
MyVax, or any other immunotherapies that we may develop, may inadvertently
infringe. In particular, we are aware of patents held jointly by Genentech, Inc. and
City of Hope National Medical Center relating to expression of recombinant
antibodies, by British Technology Group PLC relating to expression of
recombinant proteins in mammalian cells, by the Board of Trustees of the Leland
Stanford Junior University relating to expression of recombinant antibodies and
by Stratagene relating to generation of DNA that encodes antibodies. To date,
we have elected not to seek licenses for these patents because, among other
reasons, we believe that our pre-commercialization activities fall within the
scope of an available exemption. In addition, we do not believe that we will be
required to seek any licenses upon completion of our pre-commercialization
activities. For more information, please refer to the section in this report
entitled Business  Intellectual Property. We may be exposed to future
litigation by the companies holding these patents or other third parties based
on claims that MyVax, or any other immunotherapies that we may develop, or the
methods we employ to manufacture them, infringe their intellectual property
rights. Our ability to manufacture and commercialize MyVax, or any other
immunotherapies that we may develop, may depend on our ability to demonstrate
that MyVax, or any other immunotherapies that we may develop, and our
manufacturing processes do not infringe third-party patents. If these patents
were found to cover MyVax, or any other immunotherapies that we may develop, or
our manufacturing process, we could be required to pay damages and could be
unable to commercialize MyVax, or any other immunotherapies that we may
develop, unless we obtained a license. A license may not be available to us on
acceptable terms in the future, if at all. There is a substantial amount of litigation involving patent and other
intellectual property rights in the biotechnology and biopharmaceutical
industries generally. If a third party claims that we infringe on their
technology, we could face a number of issues, including:  
    
    infringement and other intellectual property claims which, with or
without merit, can be expensive and time-consuming to litigate and can
divert managements attention from our core business;  
    
    substantial damages for past infringement which we may have to pay
if a court decides that our product infringes on a competitors patent;  
    
    a court prohibiting us from selling or licensing our product
unless the patent holder licenses the patent to us, which it is not
required to do;  
    
    if a license is available from a patent holder, we may have to pay
substantial royalties or grant cross licenses to our patents; and  
    
    redesigning our process so it does not infringe which may not be
possible or could require substantial funds and time. Because it is difficult and costly to protect our proprietary rights, we may
not be able to ensure their protection. Our commercial success will depend in part on obtaining and maintaining
patent protection and trade secret protection of MyVax, or any other
immunotherapies that we may develop, and the method we use to manufacture them,
as well as successfully defending these patents against third-party challenges.
We will only be able to protect our technologies from unauthorized use by third
parties to the extent that valid and enforceable patents or trade secrets cover
them. 21




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As of December 31, 2003, we held two United States patents covering our
core gene amplification technology, including composition of matter claims
directed to cell lines and claims directed to methods of making proteins
derived from patients tumors. These patents expire in 2016. Corresponding
patents, although more constrained in scope due to rules not applicable in the
United States, have been issued in South Africa, Canada and Australia, all of
which expire in 2017. We have also filed additional United States and
corresponding foreign patent applications relating to our Hi-GET gene
amplification technology. We expect to continue to file additional patent
applications. The patent positions of pharmaceutical and biotechnology companies can be
highly uncertain and involve complex legal and factual questions for which
important legal principles remain unresolved. No consistent policy regarding
the breadth of claims allowed in biotechnology patents has emerged to date in
the United States. The biotechnology patent situation outside the United States
is even more uncertain. Changes in either the patent laws or in interpretations
of patent laws in the United States and other countries may diminish the value
of our intellectual property. Accordingly, we cannot predict the breadth of
claims that may be allowed or enforced in our patents or in third-party
patents. The degree of future protection for our proprietary rights is uncertain
because legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or keep our competitive advantage. For
example:  
    
    we might not have been the first to make the inventions covered by
each of our pending patent applications and issued patents;  
    
    we might not have been the first to file patent applications for these
inventions;  
    
    others may independently develop similar or alternative
technologies or duplicate any of our technologies;  
    
    it is possible that none of our pending patent applications will
result in issued patents;  
    
    our issued patents may not provide a basis for commercially-viable
active immunotherapies, or may not provide us with any competitive
advantages, or may be challenged by third parties;  
    
    we may not develop additional proprietary technologies that are
patentable; or  
    
    the patents of others may have an adverse effect on our business. We also rely on trade secrets to protect our technology, especially where
we do not believe patent protection is appropriate or obtainable. However,
trade secrets are difficult to protect. While we use reasonable efforts to
protect our trade secrets, our employees, consultants, contractors, outside
scientific collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a third party
illegally obtained and is using our trade secrets is expensive and time
consuming, and the outcome is unpredictable. In addition, courts outside the
United States are sometimes less willing to protect trade secrets. Moreover,
our competitors may independently develop equivalent knowledge, methods and
know-how. We are not able to prevent others, including potential competitors, from using
the patient-specific idiotype protein-KLH conjugate, comprising a single
idiotype protein, that we use in our lead product candidate, MyVax, for the
treatment of indolent B-cell NHL. The patient-specific idiotype-KLH conjugate, comprising a single idiotype
protein, and its use for the treatment of indolent B-cell NHL is in the public
domain and therefore cannot be patented. Consequently, we are only able to
receive patent protection for our amplified cell lines and the process we use
to manufacture the tumor-derived idiotype protein used in MyVax. As a result,
we cannot prevent other companies using different manufacturing processes from
developing active immunotherapies that directly compete with MyVax. Opposition proceedings to assert our rights to register the GENITOPE trademark
may be time consuming and costly and the outcome is uncertain. In June 2002, Pharmacia & UpJohn AB filed an opposition to the
registration of our GENITOPE trademark alleging that a likelihood of
confusion exists between our Genitope trademark and Pharmacias GENOTROPIN
trademark. Pharmacias GENOTROPIN trademark has been registered for use with
pharmaceutical preparations, namely human growth hormones. In our trademark
application, we are seeking to register the GENITOPE trademark for use with
biopharmaceutical preparations for the treatment of cancer. Opposition
proceedings can be time consuming and expensive and the outcome uncertain. We
may be required to expend significant resources to assert 22




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our rights to register the GENITOPE trademark. In November 2003, we
reached settlement terms with Pharmacia & Upjohn, pending execution of the
final settlement agreement by all parties. Under the terms of the settlement
agreement, we agreed to use the mark Genitope primarily as a house mark and
not as a product mark, amend the trademark application for Genitope
accordingly, avoid use of the mark Genitope in conjunction with growth
hormone products or injections devices for growth hormone products, avoid the
use of the mark with similar trade dress used by the Genotropin mark and not
interfere with the Pharmacia Corporation and Pharmacia & Upjohn AB Genotropin
trademark registration. Pharmacia Corporation and Pharmacia & Upjohn AB agreed
to withdraw the trademark opposition filed against the Genitope mark and
agreed to not interfere with or object to the use or registration by us of our
Genitope house marks, Genitope Corporations trade names or Genitope
Corporations genitope.com domain name. Until final signatures are obtained,
we cannot guarantee that the settlement will be concluded on these or any
terms. If we are unable to reach an acceptable settlement with Pharmacia or
prevail in the opposition proceeding, we may be required to abandon our
application and to adopt a new trademark We are subject to extensive regulation, which can be costly, time consuming and
subject us to unanticipated delays or prevent us from obtaining the required
approvals to commercialize MyVax, or any other immunotherapies that we may
develop. MyVax and any other immunotherapies that we may develop, clinical trials
and manufacturing activities are subject to comprehensive regulation by the FDA
and other regulatory agencies in the United States and by comparable
authorities in other countries. The process of obtaining these approvals is
expensive, often takes many years and can vary substantially based upon the
type, complexity and novelty of the products involved. Approval policies or
regulations may change. In addition, patient-specific active immunotherapies
are complex, and regulatory agencies lack experience with them, which may
lengthen the regulatory review process, increase our development costs and
delay or prevent commercialization of our lead product candidate, MyVax, or any
other immunotherapies that we may develop. The FDA has not approved for
marketing any cancer immunotherapeutic drug based on a patient-specific active
idiotype immunotherapy. Consequently, there is no precedent for the successful
commercialization of a patient-specific active idiotype immunotherapeutic drug.
In addition, we have not previously filed the marketing applications necessary
to gain regulatory approvals. This lack of experience may impede our ability to
obtain timely FDA approval, if at all. We will not be able to commercialize
MyVax, or any other immunotherapies that we may develop, until we obtain FDA
approval in the United States or approval by comparable authorities in other
countries. We do not expect to receive regulatory approval for the commercial
sale of MyVax until 2006, at the earliest. Any delay in obtaining, or inability
to obtain, FDA approval would prevent us from commercializing MyVax, or any
other immunotherapies that we may develop. Even if MyVax, or any other immunotherapies that we may develop, receives
regulatory approval, we may still face development and regulatory difficulties
relating to MyVax, or any other immunotherapies that we may develop, in the
future. If we receive regulatory approval to sell MyVax, or any other
immunotherapies that we may develop, the FDA and foreign regulatory authorities
may, nevertheless, impose significant restrictions on the indicated uses or
marketing of MyVax, or any other immunotherapies that we may develop, or impose
ongoing requirements for post-approval studies. In addition, regulatory
agencies subject a marketed product, its manufacturer and the manufacturers
facilities to continual review and periodic inspections. If we discover
previously unknown problems with a product or our manufacturing and laboratory
facility, a regulatory agency may impose restrictions on that product or on us,
including requiring us to withdraw the product from the market. We will be
subject to ongoing FDA requirements for submission of safety and other
post-market information. If we fail to comply with applicable regulatory
requirements, a regulatory agency may:  
    
    issue warning letters;  
    
    impose civil or criminal penalties;  
    
    suspend our regulatory approval;  
    
    suspend any of our ongoing clinical trials;  
    
    refuse to approve pending applications or supplements to approved
applications filed by us;  
    
    impose restrictions on our operations, including closing our facility;
or  
    
    seize or detain products or require a product recall. 23




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Obtaining regulatory approval of our manufacturing facility or disruptions in
our manufacturing process may delay or disrupt our commercialization efforts. Before we can begin to commercially manufacture MyVax, we must obtain
regulatory approval from the FDA of our manufacturing facility and process. In
addition, we must pass a pre-approval inspection of our manufacturing facility
by the FDA before MyVax can obtain marketing approval. In order to obtain
approval, we will need to ensure that all of our processes, methods and
equipment are compliant with the current Good Manufacturing Practices, or cGMP,
and perform extensive audits of vendors, contract laboratories and suppliers.
The cGMP requirements govern quality control of the manufacturing process and
documentation policies and procedures. We have only undertaken initial steps
towards achieving compliance with these regulatory requirements. In complying
with cGMP, we will be obligated to expend time, money and effort in production,
record keeping and quality control to assure that the product meets applicable
specifications and other requirements. If we fail to comply with these
requirements, we would be subject to possible regulatory action and may be
limited in the jurisdictions in which we are permitted to sell MyVax, or any
other immunotherapies that we may develop. We are currently manufacturing the necessary quantities of MyVax for our
clinical trials at our existing facility in Redwood City, California. Our
manufacturing facility is currently subject to licensing requirements of the
California Department of Health Services, and we anticipate applying for a
license in the first quarter of 2004. Our facility is subject to inspection by
the FDA as well as by the California Department of Health Services at any time.
Failure to obtain and maintain a license from the California Department of
Health Services or to meet the inspection criteria of the FDA and the
California Department of Health Services would disrupt our manufacturing
processes and would harm our business. If an inspection by the FDA, California
Department of Health Services or foreign regulatory authorities indicates that
there are deficiencies, we could be required to take remedial actions, or our
facility may be closed. In order to commercialize MyVax, or any other immunotherapies that we may
develop, we will need to construct and qualify a commercial scale manufacturing
facility. Preparing a facility for commercial manufacturing may involve
unanticipated delays and the costs of complying with FDA regulations may be
higher than we anticipated. In addition, any material changes we make to the
manufacturing process may require approval by the FDA and state or foreign
regulatory authorities. Obtaining these approvals is a lengthy, involved
process, and we may experience delays. Such delays could increase costs and
adversely affect our business. We have no experience manufacturing MyVax, or any other immunotherapies, for
the number of patients and at a cost that would enable widespread commercial
use. To date, we have only manufactured MyVax in quantities necessary to
support our ongoing pivotal Phase 3 clinical trial and Phase 2 clinical trials
for MyVax. We have no experience in manufacturing MyVax, or any other
immunotherapies, for the number of patients and at a cost that would enable
commercial use. In addition, since no other company has manufactured an
immunotherapeutic product for commercial sale, there are no precedents from
which we could learn. To commercialize MyVax, we will need to construct and
qualify a commercial scale manufacturing facility that meets cGMP standards. In
doing so, we may encounter problems with, among other things, controlling costs
and quality control and assurance. If we cannot manufacture a sufficient supply of MyVax on acceptable terms,
the commercialization of MyVax will be delayed or prevented. We may experience difficulties in manufacturing MyVax, or any other
immunotherapies that we may develop, which could prevent us from completing our
ongoing clinical trials and delay the commercialization of MyVax, or any other
immunotherapies that we may develop. Manufacturing MyVax is complex and requires coordination internally among
our employees as well as externally with physicians, hospitals and third-party
suppliers and carriers. This process involves several risks that may lead to
failures or delays in manufacturing MyVax, including:  
    
    difficulties in obtaining adequate tumor samples from physicians;  
    
    difficulties in the timely shipping of tumor samples to us or in
the shipping of MyVax to the treating physicians due to errors by
third-party carriers, transportation restrictions or other reasons;  
    
    destruction of, or damage to, tumor samples or MyVax during the
shipping process due to improper handling by third-party carriers,
hospitals, physicians or us; 24




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
    
    destruction of, or damage to, tumor samples or MyVax during storage at
our facility; and  
    
    difficulties in ensuring the quality and consistency of materials
provided by our suppliers. If we experience any difficulties in manufacturing MyVax, or any other
immunotherapies that we may develop, our ongoing clinical trials may be delayed
and commercialization of MyVax, or any other immunotherapies that we may
develop, may be delayed. We rely on the availability and condition of our sole manufacturing facility in
Redwood City, California. If we are not able to renew the subleases or if the
facility is damaged or destroyed, then our ability to manufacture products will
be significantly affected and we will be delayed or prevented from completing
our clinical trials and commercializing MyVax, or any other immunotherapies
that we may develop. We currently rely on the availability and condition of our sole
manufacturing facility, located in Redwood City, California, to manufacture
MyVax. Our facility is located in a seismic zone, and there is the possibility
of an earthquake which, depending on its magnitude, could be disruptive to our
operations. Our subleases for this facility expire in May 2005 and November
2006, and because we have no options to extend the terms of these subleases, we
may not be able to negotiate new subleases for this facility. In addition, if
the facility or the equipment in the facility is significantly damaged or
destroyed for any reason, we will not be able to quickly or inexpensively
replace our manufacturing capacity. The inability to renew the subleases or the
damage or destruction of the facility would significantly affect our ability to
manufacture MyVax, or any other immunotherapies that we may develop, and would
delay or prevent us from completing our clinical trials and commercializing
MyVax, or any other immunotherapies that we may develop. We currently depend on single source suppliers for critical raw materials for
manufacturing, as well as other components required for the administration of
MyVax. The loss of these suppliers could delay our clinical trials or prevent
or delay commercialization of MyVax. We currently depend on single source suppliers for critical raw materials
used in MyVax and other components used in the manufacturing process and
required for the administration of MyVax. In particular, manufacturing of MyVax
requires keyhole limpet hemocyanin, or KLH, a foreign carrier protein. We
purchase KLH from biosyn Arzneimittel GmbH, a single source supplier. We have
entered into a supply agreement with the supplier, dated December 9, 1998,
pursuant to which biosyn has agreed to supply us with KLH. The supply agreement
expires on December 9, 2005. Either party may terminate the supply agreement
earlier upon a breach that is not cured within 60 days or other events relating
to insolvency or bankruptcy. Biosyn is not contractually obligated to supply us
with the amounts of KLH currently being supplied and necessary for our current
clinical trial purposes or for commercialization. There may be no other
supplier of KLH of suitable quality for our purposes. In addition, we currently purchase specialized cell culture containers,
which are critical components of our manufacturing process, from Medtronic,
Inc. a single source supplier. We do not have a long-term contract with
Medtronic and rely on purchase orders to obtain the necessary cell culture
containers. To date, Medtronic has met our requirements for our clinical
trials. There are, in general, few alternative sources of supply for this
product. Administration of MyVax requires an adjuvant to enhance the immune
response. We use Leukine sargramostim, a commercially available recombinant
human granulocyte-macrophage colony stimulating factor known as GM-CSF, as an
adjuvant for MyVax. An adjuvant is a substance that is administered with an
antigen to enhance or increase the immune response to that antigen. We
currently rely on purchase orders to purchase GM-CSF from Berlex Laboratories,
Inc. We do not have a long-term contract with Berlex. GM-CSF is not
commercially available from other sources in the United States or Canada. Establishing additional or replacement suppliers for these materials or
components may take a substantial amount of time. In addition, we may have
difficulty obtaining similar components from other suppliers that are
acceptable to the FDA. If we have to switch to a replacement supplier, we may
face additional regulatory delays and the manufacture and delivery of MyVax, or
any other immunotherapies that we may develop, could be interrupted for an
extended period of time, which may delay completion of our clinical trials or
commercialization of MyVax, or any other immunotherapies that we may develop.
If we are unable to obtain adequate amounts of these components, our clinical
trials will be delayed. In addition, we will be required to obtain regulatory
clearance from the FDA to use different components that may not be as safe or
as effective. As a result, regulatory approval of MyVax may not be received at
all. 25




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The commercial success of MyVax, or any other immunotherapies that we may
develop, will depend upon the degree of market acceptance of these products
among physicians, patients, health care payors and the medical community. MyVax, or any other immunotherapies that we may develop, may not gain
market acceptance among physicians, patients, health care payors and the
medical community. The degree of market acceptance of any approved
immunotherapies will depend on a number of factors, including:  
    
    market acceptance of patient-specific active immunotherapies;  
    
    the prevalence and severity of any side effects;  
    
    potential advantages over alternative treatments;  
    
    ability to produce an active immunotherapy at a competitive price;  
    
    relative convenience and ease of administration;  
    
    the strength of marketing and distribution support; and  
    
    sufficient third-party coverage or reimbursement. If MyVax, or any other immunotherapies that we may develop, are approved
but do not achieve an adequate level of acceptance by physicians, healthcare
payors and patients, we may not generate product revenue and we may not become
profitable. If we are unable to obtain acceptable prices or adequate reimbursement from
third-party payors for MyVax, or any other immunotherapies that we may develop,
our revenues and prospects for profitability will suffer. Our ability to commercialize MyVax, or any other immunotherapies that we
may develop, is highly dependent on the extent to which coverage and
reimbursement for MyVax, or any other immunotherapies that we may develop, will
be available from:  
    
    governmental payors, such as Medicare and Medicaid;  
    
    private health insurers, including managed care organizations; and  
    
    other third-party payors. Many patients will not be capable of paying for MyVax, or any other
immunotherapies that we may develop, themselves and will rely on third-party
payors to pay for their medical needs. A primary current trend in the United
States health care industry is toward cost containment. Large private payors,
managed care organizations, group purchasing organizations and similar
organizations are exerting increasing influence on decisions regarding the use
of, and reimbursement levels for, particular treatments. Such third-party
payors, including Medicare, are challenging the prices charged for medical
products and services, and many third-party payors limit reimbursement for
newly approved health care products. In particular, third-party payors may
limit the indications for which they will reimburse patients who use MyVax, or
any other immunotherapies that we may develop. Cost-control initiatives could
decrease the price we might establish for MyVax, or any other immunotherapies
that we may develop, which would result in lower product revenues. If the
prices for MyVax, or any other immunotherapies that we may develop, decrease or
if governmental and other third-party payors do not provide adequate coverage
and reimbursement levels for MyVax, or any other immunotherapies that we may
develop, our revenue and prospects for profitability will suffer. If we are unable to establish sales and marketing capabilities or enter into
agreements with companies to sell and market MyVax, we may be unable to
generate product revenue. We do not have a sales organization and have no experience as a company in
the sales, marketing and distribution of pharmaceutical products. In order to
commercialize any products, we must develop our sales, marketing and
distribution capabilities or make arrangements with a third party to perform
these services. If MyVax is approved for commercial sale, we currently plan to
establish our own sales force to market it in the United States. Developing a
sales force is expensive and time consuming and could delay any product launch.
We cannot be certain that we would be able to develop this capacity. If we are
unable to establish our sales and marketing 26




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capability, we will need to contract with third parties to market and sell
MyVax in the United States. We will also need to develop a plan to market and
sell MyVax outside the United States. To the extent that we enter into
arrangements with third parties to perform sales, marketing and distribution
services, our product revenues are likely to be lower than if we directly
marketed and sold MyVax, or any other immunotherapies that we may develop. If
we are unable to establish adequate sales, marketing and distribution
capabilities, independently or with others, we may not be able to generate
product revenue and may not become profitable. If product liability lawsuits are successfully brought against us, we will
incur substantial liabilities and may be required to limit commercialization of
MyVax, or any other immunotherapies that we may develop. We face an inherent risk of product liability exposure related to the
testing of MyVax, or any other immunotherapies that we may develop, in human
clinical trials and will face an even greater risk if we sell MyVax, or any
other immunotherapies that we may develop, commercially. Currently, we are not
aware of any historical or anticipated product liability claims. In the future,
an individual may bring a liability claim against us if MyVax, or any other
immunotherapies that we may develop, causes, or merely appears to have caused,
an injury. If we cannot successfully defend ourselves against the product
liability claim, we will incur substantial liabilities. Regardless of merit or
eventual outcome, liability claims may result in:  
    
    decreased demand for MyVax, or any other immunotherapies that we may
develop;  
    
    injury to our reputation;  
    
    withdrawal of clinical trial participants;  
    
    costs of related litigation;  
    
    substantial monetary awards to patients;  
    
    loss of revenues; and  
    
    the inability to commercialize MyVax, or any other immunotherapies
that we may develop. We have product liability insurance that covers our clinical trials up to
a $3.0 million annual aggregate limit. We intend to expand our insurance
coverage to include the sale of commercial products if marketing approval is
obtained for MyVax, or any other immunotherapies that we may develop. We
believe that our current insurance coverage is adequate. However, insurance
coverage is increasingly expensive. We may not be able to maintain insurance
coverage at a reasonable cost and we may not be able to obtain insurance
coverage that will be adequate to satisfy any liability that may arise. We may incur significant costs complying with environmental laws and
regulations. We use hazardous materials that could be dangerous to human health, safety
or the environment. As appropriate, we store these materials and various wastes
resulting from their use at our facility pending ultimate use and disposal. We
currently contract with a third party to dispose of these materials and various
wastes resulting from the use of such materials at our facility. We are subject
to a variety of federal, state and local laws and regulations governing the
use, generation, manufacture, storage, handling and disposal of these materials
and wastes resulting from the use of such materials. While our costs for
compliance, including costs related to the disposal of hazardous materials, to
date have been nominal, we may incur significant costs complying with both
existing and future environmental laws and regulations. We are subject to
regulation by the Occupational Safety and Health Administration, or OSHA, the
California and federal environmental protection agencies and to regulation
under the Toxic Substances Control Act. OSHA or the California or federal EPA
may adopt regulations that may affect our research and development programs. We
are unable to predict whether any agency will adopt any regulations that could
have a material adverse effect on our operations. If we use biological and hazardous materials in a manner that causes injury or
violates laws, we may be liable for damages. Our research and development and manufacturing activities involve the use
of biological and hazardous materials. While we have not been found in
violation of any environmental laws or been the subject of any investigations
for violations of environmental laws, we cannot entirely eliminate the risk of
accidental injury or contamination from the use, storage, handling or disposal
of these materials. In the event of contamination or injury, we could be held
liable for any resulting damages. We have general liability insurance
of up to
$3.0 million per 27




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occurrence. We believe our current insurance coverage is adequate.
However, this insurance may not cover a claim that arises if it is related to
our biological or hazardous materials. However, if we were to be held liable
for an accident involving our biological or hazardous materials, this liability
could exceed our insurance coverage and our other financial resources. If we fail to attract and keep senior management and key scientific personnel,
we may be unable to successfully develop MyVax, or any other immunotherapies
that we may develop, conduct our clinical trials and commercialize MyVax, or
any other immunotherapies that we may develop. Our success depends on our continued ability to attract, retain and
motivate highly qualified management, clinical and scientific personnel and on
our ability to develop and maintain important relationships with leading
academic institutions, clinicians and scientists. We are highly dependent upon
our senior management and scientific staff, particularly Dan W. Denney Jr., our
founder, Chairman, Chief Executive Officer and acting Chief Financial Officer.
The loss of services of Dr. Denney or one or more of our other members of
senior management could delay or prevent the successful completion of our
pivotal Phase 3 clinical trial or the commercialization of MyVax. Since
February 2004, Dr. Denney has served as our acting Chief Financial Officer. We
are actively recruiting a full-time Chief Financial Officer. We cannot estimate
how long it will take to hire a qualified candidate. Currently, we do not have
employment agreements with any members of senior management. The 1,258,500
shares of our common stock owned by Dr. Denney are not subject to any vesting.
We do not carry key person insurance covering members of senior management
other than Dr. Denney. The insurance covering Dr. Denney is in the amount of
$10.0 million. The competition for qualified personnel in the biotechnology field is
intense. In particular, our ability to deliver patient therapies depends on our
ability to attract and retain quality assurance and control personnel. We will
need to hire additional personnel as we continue to expand our manufacturing,
research and development activities. We are not aware of any key personnel
planning to retire or leave us in the near future. If our competitors are better able to develop and market products that are more
effective than MyVax, or any other immunotherapies that we may develop, our
commercial opportunity will be reduced or eliminated. We face competition from established pharmaceutical and biotechnology
companies, as well as from academic institutions, government agencies and
private and public research institutions. Various products are currently
marketed for the treatment of NHL, and a number of companies are developing new
treatments. Many of our competitors have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical
testing, conducting clinical trials, obtaining regulatory approvals and
marketing approved products than we do. Smaller or early-stage companies may
also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. Our commercial opportunity
will be reduced or eliminated if our competitors develop and commercialize
products that are safer, more effective, have fewer side effects or are less
expensive than MyVax, or any other immunotherapies that we may develop. These
third parties compete with us in recruiting and retaining qualified scientific
and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies and
technology licenses complementary to our programs or advantageous to our
business. We expect that our ability to compete effectively will depend upon our
ability to:  
    
    successfully and rapidly complete clinical trials and obtain all
requisite regulatory approvals in a cost-effective manner;  
    
    maintain a proprietary position for our manufacturing process and
other technology;  
    
    attract and retain key personnel; and  
    
    build an adequate sales and marketing infrastructure for MyVax. Several companies, such as Corixa Corporation, Biogen Idec Inc. and
Immunomedics, Inc. are involved in the development of passive immunotherapies
for the treatment of NHL. Various products are currently marketed for treatment
of NHL. Rituxan, a passive immunotherapy co-marketed by Genentech, Inc. and
Biogen Idec Inc., is approved for the treatment of relapsed or refractory, low
grade B-cell NHL. In addition, IDEC has received FDA approval for marketing its
passive radioimmunotherapy product, Zevalin, and GlaxoSmithKline Plc and Corixa
Corporation recently received FDA approval for marketing their version of
passive radioimmunotherapy product, Bexxar, for the treatment of relapsed or
refractory low grade, follicular, or transformed B-cell NHL. For more
information, please refer to the section in this report entitled Business 
MyVax Personalized Immunotherapy. 28




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In addition, there are several companies focusing on the development of
active immunotherapies for the treatment of NHL, including Antigenics, Inc.,
Favrille, Inc. and Large Scale Biology Corporation. While these companies
product candidates are in various stages of development, none are in Phase 3
clinical trials for the treatment of NHL. In addition, we are aware that the
National Cancer Institute, or NCI, in collaboration with Biovest International,
Inc., is currently conducting a Phase 3 clinical trial of active immunotherapy
in patients with follicular NHL. If any are successfully developed and
approved, they could compete directly with MyVax, if it is approved. In
addition, researchers are continually learning more about NHL and other forms
of cancer, and new discoveries may lead to new technologies for treatment. As a
result, MyVax, or any other immunotherapies that we may develop, may be
rendered obsolete and noncompetitive at any time. We will need to increase the size of our organization, and we may experience
difficulties in managing growth. In order to continue our clinical trials and commercialize MyVax, or any
other immunotherapies that we may develop, we will need to expand our employee
base for managerial, operational, financial and other resources. We anticipate
that we will need between 350 and 400 employees by the time MyVax is initially
commercialized. We do not expect to be able to commercially launch MyVax until
2006, at the earliest. Future growth will impose significant added
responsibilities on members of management, including the need to identify,
recruit, maintain and integrate additional employees. Our future financial
performance and our ability to commercialize MyVax, or any other
immunotherapies that we may develop, and to compete effectively will depend, in
part, on our ability to manage any future growth effectively. To that end, we
must be able to:  
    
    manage our research and development efforts effectively;  
    
    manage our clinical trials effectively;  
    
    integrate additional management, administrative, manufacturing and
sales and marketing personnel;  
    
    develop our administrative, accounting and management information
systems and controls; and  
    
    hire and train additional qualified personnel. We may not be able to accomplish these tasks, and our failure to
accomplish any of them could harm our financial results. Other Risks Our stock price may be volatile, and your investment in our stock could decline
in value. The market prices for securities of biotechnology companies in general
have been highly volatile and may continue to be highly volatile in the future.
The following factors, in addition to other risk factors described in this
section, may have a significant impact on the market price of our common stock:  
    
    announcements of technological innovations or new products by us or
our competitors;  
    
    announcement of FDA approval or non-approval of MyVax, or any
other immunotherapies that we may develop, or delays in the FDA review
process;  
    
    actions taken by regulatory agencies with respect to MyVax, or any
other immunotherapies that we may develop, clinical trials, manufacturing
process or sales and marketing activities;  
    
    regulatory developments in the United States and foreign countries;  
    
    the success of our research efforts and clinical trials;  
    
    any intellectual property infringement lawsuit involving us;  
    
    announcements concerning our competitors, or the biotechnology or
biopharmaceutical industries in general;  
    
    actual or anticipated fluctuations in our operating results;  
    
    changes in financial estimates or recommendations by securities
analysts; 29




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
    
    sales of large blocks of our common stock;  
    
    sales of our common stock by our executive officers, directors and 5%
stockholders;  
    
    changes in accounting principles; and  
    
    the loss of any of our key scientific or management personnel. In particular, you may not be able to resell your shares at or above your
purchase price. The stock markets in general, and the markets for biotechnology
stocks in particular, have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our common stock.
In the past, class action litigation has often been instituted against
companies whose securities have experienced periods of volatility in market
price. Any such litigation brought against us could result in substantial costs
and a diversion of managements attention and resources, which would hurt our
business, operating results and financial condition. Anti-takeover provisions in our charter documents and under Delaware law could
make an acquisition of us, which may be beneficial to our stockholders, more
difficult and may prevent attempts by our stockholders to replace or remove our
current management. Provisions in our amended and restated certificate of incorporation and
our bylaws may delay or prevent an acquisition of us or a change in our
management. In addition, these provisions may frustrate or prevent any attempts
by our stockholders to replace or remove our current management by making it
more difficult for stockholders to replace members of our Board of Directors.
Because our Board of Directors is responsible for appointing the members of our
management team, these provisions could in turn affect any attempt by our
stockholders to replace current members of our management team. These
provisions include a classified board of directors and a prohibition on actions
by our stockholders by written consent. In addition, our Board of Directors has
the right to issue preferred stock without stockholder approval, which could be
used to institute a poison pill that would work to dilute the stock ownership
of a potential hostile acquirer, effectively preventing acquisitions that have
not been approved by our Board of Directors. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law, which prohibits stockholders owning in
excess of 15% of our outstanding voting stock from merging or combining with us
in certain circumstances. Finally, these provisions establish advance notice
requirements for nominations for election to our Board of Directors or for
proposing matters that can be acted upon at stockholder meetings. Although we
believe these provisions together provide for an opportunity to receive higher
bids by requiring potential acquirers to negotiate with our Board of Directors,
they would apply even if the offer may be considered beneficial by some
stockholders. The ownership interests of our officers, directors and largest stockholders
could conflict with the interests of our other stockholders. As of December 31, 2003, our officers, directors and holders of 5% or more
of our outstanding common stock beneficially owned approximately 33.9% of our
common stock (assuming no exercise of outstanding options or warrants). As a
result, these stockholders, acting together, are able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions. The interests of this group of stockholders may not always
coincide with our interests or the interests of other stockholders. Future sales of our common or preferred stock could lower the market price of
our common stock. Sales of substantial amounts of shares in the public market following our
initial public offering could harm the market price of our common stock. As of
December 31, 2003, we had 16,819,501 shares of common stock outstanding,
assuming no exercise of outstanding options or warrants. Of these shares, all
of the 4,179,860 shares sold in our initial public offering are freely tradable
under federal and state securities laws. Each of our officers, directors and
stockholders have agreed, subject to specified exceptions, that without the
prior written consent of WR Hambrecht+Co, they will not, directly or
indirectly, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
our capital stock or any securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire our capital stock
before April 27, 2004. WR Hambrecht+Co, may, in its sole discretion, permit
early release of shares subject to the lock-up agreements. All but 1,224,265 of
the 12,640,201 shares of our common stock that were not sold in our initial
public offering, but which were outstanding as of December 31, 2003, will be
eligible for sale in the public market under Rules 144, 144(k) and 701 on April
27, 2004, subject in some cases to volume and other limitations. In addition,
of 30




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the
961,997 shares issuable upon exercise of options to purchase our
common stock outstanding as of December 31, 2003, approximately 375,147 shares
will be vested and eligible for sale on April 27, 2004. For a full discussion
of shares eligible for sale following our initial public offering, see Shares
Eligible for Future Sale in our Registration Statement on Form S-1, as
amended, filed with the SEC on October 28, 2003. In addition, if we propose to
register any of our securities under the Securities Act either for our own
account or for the accounts of other securityholders after our initial public
offering, subject to certain conditions and limitations, the holders of
registration rights will be entitled to include their shares of common stock.
In addition, holders of registration rights may require us on not more than two
occasions at any time beginning approximately six months from the date of the
closing of our initial public offering, to file a registration statement under
the Securities Act with respect to their shares of common stock. Further, the
holders of registration rights may require us to register their shares on Form
S-3 when this form becomes available. These rights shall terminate altogether
three years after the effective date of our initial public offering, and, with
respect to each holder of such rights, on the date when such holder holds less
than 1% of our outstanding shares of common stock and is able to sell all of
its shares pursuant to Rule 144 under the Securities Act in any 90-day period.
These registration rights are subject to certain conditions and limitations,
including the right of the underwriters to limit the number of shares included
in any such registration under certain circumstances. In the future, we may
also issue additional shares to our employees, directors or consultants, in
connection with corporate alliances or acquisitions, and issue additional
shares in follow-on offerings to raise additional capital. Due to these
factors, sales of a substantial number of shares of our common stock in the
public market could occur at any time. Such sales could reduce the market price
of our common stock. 
 ITEM 2. PROPERTIES We sublease 13,426 square feet of laboratory and production space in
Redwood City, California, under lease agreements that terminate in May 2005 and
November 2006. In the same facility, we also sublease an additional 18,512
square feet of corporate office space under a lease agreement that terminates
in March 2005. We believe that our facilities will be sufficient for the
production of active immunotherapies for our planned clinical trials. We plan
to build a new manufacturing facility for the commercialization of MyVax and
any other immunotherapies that we may develop. We anticipate completion of the
construction of a commercial manufacturing facility in 2005. Unless we are able
to renew our existing leases, we may need to find temporary facilities until
our new facility can be completed. 
 ITEM 3. LEGAL PROCEEDINGS None. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our stockholders, through solicitation
of proxies or otherwise, during the fourth quarter of fiscal year 2003. 31




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PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock has traded on the Nasdaq National Market under the symbol
GTOP since October 30, 2003. The following table sets forth, for the period
indicated, the high and low closing sales prices for our common stock as
reported by the Nasdaq National Market: Common Stock PriceHigh
    
    LowQuarter ended December 31, 2003
(commencing October 30, 2003)
    
    $
    13.70
    
    
    $
    9.18
 Holders As of February 29, 2004, there were approximately 443 stockholders of record
of Genitope common stock. Dividends Since inception, we have not paid dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and
currently do not plan to pay any cash dividends in the foreseeable future. Any
future determination to pay dividends will be at the discretion of our board of
directors. Securities Authorized for Issuance Under Equity Compensation Plans Information required by this item will be contained in the Proxy Statement
under the caption Equity Compensation Plan Information and is hereby
incorporated by reference thereto. Recent Sales of Unregistered Securities The following list sets forth information regarding all unregistered securities
sold by us in 2003 and gives effect to a 1 for 3 reverse stock split which
occurred on October 24, 2003: 1. During the first two fiscal quarters of 2003, we issued and sold 2,082
shares of our common stock that were not registered under the Securities Act of
1933, as amended (the Securities Act), to our employees and consultants for
cash consideration with an aggregate exercise price of $2,500. During the same
period, we granted options to purchase 52,994 shares of common stock at an
exercise price of $1.80 per share. 2. During the fourth fiscal quarter of 2003, we issued and sold 12,407 shares
of our common stock that were not registered under the Securities Act, to our
employees and consultants for cash consideration with an aggregate exercise
price of $1.71. During the same period, we granted options to purchase 141,766
shares of common stock at an exercise price of $11.62 per share. 3. In April and May 2003, we issued an aggregate of 2,830,901 shares of our
Series E preferred stock. 520,901 shares were issued and sold at $4.50 per
share to accredited investors for an aggregate offering price of $2,344,055,
133,327 of which were sold to two of our current directors (and related
entities). 2,310,000 shares of Series E preferred stock were issued to
pre-existing Series E stockholders in accordance with the Series E stock
purchase agreement amended in March 2003, to allow for a purchase price
adjustment in the event that additional shares of Series E preferred were sold
for less than $9.00 per share. 4. In April 2003, we issued and sold convertible promissory notes in aggregate
principal amount of $4,280,009 and warrants to purchase 285,327 shares of
Series E preferred stock with an exercise price of $4.50 per share and an
aggregate value of $1,624,517 to 17 accredited investors. 5. In April 2003, we issued and sold an aggregate of 6,166 shares of our common
stock at $1.80 per share to two accredited investors for an aggregate offering
price of $11,100. 6. In August 2003, we issued a warrant to purchase 533,333 shares of Series F
preferred stock with an exercise price of $4.50 per share and an aggregate
value of $1,933,000.00 to one accredited investor. 32




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7. In August 2003, we issued 977,966 shares of Series E preferred stock upon
conversion of the convertible promissory notes referred to in paragraph (4)
above. We claimed exemption from registration under the Securities Act for the
sales and issuances of securities in the transactions described in paragraphs
(1) and (2) above by virtue of Rule 701 promulgated under the Securities Act,
in that they were offered and sold either pursuant to written compensatory
plans or pursuant to a written contract relating to compensation, as provided
by Rule 701. We claimed exemption from registration under the Securities Act for the
sales and issuances of securities in the transactions described in paragraphs
(3) through (7) above by virtue of Rule 506 of Regulation D. Such sales and
issuances did not involve any public offering, were made without general
solicitation or advertising and each purchaser was a sophisticated investor
with access to all relevant information necessary to evaluate the investment
and represented to us that the shares were being acquired for investment. Use of Proceeds The Securities and Exchange Commission declared our first registration
statement, filed on Form S-1 (SEC File No. 333-107719) under the Securities Act
in connection with the initial public offering of our common stock, effective
on October 29, 2003, covering an aggregate of 4,179,860 shares of common stock,
including shares that were issued upon the partial exercise by the underwriters
of their over-allotment option. The aggregate gross proceeds from the shares of
common stock sold were approximately $37,619,000. In connection with the
offering, we paid the underwriters a commission of approximately $2,633,000 and
incurred offering expenses of $1,251,000. After deducting the underwriters
commission and the estimated offering expenses, we received net proceeds of
approximately $33,735,000 from the offering. Approximately $1.0 million of the
proceeds from the initial public offering was used in November 2003 to repay a
portion of the outstanding borrowings under our line of credit facilities. On
November 14, 2003, we terminated both credit facilities. Approximately $3.9
million of the proceeds from the initial public offering were used in the
fourth quarter of 2003, of which approximately $2.9 million was used to fund
operations and approximately $1.0 million was used to repay a portion of the
outstanding borrowings under our two line of credit facilities. 33




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ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below are derived from our financial
statements. The statement of operations data for the years ended December 31,
2001, 2002 and 2003, and the balance sheet data as of December 31, 2002 and
2003 are derived from our audited financial statements included elsewhere in
thisForm 10-K. The statement of operations data for the years ended December
31, 1999 and 2000, and the balance sheet data as of December 31, 1999, 2000 and
2001 are derived from our audited financial statements not included in this
Form 10-K. The historical results are not necessarily indicative of results to
be expected for any future period. The data presented below has been derived
from financial statements that have been prepared in accordance with accounting
principles generally accepted in the United States of America and should be
read with our financial statements, including the accompanying Notes to the
Financial Statements, and with Managements Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this Form
10-K. Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(in thousands, except per share data)Statement of Operations Data:Operating expenses:Research and development (1)
    
    $
    2,138
    
    
    $
    3,993
    
    
    $
    8,791
    
    
    $
    15,915
    
    
    $
    19,678Sales and marketing (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,338
    
    
    
    1,591General and administrative (1)
    
    
    638
    
    
    
    634
    
    
    
    1,463
    
    
    
    2,832
    
    
    
    2,937Total operating expenses
    
    
    2,776
    
    
    
    4,627
    
    
    
    10,254
    
    
    
    20,085
    
    
    
    24,206Loss from operations
    
    
    (2,776
    )
    
    
    (4,627
    )
    
    
    (10,254
    )
    
    
    (20,085
    )
    
    
    (24,206
    )Loss on extinguishment of convertible notes
and cancellation of Series E convertible
preferred stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,509
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,845
    )Interest and other income, net
    
    
    24
    
    
    
    782
    
    
    
    474
    
    
    
    221
    
    
    
    97Net loss
    
    
    (2,752
    )
    
    
    (3,845
    )
    
    
    (9,780
    )
    
    
    (19,864
    )
    
    
    (30,463
    )Dividend related to issuance of convertible
preferred shares and the beneficial
conversion feature of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,407
    )Net loss attributable to common stockholders
    
    $
    (2,752
    )
    
    $
    (3,845
    )
    
    $
    (9,780
    )
    
    $
    (19,864
    )
    
    $
    (48,870
    )Net loss per share attributable to co mmon
stockholders, basic and diluted
    
    $
    (2.10
    )
    
    $
    (2.78
    )
    
    $
    (6.58
    )
    
    $
    (11.62
    )
    
    $
    (11.86
    )Shares used in computing net loss per share
attributable to common stockholders,
basic and diluted
    
    
    1,313
    
    
    
    1,385
    
    
    
    1,487
    
    
    
    1,710
    
    
    
    4,122
   (1)
    
    Includes non-cash stock-based compensation of the following: Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003Research and development
    
    $
    
    
    
    $
    
    
    
    $
    181
    
    
    $
    589
    
    
    $
    1,046Sales and marketing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    176General and administrative
    
    
    
    
    
    
    20
    
    
    
    257
    
    
    
    635
    
    
    
    679Total
    
    $
    
    
    
    $
    20
    
    
    $
    438
    
    
    $
    1,365
    
    
    $
    1,901
 As of December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    1,320
    
    
    $
    17,033
    
    
    $
    6,080
    
    
    $
    9,422
    
    
    $
    29,790Working capital
    
    
    790
    
    
    
    16,687
    
    
    
    4,918
    
    
    
    7,929
    
    
    
    26,590Total assets
    
    
    1,682
    
    
    
    17,474
    
    
    
    9,396
    
    
    
    11,986
    
    
    
    32,352Convertible preferred stock
    
    
    6,342
    
    
    
    26,151
    
    
    
    26,151
    
    
    
    46,853
    
    
    
    Deficit accumulated during development stage
    
    
    (5,404
    )
    
    
    (9,249
    )
    
    
    (19,029
    )
    
    
    (38,893
    )
    
    
    (87,763
    )Total stockholders equity (deficit)
    
    
    (5,392
    )
    
    
    (9,025
    )
    
    
    (18,094
    )
    
    
    (36,414
    )
    
    
    28,742
 34




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of
operations should be read in conjunction with our financial statements and
notes to those statements included elsewhere in thisForm 10-K. Overview We are a biotechnology company focused on the research and development of
novel immunotherapies for the treatment of cancer. Immunotherapies are
treatments that utilize the immune system to combat diseases. Our lead product
candidate, MyVax personalized immunotherapy, is a patient-specific active
immunotherapy that is based on the unique genetic makeup of a patients tumor
and is designed to activate a patients immune system to identify and attack
cancer cells. MyVax is currently in a pivotal Phase 3 clinical trial and
additional Phase 2 clinical trials for the treatment of B-cell NHL. To date, we have not generated any revenues, and except for our recently
completed initial public offering, we have financed our operations and internal
growth almost exclusively through private placements of common and preferred
stock. We are a development stage enterprise and have incurred significant
losses since our inception in 1996 as we have devoted substantially all of our
efforts to research and development activities, including clinical trials. As
of December 31, 2003, we had an accumulated deficit of $87.8 million. Our
accumulated deficit resulted principally from our research and development
activities associated with MyVax, including our pivotal Phase 3 clinical trial
and additional Phase 2 clinical trials, and several non-cash charges associated
with our preferred stock financings. Our accumulated deficit includes a
non-cash dividend of $18.4 million related to our preferred stock financings in
April and May of 2003, a non-cash charge of $3.5 million associated with the
extinguishment of convertible notes and cancellation of the related warrants
issued to preferred stockholders in April 2003 and $771,000 of non-cash
interest expense relating to the amortization of the discount on the
convertible notes, and non-cash interest expense of $1.9 million associated
with the amortization of warrants issued to the guarantor of our lines of
credit. We have repaid all outstanding borrowings under these facilities, and
in November 2003, we terminated both facilities. As of December 31, 2003, we
had cash and cash equivalents of $29.8 million. We anticipate working on a number of long-term development projects which
will involve experimental and unproven technology. The projects may require
many years and substantial expenditures to complete and may ultimately be
unsuccessful. We will need operating funds to continue our research and
development activities, clinical trials, pursue regulatory approvals and build
production, sales and marketing capabilities, as necessary. Since 1996, we have been successful in completing several rounds of
private equity financing. In 2002, the sale of Series E convertible preferred
stock generated $20.7 million of cash proceeds. In April and May of 2003, we
raised $6.5 million through the sale of additional Series E convertible
preferred stock, convertible notes (which converted into Series E convertible
preferred stock during the quarter ended September 30, 2003) and warrants. On October 29, 2003, we sold 4,179,860 shares of common stock in an
initial public offering for aggregate gross proceeds of $37.6 million. After
deducting the underwriters commission and offering expenses, we received net
proceeds of $33.7 million. We anticipate that in 2004 our average quarterly cash used for operating
and investing activities will be approximately $6.0 million. We believe that
the net proceeds from the recently completed initial public offering, together
with the interest thereon, will provide us with sufficient financial resources
to reach the first interim analysis of our pivotal Phase 3 trial, which we
anticipate will occur at the end of the first quarter of 2005. We estimate that
we will need to raise additional funds in an anticipated amount of
approximately $100 million in order to commercialize MyVax, including the
completion of the construction and qualification of a commercial scale
manufacturing facility, if MyVax receives regulatory approval for the treatment
of follicular B-cell NHL. Research and development expenses represented approximately 81% of our
total operating expenses for the year ended December 31, 2003 and 79% of our
total operating expenses for the year ended December 31, 2002. Research and
development expenses include the personnel costs related to our development
activities and clinical trial preparations, preclinical and clinical trial
expenses, including costs related to registration, treatment and monitoring
expenses, costs related to regulatory matters and the costs of developing our
manufacturing process. In the fourth quarter of 2000, we commenced a pivotal Phase 3 clinical
trial for MyVax for the treatment of follicular B-cell NHL. We expect that we
will close patient registration, the process during which a patient is screened
and a biopsy is taken to determine whether the patient is eligible to
participate in the clinical trial, at the end of the first quarter of 2004. The
two planned interim analyses of the clinical trial are expected to be conducted 35




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approximately 12 and 24 months after the last patient is registered, with
the detailed follow-up period of the clinical trial scheduled to conclude
approximately 42 months after the last patient is registered. The total
research and development costs associated with and incurred for the development
of MyVax for the treatment of B-cell NHL were $19.7 million for the year ended
December 31, 2003, $15.9 million for the year ended December 31, 2002 and $8.8
million for the year ended December 31, 2001. From inception through December
31, 2003, the total research and development costs associated with and incurred
for the development of MyVax for the treatment of B-cell NHL were approximately
$52.5 million. Drug development in the United States is a process that includes several
steps defined by the FDA. The FDA approval process for a new biologic or drug
involves completion of preclinical studies and the submission of the results of
these studies to the FDA, together with proposed clinical protocols,
manufacturing information, analytical data and other information in an
Investigational New Drug application, or IND, which must become effective
before human clinical trials may begin. Clinical development typically involves
three phases of study: Phase 1, 2 and 3. The most significant costs associated
with clinical development are the Phase 3 clinical trials as they tend to be
the longest and largest studies conducted during the drug development process.
After completion of clinical trials, a New Drug application, or NDA, or a
Biologics License application, or BLA, may be filed with the FDA. In responding
to an NDA or a BLA, the FDA may grant marketing approval, request additional
information or deny the application if it determines that the application does
not provide an adequate basis for approval. The successful development of our drug candidates is highly uncertain. We
cannot estimate with certainty or know the exact nature, timing and estimated
costs of the efforts necessary to complete the development of MyVax or the date
of completion of these development efforts. We do not anticipate that we will
generate any revenues until 2006, at the earliest, and we cannot reasonably
estimate when we may have material net cash inflows from sales of MyVax, if
ever. We cannot estimate with certainty any of the foregoing due to the
numerous risks and uncertainties associated with developing MyVax, including:  
    
    the uncertainty of the timing of completion of patient registration
in our pivotal Phase 3 clinical trial;
    
    the possibility of delays in the collection of clinical trial data
and the uncertainty of the timing of the interim analyses of our pivotal
Phase 3 clinical trial;
    
    the uncertainty of clinical trial results;
    
    extensive governmental regulation, both foreign and domestic, for approval of new therapies; and
    
    the uncertainty related to the completion of construction and
qualification of a commercial scale manufacturing facility. If we fail to complete the development of MyVax in a timely manner, it
could have a material adverse effect on our operations, financial position and
liquidity. In addition, any failure by us to obtain, or any delay in obtaining,
regulatory approvals could have a material adverse effect on our results of
operations. A further discussion of the risks and uncertainties associated with
completing our projects on schedule, or at all, and certain consequences of
failing to do so are set forth in the risk factors entitled We will need
substantial additional funding and may be unable to raise capital when needed,
which would force us to delay, reduce or eliminate our product development
programs or commercialization efforts, We currently have no source of revenue
and may never become profitableand If clinical trials of MyVax, or any other
immunotherapies that we may develop, do not produce successful clinical trial
results, we will be unable to commercialize these products,as well as other
risk factors. We expect to continue to incur net losses over the next several years as
we continue our clinical development, apply for regulatory approvals, construct
and qualify a commercial scale facility for the manufacture of MyVax, develop
active immunotherapies for CLL and T-cell NHL and potentially other forms of
cancer, establish sales and marketing and distribution capabilities and expand
our operations. Recent Developments Our Registration Statement (SEC File No. 333-107719) for our initial
public offering became effective on October 29, 2003. Our common stock
commenced trading on the Nasdaq National Market on October 30, 2003 under the
trading symbol GTOP. WR Hambrecht + Co acted as the lead underwriter of the
offering. Punk, Ziegel & Company and Brean Murray & Co., Inc. acted as
co-managers. 4,179,860 shares of common stock were sold in the offering,
including shares that were issued upon the partial exercise by the underwriters
of their over-allotment 36




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option, at $9.00 per share, for aggregate gross proceeds of $37.6 million.
In connection with the offering, we paid underwriters commission of
approximately $2.6 million and incurred offering expenses of $1.3 million.
After deducting the underwriters commission and the offering expenses, we
received net proceeds of approximately $33.7 million from the offering. During October and November of 2003, we repaid all outstanding borrowings
under our two line of credit facilities. Approximately $1.0 million of the
proceeds from the initial public offering was used to repay a portion of the
outstanding borrowings. In November 2003, we terminated both facilities. Results of Operations Comparison of Years Ended December 31, 2003 and 2002 Research and Development. Research and development expenses increased 24%
to $19.7 million for the year ended December 31, 2003, from $15.9 million for
the year ended December 31, 2002. The increase in research and development
costs reflected the continued increase in patient registration in our pivotal
Phase 3 clinical trial, which resulted in increased staffing costs of $2.4
million, of which $1.3 million was for manufacturing personnel and $1.0 million
was for quality personnel. Clinical trial costs increased $1.8 million to meet
the requirements of the increase in patient registration in our pivotal Phase 3
clinical trial. Additionally, non-cash stock-based compensation expense
associated with option issuances to our research and development staff
increased by $457,000. These increases were offset by a decrease in
depreciation expense of $759,000 and a reduction in rent expense of $477,000
reflecting the renegotiation of our facility leases to extended terms with
lower rates. We expect to devote substantial resources to research and
development in future periods as we continue our development of MyVax for the
treatment of B-cell NHL. Sales and Marketing. Sales and marketing expenses increased 19% to $1.6
million for the year ended December 31, 2003, from $1.3 million for the year
ended December 31, 2002. This increase was primarily due to increased product
advocacy costs of $133,000, which consisted primarily of professional fees and
activities related to industry symposiums, and increased staffing costs of
$97,000. Additionally, non-cash stock-based compensation expense increased by
$35,000. We expect sales and marketing spending to remain relatively constant
in 2004. General and Administrative. General and administrative expenses increased
4% to $2.9 million for the year ended December 31, 2003, from $2.8 million for
the year ended December 31, 2002. This increase reflected an increase in
staffing costs of $318,000 and an increase in non-cash stock-based compensation
expense of $44,000. Also, professional fees and corporate insurance costs
increased $74,000 to support the organizational growth and responsibilities of
being a public company. These increases were partially offset by a decrease in
professional fees of $326,000 incurred in 2002 associated with unsuccessful
financings. We expect our general and administrative expenses to increase
slightly in 2004 as a result of the additional administrative and
infrastructure costs associated with being a public company, including costs
associated with implementing procedures for compliance with the requirements of
the Sarbanes-Oxley Act. Other Income (Expense), Net. We incurred $6.3 million of net other expense
for the year ended December 31, 2003. Other expense relates to the $3.5 million
loss on extinguishment of convertible notes and cancellation of convertible
preferred stock warrants, $771,000 of interest expense related to the
amortization of the discount on our convertible notes and $121,000 of interest
expense related to the stated interest on the convertible notes. Additionally,
other expense includes $1.9 million of interest expense related to the
amortization of the warrant issued in connection with the lines of credit. No
such charges were recorded during the year ended December 31, 2002. These
increases were partially offset by a decrease in interest income of $123,000
from the corresponding period in 2002 as a result of a decrease in the average
cash and cash equivalents balance and overall interest rates. Dividend Related to Issuance of Convertible Preferred Shares and the
Beneficial Conversion Feature of Preferred Stock.We recorded a non-cash
dividend of $18.4 million related to the issuance of convertible preferred
shares and the beneficial conversion feature of preferred stock for the year
ended December 31, 2003. No such charge was recorded for the year ended
December 31, 2002. Comparison of Years Ended December 31, 2002 and 2001 Research and Development. Research and development expenses increased 81%
to $15.9 million for the year ended December 31, 2002, from $8.8 million for
the year ended December 31, 2001. The increase in research and development
expenses reflected the continued increase in patient registration in our
pivotal Phase 3 clinical trial, which resulted in increased staffing costs of
$3.0 million, of which $1.3 million was for manufacturing personnel, $680,000
was for clinical trial personnel, $500,000 was for quality and technical
development personnel and 37




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$520,000 was for regulatory personnel. Clinical trial costs increased
$887,000 to meet the requirements of the increase in patient registration in
our pivotal Phase 3 clinical trial. The depreciation expense increase of
$724,000 reflected the addition of leasehold improvements associated with our
manufacturing capacity that were placed in service at the end of 2001. The rent
expense increase of $424,000 reflects the full year impact of leases initiated
in 2001. In addition, $408,000 of this increase was due to the increase in
non-cash stock based compensation expenses associated with option issuances to
our research and development staff. Sales and Marketing. Sales and marketing expenses commenced and were $1.3
million for the period ended December 31, 2002. The primary components are
product advocacy expenses, which consist primarily of professional fees and
activities related to industry symposiums of $677,000, staffing expenses of
$400,000 and non-cash stock based compensation expenses of $141,000. General and Administrative. General and administrative expenses increased
94% to $2.8 million for the year ended December 31, 2002, from $1.5 million for
the year ended December 31, 2001. This increase was due to costs of $550,000
associated with increases in staffing levels, $86,000 in legal fees related to
unsuccessful financings and additional costs related to the increase in
infrastructure required to support the growth of our clinical trial programs.
In addition, $378,000 of this increase was due to non-cash stock-based
compensation expenses. Other Income (Expense), Net. Interest income decreased 53% to $221,000 for
the year ended December 31, 2002, from $474,000 for the year ended December 31,
2001. The decrease was primarily due to lower average cash and cash equivalent
balances during the year ended December 31, 2002 as compared to the prior year. Liquidity and Capital Resources We have not generated any revenues, and except for our recently completed
initial public offering, we have financed our operations and internal growth
almost exclusively through private placements of preferred stock and have
incurred significant losses since our inception in 1996. As of December 31,
2003, we had an accumulated deficit of $87.8 million. Our accumulated deficit
resulted principally from our research and development activities associated
with MyVax, including our pivotal Phase 3 clinical trial and additional Phase 2
clinical trials, and several non-cash charges associated with our preferred
stock financings. Included in our accumulated deficit is a non-cash dividend of
$18.4 million related to our preferred stock financings in April and May 2003.
Also, our accumulated deficit includes a non-cash charge of $3.5 million
associated with the extinguishment of convertible notes and cancellation of the
related warrants issued to preferred stockholders in April 2003 and $771,000 of
non-cash interest expense relating to the amortization of the discount on the
convertible notes. Additionally, there was non-cash interest expense of $1.9
million associated with the amortization of the warrant issued to the guarantor
of our lines of credit. Through December 31, 2003, we had amortized and
expensed non-cash stock-based compensation of $3.7 million. At December 31, 2003, we had cash and cash equivalents of $29.8 million,
compared to $9.4 million at December 31, 2002. Net cash used in operating activities was $20.2 million for the year ended
December 31, 2003 and $16.6 million for the year ended December 31, 2002. The
use of cash in operations was primarily for our continued research and
development activities associated with MyVax for the treatment of B-cell NHL. Net cash used in investing activities was $307,000 for the year ended
December 31, 2003 and $946,000 for the year ended December 31, 2002. Capital
expenditures consisted of purchases of equipment and leasehold improvements to
our facilities. Net cash provided by financing activities was $40.9 million for the year
ended December 31, 2003 and $20.9 million for the year ended December 31, 2002.
The net cash provided by financing activities in 2003 was primarily
attributable to the sale of common stock in our initial public offering for net
proceeds of $33.7 million, the private sale of $2.2 million of preferred stock
and the sale of $4.3 million of convertible promissory notes and warrants. The
net cash provided by financing activities in 2002 was primarily attributable to
the sale of $20.7 million of preferred stock. All outstanding shares of
preferred stock were converted into shares of common stock upon the closing of
our initial public offering. In August 2003, $8.0 million was made available to us through two line of
credit facilities with Bank One, N.A. The first line of credit was for $3.0
million, bore interest at prime and had a maturity date of December 6, 2003.
The second line of credit was for $5.0 million, bore interest at prime plus
one-half percent and had a maturity date of December 6, 2003. In September
2003, we borrowed $8.0 million under these lines of credit. During October and
November 2003, we repaid all outstanding borrowings under these facilities, and
on November 14, 2003, we 38




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terminated both facilities. The Company anticipates working on a number of long-term development
projects which will involve experimental and unproven technology. The projects
may require many years and substantial expenditures to complete and may
ultimately be unsuccessful. The Company will need operating funds to continue
its research and development activities, clinical trials, pursue regulatory
approvals and build production, sales and marketing capabilities, as necessary. We anticipate that in 2004 our average quarterly cash used for operating
and investing activities will be approximately $6.0 million. Accordingly, we
believe that the net proceeds from our recently completed initial public
offering, together with the interest thereon, will provide us with sufficient
financial resources to reach the first interim analysis of our pivotal Phase 3
trial, which we anticipate will occur at the end of first quarter of 2005. We
estimate that we will need to raise additional funds in an anticipated amount
of approximately $100 million in order to commercialize MyVax, including the
completion of the construction and qualification of a commercial scale
manufacturing facility, if MyVax receives regulatory approval for the treatment
of follicular B-cell NHL. Even if we achieve positive interim results in our pivotal Phase 3
clinical trial and receive regulatory approval for MyVax, including regulatory
approval of our commercial scale manufacturing facility, we will not have
product revenue until 2006, at the earliest. Until we can generate a sufficient
amount of product revenue, if ever, we expect to finance future cash needs
through public or private equity offerings, debt financings, corporate
collaboration or licensing arrangements or other arrangements, as well as
through interest income earned on cash balances. We cannot be certain that
additional funding will be available on acceptable terms, or at all. To the
extent that we raise additional funds by issuing equity securities, our
stockholders may experience dilution, and debt financing, if available, may
involve restrictive covenants. To the extent that we raise additional funds
through collaboration and licensing arrangements, it may be necessary to
relinquish some rights to our technologies, MyVax or any other immunotherapies
that we may develop, or grant licenses on terms that are not favorable to us.
If adequate funds are not available, we may be required to delay, reduce the
scope of or eliminate one or more of our research or development programs or
our commercialization efforts. 39




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As of December 31, 2003, we had contractual obligations related to
operating and capital leases as follows (in thousands):

Payments Due by PeriodLess than
    
    1 - 3
    
    4 - 5
    
    BeyondTotal
    
    1 Year
    
    Years
    
    Years
    
    5 YearsContractual obligations:Non-cancelable operating lease obligations
    
    $
    1,327
    
    
    $
    704
    
    
    $
    623
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    51
    
    
    
    28
    
    
    
    23
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    1,378
    
    
    $
    732
    
    
    $
    646
    
    
    $
    
    
    
    $
    
 Our long term commitments under operating leases shown above consist of
payments relating to three real estate subleases covering the 31,938 square
feet of our present facility. These subleases expire between March 2005 and
November 2006. We expect to begin spending for a commercial scale manufacturing facility
in 2004. We estimate that the total cost of the facility will be between $50.0
million and $60.0 million. We anticipate seeking additional funding for the
completion of construction and qualification of a commercial scale
manufacturing facility. We anticipate that we will need to raise approximately
$100 million in addition to the proceeds from our initial public offering to
commercialize MyVax if MyVax receives regulatory approval for the treatment of
follicular B-cell NHL. Off-balance Sheet Arrangements As of December 31, 2003, we did not have any off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. Critical Accounting Policies The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures. Actual results could
differ from those estimates. We believe the following critical accounting
policies, among others, affect the more significant judgments and estimates
used in the preparation of our financial statements. Clinical Trial Accruals.We record accruals for estimated clinical study
costs. These costs are a significant component of research and development
expenses. We accrue for the costs of clinical studies conducted by contract
research organizations based on estimated costs over the life of the individual
study. Further, we monitor patient registration levels and related activity to
the extent possible and adjust our estimates on a quarterly basis; accordingly,
however, our estimates may not match the timing of actual services performed by
the organizations, which may result in adjustments to our research and
development expenses in future periods. Accounting for Income Taxes.Our income tax policy records the estimated
future tax effects of temporary differences between the tax basis of assets and
liabilities and amounts reported in the accompanying consolidated balance
sheets, as well as operating loss and tax credit carry forwards. We have
recorded a full valuation allowance to reduce our deferred tax asset, as based
on available objective evidence; it is more likely than not that the deferred
tax asset will not be realized. While we have considered potential future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the full valuation allowance, in the event that we were
to determine that we would be able to realize our deferred tax assets in the
future, an adjustment to the deferred tax asset would increase net income in
the period such determination was made. Stock-Based Compensation.We have a stock option plan to reward our
employees which is described more fully in Note 9 to the financial statements.
We account for this plan under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25 and related interpretations
and apply the disclosure provisions of Statements of Financial Accounting
Standards No. 123 (SFAS), as amended by SFAS No. 148. We amortize stock-based
compensation in accordance with FASB Interpretation No. 28, an accelerated
vesting model. For financial reporting purposes, we have recorded stock-based
compensation representing the difference between the deemed fair value of
common stock and the option exercise price. Prior to the closing of our initial
public offering, we determined the deemed fair value of our common stock based
upon several factors, including significant clinical milestones attained, sales
of our convertible preferred stock, changes in valuations of existing
comparable publicly-registered biotech companies, trends in the broad market
for biotechnology stocks and the expected valuation we would obtain in our
initial public offering. Subsequent to the offering, we determined the deemed
fair value of our common stock based on quoted market prices. All stock
options granted subsequent to the offering were granted at exercise prices
equal to the fair market value. We recorded deferred stock-based 40




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compensation of $3.4 million, $1.6 million and $1.0 million for stock
options granted to employees during the years ended December 31, 2003, 2002 and
2001, respectively, and we have amortized $1.7 million, $1.2 million and
$328,000 of these amounts in the years ended December 31, 2003, 2002 and 2001,
respectively. We anticipate we will record amortization of stock-based
compensation of approximately $1.4 million for the year ended December 31,
2004. The compensation expense will be decreased in the period of forfeiture
for any accrued but unvested compensation arising from the early termination of
an option holders services. We disclose in Note 1 to the financial statements the pro forma impact of
applying the provision of SFAS 123, as amended, to our stock awards. Prior to
the closing of our initial public offering, the fair value of options issued,
pursuant to our option plan at the grant date, were estimated using the minimum
value method. This model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable.
Following the offering, the value of each option has been estimated using the
Black-Scholes Model with a volatility rate of 92% which is based upon the
expected volatility of the our stock price over the life of the option. The
effects of applying pro forma disclosures of net loss and net loss per share
are not likely to be representative of the pro forma effects on net loss and
net loss per share in the future as the number of shares to be issued under the
plan (including any future plans) is not known and the assumptions used to
determine the fair value can vary significantly. Additionally as described more fully in Note 1 to the financial
statements, we issue stock options to non-employees, generally for services,
which we account for under the provisions of SFAS 123 and Emerging Issues Task
Force (EITF) No. 96-18. These options are also valued using the Black-Scholes
option valuation model. For stock options issued to non-employees, we amortized
$208,000, $122,000 and $110,000 of stock compensation expense for the years
ended December 31, 2003, 2002 and 2001, respectively. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk.Our exposure to market risk for changes in interest
rates relates to our cash equivalents on deposit in highly liquid money market
funds of financial institutions. The primary objective of our cash investment
activities is to preserve principal while at the same time maximizing the
income we receive from our invested cash without significantly increasing risk
of loss. We do not use derivative financial instruments in our investment
portfolio. Our cash and investments policy emphasizes liquidity and
preservation of principal over other portfolio considerations. Accordingly, we
believe that while the cash and cash equivalents we hold are subject to changes
in the financial standing of the financial institution, we are not subject to
any material risks arising from changes in interest rates, commodity prices,
equity prices or other market changes that affect market risk sensitive
instruments. We also believe that we are not subject to any material risks
arising from changes in interest rates. During October and November 2003 we
repaid the outstanding borrowings under both line of credit facilities. On
November 14, 2003 we terminated both line of credit facilities. As of December
31, 2003, we had no borrowings other than the equipment capital lease described
above under contractual obligations. In addition, we do not have any material exposure to foreign currency rate
fluctuations as we operate primarily in the United States. 41




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ITEM 8. FINANCIAL STATEMENTS (A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS PageReport of Independent Auditors
    
    
    43Balance Sheets
    
    
    44Statements of Operations
    
    
    45Statements of Stockholders Equity (Deficit)
    
    
    46Statements of Cash Flows
    
    
    48Notes to the Financial Statements
    
    
    49
 42




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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders
   of Genitope Corporation
   (a development stage enterprise) In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders equity (deficit) and cash flows present fairly, in
all material respects, the financial position of Genitope Corporation (a
development stage enterprise) at December 31, 2003 and 2002, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003 and cumulatively, for the period from August 15, 1996
(date of inception) to December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP San Jose, California March 25, 2004 43




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##### Table of Contents



GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(in thousands, except share and per share data) December 31,2002
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,422
    
    
    $
    29,790Prepaid expenses and other current assets
    
    
    54
    
    
    
    388Total current assets
    
    
    9,476
    
    
    
    30,178Property and equipment, net
    
    
    2,279
    
    
    
    1,917Other assets
    
    
    231
    
    
    
    257Total assets
    
    $
    11,986
    
    
    $
    32,352LIABILITIES, CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    1,116
    
    
    $
    2,781Accrued and other current liabilities
    
    
    431
    
    
    
    781Current lease obligations
    
    
    
    
    
    
    26Total current liabilities
    
    
    1,547
    
    
    
    3,588Noncurrent lease obligations
    
    
    
    
    
    
    22Total liabilities
    
    
    1,547
    
    
    
    3,610Commitments (Note 5)Convertible preferred stock; $0.001 par value:Authorized: 26,608,974 shares at December 31, 2002 and 5,000,000 shares at
December 31, 2003; Issued and outstanding: 6,810,396 shares at December 31, 2002
and no shares at December 31, 2003
    
    
    46,853
    
    
    
    Stockholders equity (deficit):Common stock; $0.001 par value:Authorized: 34,500,000 shares at December 31, 2002 and 65,000,000 shares at
December 31, 2003; Issued and outstanding: 1,912,821shares at December 31, 2002
and 16,819, 501 shares at December 31, 2003
    
    
    2
    
    
    
    17Notes receivable from stockholders
    
    
    (60
    )
    
    
    (48
    )Deferred stock compensation
    
    
    (1,072
    )
    
    
    (2,787
    )Additional paid-in capital
    
    
    3,609
    
    
    
    119,323Deficit accumulated during the development stage
    
    
    (38,893
    )
    
    
    (87,763
    )Total stockholders equity (deficit)
    
    
    (36,414
    )
    
    
    28,742Total liabilities, convertible preferred stock and stockholders equity (deficit)
    
    $
    11,986
    
    
    $
    32,352
 The accompanying notes are an integral part of these financial statements. 44




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GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(in thousands, except per share data) CumulativePeriod fromAugust 15, 1996(date of inception)Year Ended December 31
    
    to December 31,2001
    
    2002
    
    2003
    
    2003Operating expenses:Research and development
    
    $
    8,791
    
    
    $
    15,915
    
    
    $
    19,678
    
    
    $
    52,496Sales and marketing
    
    
    
    
    
    
    1,338
    
    
    
    1,591
    
    
    
    2,930General and administrative
    
    
    1,463
    
    
    
    2,832
    
    
    
    2,937
    
    
    
    9,227Total operating expenses
    
    
    10,254
    
    
    
    20,085
    
    
    
    24,206
    
    
    
    64,653Loss from operations
    
    
    (10,254
    )
    
    
    (20,085
    )
    
    
    (24,206
    )
    
    
    (64,653
    )Loss on extinguishment of convertible notes
and cancellation of Series E convertible
preferred stock warrants
    
    
    
    
    
    
    
    
    
    
    (3,509
    )
    
    
    (3,509
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,845
    )
    
    
    (2,978
    )Interest and other income, net
    
    
    474
    
    
    
    221
    
    
    
    97
    
    
    
    1,784Net loss
    
    
    (9,780
    )
    
    
    (19,864
    )
    
    
    (30,463
    )
    
    
    (69,356
    )Dividend related to issuance of convertible
preferred shares and the beneficial
conversion feature of preferred stock
    
    
    
    
    
    
    
    
    
    
    (18,407
    )
    
    
    (18,407
    )Net loss attributable to common stockholders
    
    $
    (9,780
    )
    
    $
    (19,864
    )
    
    $
    (48,870
    )
    
    $
    (87,763
    )Net loss per share attributable to common
stockholders, basic and diluted
    
    $
    (6.58
    )
    
    $
    (11.62
    )
    
    $
    (11.86
    )Shares used in computing net loss per share
attributable to common stockholders,
basic and diluted
    
    
    1,487
    
    
    
    1,710
    
    
    
    4,122
 The accompanying notes are an integral part of these financial statements. 45




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GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) FOR THE PERIOD
FROM AUGUST 15, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(in thousands) DeficitNote
    
    
    
    
    
    
    
    
    
    AccumulatedCommon Stock
    
    Receivable
    
    Deferred
    
    Additional
    
    During the
    
    Totalfrom
    
    Stock
    
    Paid-In
    
    Development
    
    StockholdersShares
    
    Amount
    
    Stockholder
    
    Compensation
    
    Capital
    
    Stage
    
    Equity (Deficit)Issuance of common stock at $0.001 per
share to founders in August 1996
for cash and technology
    
    
    1,259
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    3
    
    
    $
    
    
    
    $
    4Issuance of common stock at $0.15 per
share in exchange for cash and services
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    (76
    )Balance at December 31, 1996
    
    
    1,268
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    (76
    )
    
    
    (71
    )Issuance of common stock at $0.15 per
share in exchange for cash and services
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Issuance of common stock at $0.15 per
share in exchange for cash upon
exercise of stock options
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (980
    )
    
    
    (980
    )Balances at December 31, 1997
    
    
    1,308
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    (1,056
    )
    
    
    (1,045
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,596
    )
    
    
    (1,596
    )Balances at December 31, 1998
    
    
    1,308
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    (2,652
    )
    
    
    (2,641
    )Net issuance and repurchase of common stock
to a director as part of a stock issuance
agreement at $0.60 per share
    
    
    62
    
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    Issuance of common stock at $0.45 per
share in exchange for cash upon
exercise of stock options
in September 1999
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,752
    )
    
    
    (2,752
    )Balances at December 31, 1999
    
    
    1,372
    
    
    
    1
    
    
    
    (37
    )
    
    
    
    
    
    
    48
    
    
    
    (5,404
    )
    
    
    (5,392
    )Issuance of common stock at a price of
$0.15 to $0.60 per share in exchange
for cash upon exercise of stock options
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Proceeds from promissory note
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Issuance of 40,000 stock options to
nonemployees in exchange for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Issuance of common stock to
nonemployees in exchange for services
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Issuance of warrants to purchase 27,000
shares of convertible preferred stock
in exchange for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    144Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,845
    )
    
    
    (3,845
    )Balances at December 31, 2000
    
    
    1,390
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    223
    
    
    
    (9,249
    )
    
    
    (9,025
    )Issuance of common stock at a price of
$0.15 to $0.60 per share in exchange
for cash and notes upon exercise
of stock options
    
    
    365
    
    
    
    1
    
    
    
    (48
    )
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    276Repurchase of unvested common stock
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,036
    )
    
    
    1,036
    
    
    
    
    
    
    
    Amortization of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    110
    
    
    
    
    
    
    
    438Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,780
    )
    
    
    (9,780
    )Balances at December 31, 2001
    
    
    1,752
    
    
    
    2
    
    
    
    (48
    )
    
    
    (708
    )
    
    
    1,689
    
    
    
    (19,029
    )
    
    
    (18,094
    )
 The accompanying notes are an integral part of these financial statements. 46




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##### Table of Contents



GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) FOR THE PERIOD
FROM AUGUST 15, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(in thousands) DeficitNote
    
    
    
    
    
    
    
    
    
    AccumulatedCommon Stock
    
    Receivable
    
    Deferred
    
    Additional
    
    During the
    
    Totalfrom
    
    Stock
    
    Paid-In
    
    Development
    
    StockholdersShares
    
    Amount
    
    Stockholder
    
    Compensation
    
    Capital
    
    Stage
    
    Equity (Deficit)Issuance of common stock at a price of
$0.60 to $1.20 per share in exchange
for cash and notes upon exercise of
stock options
    
    
    171
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    202
    
    
    
    
    
    
    
    190Repurchase of unvested common stock
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,607
    )
    
    
    1,607
    
    
    
    
    
    
    
    Amortization of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,243
    
    
    
    122
    
    
    
    
    
    
    
    1,365Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,864
    )
    
    
    (19,864
    )Balances at December 31, 2002
    
    
    1,913
    
    
    
    2
    
    
    
    (60
    )
    
    
    (1,072
    )
    
    
    3,609
    
    
    
    (38,893
    )
    
    
    (36,414
    )Conversion of preferred stock to common stock
    
    
    10,638
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    53,559
    
    
    
    
    
    
    
    53,570Issuance of common stock at $9.00 per share,
net of issuance costs
    
    
    4,180
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    33,731
    
    
    
    
    
    
    
    33,735Dividend related to issuance of convertible
preferred shares and the beneficial conversion
feature of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,407
    
    
    
    (18,407
    )
    
    
    Discount on convertible notes relating to
warrants and beneficial conversion of
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,280
    
    
    
    
    
    
    
    4,280Warrants to purchase convertible preferred
stock issued to gurantor of the
lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,933
    
    
    
    
    
    
    
    1,933Issuance of common stock at a price of
$1.20 to $1.80 per share in exchange for
cash upon exercise of stock options
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179
    
    
    
    
    
    
    
    179Issuance of common stock to
nonemployees in exchange for services
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    29Repurchase of unvested common stock
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (20
    )Proceeds from promissory note
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,408
    )
    
    
    3,408
    
    
    
    
    
    
    
    Amortization of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,693
    
    
    
    208
    
    
    
    
    
    
    
    1,901Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,463
    )
    
    
    (30,463
    )Balances at December 31, 2003
    
    
    16,820
    
    
    $
    17
    
    
    $
    (48
    )
    
    $
    (2,787
    )
    
    $
    119,323
    
    
    $
    (87,763
    )
    
    $
    28,742
 47




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##### Table of Contents



GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(in thousands) CumulativePeriod fromAugust 15, 1996Year Ended December 31,
    
    (date of inception)to December 31,2001
    
    2002
    
    2003
    
    2003Cash flows from operating activities:Net loss
    
    $
    (9,780
    )
    
    $
    (19,864
    )
    
    $
    (30,463
    )
    
    $
    (69,356
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    674
    
    
    
    1,589
    
    
    
    716
    
    
    
    3,645Loss on disposal of assets
    
    
    
    
    
    
    24
    
    
    
    5
    
    
    
    29Stock-based compensation expense
    
    
    438
    
    
    
    1,365
    
    
    
    1,901
    
    
    
    3,724Loss on extinguishment of convertible notes and cancellation of
convertible preferred stock warrants
    
    
    
    
    
    
    
    
    
    
    3,509
    
    
    
    3,509Amortization of warrant issued to guarantor of the lines of
credit
    
    
    
    
    
    
    
    
    
    
    1,933
    
    
    
    1,933Interest expense on convertible notes
    
    
    
    
    
    
    
    
    
    
    892
    
    
    
    892Common stock issued for services
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    46Changes in assets and liabilities:Prepaids and other assets
    
    
    (167
    )
    
    
    85
    
    
    
    (360
    )
    
    
    (478
    )Accounts payable
    
    
    752
    
    
    
    249
    
    
    
    1,482
    
    
    
    2,598Accrued and other current liabilities
    
    
    201
    
    
    
    (3
    )
    
    
    180
    
    
    
    611Other long term liabilities
    
    
    38
    
    
    
    (38
    )
    
    
    
    
    
    
    Net cash used in operating activities
    
    
    (7,844
    )
    
    
    (16,593
    )
    
    
    (20,176
    )
    
    
    (52,847
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (3,215
    )
    
    
    (946
    )
    
    
    (307
    )
    
    
    (5,539
    )Long term cash deposits
    
    
    (167
    )
    
    
    
    
    
    
    
    
    
    
    (167
    )Net cash used in investing activities
    
    
    (3,382
    )
    
    
    (946
    )
    
    
    (307
    )
    
    
    (5,706
    )Cash flows from financing activities:Proceeds from issuance of convertible preferred stock, net of
issuance costs
    
    
    
    
    
    
    20,702
    
    
    
    2,181
    
    
    
    47,392Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    37,619
    
    
    
    37,619Payments of issuance costs for issuance of common stock,
underwriters
commission and offering costs
    
    
    
    
    
    
    
    
    
    
    (3,531
    )
    
    
    (3,531
    )Borrowings under lines of credit
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    8,786Repayment of borrowings under lines of credit
    
    
    
    
    
    
    
    
    
    
    (8,000
    )
    
    
    (8,786
    )Proceeds from issuance of convertible notes and warrants
    
    
    
    
    
    
    
    
    
    
    4,280
    
    
    
    6,060Proceeds from exercise of stock options
    
    
    276
    
    
    
    190
    
    
    
    179
    
    
    
    652Proceeds from exercise of Series D warrants
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    135Repurchase of unvested common stock
    
    
    (3
    )
    
    
    (11
    )
    
    
    (20
    )
    
    
    (34
    )Proceeds from note receivable from stockholder
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    54Principal payments on capital lease obligations
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Net cash provided by financing activities
    
    
    273
    
    
    
    20,881
    
    
    
    40,851
    
    
    
    88,343Net increase (decrease) in cash and cash equivalents
    
    
    (10,953
    )
    
    
    3,342
    
    
    
    20,368
    
    
    
    29,790Cash and cash equivalents, beginning of period
    
    
    17,033
    
    
    
    6,080
    
    
    
    9,422
    
    
    
    Cash and cash equivalents, end of period
    
    $
    6,080
    
    
    $
    9,422
    
    
    $
    29,790
    
    
    $
    29,790Supplemental disclosure:Cash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    14
    
    
    $
    146Supplemental schedule of noncash investing and
financing activities:Conversion of preferred stock to common stock
    
    $
    
    
    
    $
    
    
    
    $
    53,570
    
    
    $
    53,570Dividend related to issuance of convertible
preferred shares and the beneficial conversion feature of
preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    18,407
    
    
    $
    18,407Discount on convertible notes for beneficial conversion feature
of preferred stock and warrants
    
    $
    
    
    
    $
    
    
    
    $
    4,280
    
    
    $
    4,280Conversion of convertible notes into convertible preferred
stock
    
    $
    
    
    
    $
    
    
    
    $
    (4,280
    )
    
    $
    (4,280
    )Warrants issued to guarantor of the lines of credit
    
    $
    
    
    
    $
    
    
    
    $
    1,933
    
    
    $
    1,933Conversion of notes payable to convertible preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,780Accrued offering costs for issuance of common stock
    
    $
    
    
    
    $
    
    
    
    $
    353
    
    
    $
    353Warrants issued in connection with services related to
convertible
preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    144Accrued interest converted in convertible preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    121
    
    
    $
    121Acquisition of property and equipment under captial leases
    
    $
    
    
    
    $
    
    
    
    $
    52
    
    
    $
    52Convertible preferred stock issued in exchange for note
receivable
from stockholder
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5
 The accompanying notes are an integral part of these financial statements. 48




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##### Table of Contents



GENITOPE CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Company Genitope Corporation (the Company) is a development stage enterprise
focused on the research and development of novel immunotherapies for the
treatment of cancer. Immunotherapies are treatments that utilize the immune
system to combat diseases. The Companys lead product candidate, MyVax
personalized immunotherapy, is a patient-specific active immunotherapy that is
based on the unique genetic makeup of a patients tumor and is designed to
activate a patients immune system to identify and attack cancer cells. MyVax
is currently in a pivotal Phase 3 clinical trial and additional Phase 2
clinical trials for the treatment of B-cell non-Hodgkins lymphoma. The Company
was incorporated in the State of Delaware on August 15, 1996. Liquidity To date, the Company has not generated any revenues, and except for the
recently completed initial public offering, the Company has financed its
operations and internal growth almost exclusively through private placements of
common and preferred stock. The Company is a development stage enterprise and
has incurred significant operating losses and operating cash flow deficiencies
since its inception in 1996 as the Company has devoted substantially all of its
efforts to research and development activities, including clinical trials. The
Company incurred a net loss attributable to common stockholders of $48,870,000
and negative operating cash flow of $20,176,000 for the year ended December 31,
2003. As of December 31, 2003, the Company had an accumulated deficit of
$87,763,000. The accumulated deficit resulted principally from the Companys
research and development activities associated with MyVax, including its
pivotal Phase 3 clinical trial and additional Phase 2 clinical trials, and
several non-cash charges associated with the Companys preferred stock
financings. The accumulated deficit includes a non-cash dividend of $18,407,000
related to the Companys preferred stock financings in April and May of 2003, a
non-cash charge of $3,509,000 associated with the extinguishment of convertible
notes and cancellation of the related warrants issued to preferred stockholders
in April 2003 and $771,000 of non-cash interest expense relating to the
amortization of the discount on the convertible notes, and non-cash interest
expense of $1,933,000 associated with warrants issued to the guarantor of the
Companys two line of credit facilities. The Company has repaid all outstanding
borrowings under these facilities, and in November 2003, the Company terminated
both facilities. As of December 31, 2003, the Company had cash and cash
equivalents of $29,790,000. The Company anticipates working on a number of long-term development
projects which will involve experimental and unproven technology. The projects
may require many years and substantial expenditures to complete and may
ultimately be unsuccessful. The Company will need operating funds to continue
its research and development activities, clinical trials, pursue regulatory
approvals and build production, sales and marketing capabilities, as necessary. Since 1996, the Company has been successful in completing several rounds
of private equity financing. In 2002, the sale of Series E convertible
preferred stock generated $20,702,000 of cash proceeds. In April and May of
2003, the Company raised $6,461,000 through the sale of additional Series E
convertible preferred stock, convertible notes (which converted into Series E
convertible preferred stock during the quarter ended September 30, 2003) and
warrants. On October 29, 2003, the Company sold 4,179,860 shares of common stock in
an initial public offering for aggregate gross proceeds of $37,619,000. After
deducting the underwriters commission and offering expenses, the Company
received net proceeds of $33,735,000. Management believes that the net proceeds from the recently completed
initial public offering, together with the interest thereon, will provide the
Company with sufficient financial resources for at least the next
twelve months from December 31, 2003. The Company estimates that it will need to
raise additional funds in order to commercialize MyVax, including the
completion of the construction and qualification of a commercial scale
manufacturing facility, if MyVax receives regulatory approval for the treatment
of follicular B-cell NHL. Even if the Company achieves positive interim
results in its pivotal Phase 3 clinical trial and receives regulatory approval
for MyVax, including regulatory approval of a commercial scale manufacturing
facility, the Company will not have product revenue until 2006, at the
earliest. Until the Company can generate a sufficient amount of product
revenue, if ever, the Company expects to finance future cash needs through
public or private equity offerings, debt financings or corporate collaboration
and licensing 49




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##### Table of Contents



arrangements, as well as through interest income earned on cash balances.
The Company cannot be certain that additional funding will be available on
acceptable terms, or at all. If adequate funds are not available, the Company
may be required to delay, reduce the scope of or eliminate one or more of its
research and development programs or its commercialization efforts. Any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Basis of Presentation The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents. The Company
invests its excess cash primarily in deposits with banks and in highly liquid
money market funds. Fair Value of Financial Instruments The Companys financial instruments consist of cash and cash equivalents
which carrying value approximates fair value. Certain Risks and Uncertainties Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents. The Company
maintains its cash and cash equivalents in accounts with one major financial
institution in the United States. Deposits in this institution may exceed the
amount of insurance provided on such deposits. The current products and services being developed by the Company require
approval from the Food and Drug Administration (FDA) or other international
regulatory agencies prior to commercial sales. There can be no assurance the
Companys products will receive the necessary clearance. If the Company is
denied clearance or clearance is delayed, it may have a material adverse impact
on the Company. The Companys products and services are concentrated in rapidly changing,
highly competitive markets, which are characterized by rapid technological
advances, changes in customer requirements and evolving regulatory requirements
and industry standards. Any failure by the Company to anticipate or to respond
adequately to technological developments in its industry, changes in customer
requirements or changes in regulatory requirements or industry standards, or
any significant delays in the development or introduction of products or
services, could have a material adverse effect on the Companys business,
operating results and future cash flows. The Company depends on single source suppliers for critical raw materials
for manufacturing, as well as other components required for the administration
of MyVax. The loss of these suppliers could delay the Companys clinical trials
or prevent or delay commercialization of MyVax. Property and Equipment Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Fixed assets are depreciated over a
life of three to five years. Leasehold improvements are amortized using the
straight-line method over the estimated useful life of the improvement, or the
lease term, if shorter. Upon retirement or sale, the cost and related
accumulated depreciation are removed from the balance sheet and the resulting
gain or loss is reflected in operations. Maintenance and repairs are charged to
operations as incurred. 50




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##### Table of Contents



Research and Development Research and development expenses consist of costs incurred for internally
sponsored research and development. These costs include direct and
research-related overhead expenses and clinical trials that are charged to
expense as incurred. Advertising Costs Advertising costs are expensed as incurred. Advertising costs were not
material for all periods presented. Impairment of Long-lived Assets Long-lived assets to be held and used are reviewed for impairment when
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable, or its estimated useful life has changed significantly.
When an assets expected future undiscounted cash flows are less than its
carrying value, an impairment loss is recognized and the asset is written down
to its estimated fair value. Long-lived assets to be disposed of are reported
at the lower of the carrying amount or fair value less cost to dispose. Stock Split On October 24, 2003, the Company affected a one-for-three reverse stock
split. All share and per share amounts for all periods presented in the
accompanying financial statements have been retroactively adjusted to give
effect to the reverse stock split. Stock-based Compensation The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25) and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), as amended by SFAS
No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure.
Under APB No. 25, unearned stock compensation is based on the difference, if
any, on the date of grant, between the fair value of the Companys common stock
and the exercise price. All stock compensation is amortized and expensed in accordance with
Financial Accounting Standards Board (FASB) Interpretation No. 28, an
accelerated vesting model. Amortization of stock-based compensation for
employees and non-employees is as follows (in thousands): CumulativePeriod fromAugust 15, 1996(date of inception)Year Ended December 31,
    
    to December 31,2001
    
    2002
    
    2003
    
    2003Amortization of stock-based
compensation:Research and development
    
    $
    181
    
    
    $
    589
    
    
    $
    1,046
    
    
    $
    1,816Sales and marketing
    
    
    
    
    
    
    141
    
    
    
    176
    
    
    
    317General and administration
    
    
    257
    
    
    
    635
    
    
    
    679
    
    
    
    1,591$
    438
    
    
    $
    1,365
    
    
    $
    1,901
    
    
    $
    3,724
 51




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##### Table of Contents



Had compensation cost for the Companys stock-based compensation plans
been determined based on the fair value at the grant date of the awards
consistent with the provisions of SFAS No. 123, the Companys net loss would
have been increased to the amounts below (in thousands, except per share data). Year Ended December 31,2001
    
    2002
    
    2003Net loss attributable to common stockholders,
as reported
    
    $
    (9,780
    )
    
    $
    (19,864
    )
    
    $
    (48,870
    )Add: Employee stock-based
compensation included in reported
net earnings
    
    
    328
    
    
    
    1,243
    
    
    
    1,693Deduct: Employee total stock-based
compensation determined under fair
value method
    
    
    (356
    )
    
    
    (1,301
    )
    
    
    (1,818
    )Adjusted net loss attributable to
common stockholders
    
    $
    (9,808
    )
    
    $
    (19,922
    )
    
    $
    (48,995
    )Net loss attributable to common stockholders
per common share, basic and diluted:As reported
    
    $
    (6.58
    )
    
    $
    (11.62
    )
    
    $
    (11.86
    )Adjusted
    
    $
    (6.60
    )
    
    $
    (11.65
    )
    
    $
    (11.89
    )
 The resulting effect on net loss attributable to common stockholders and
net loss per share attributable to common stockholders is not likely to be
representative of the effects on net loss attributable to common stockholders
and net loss per share attributable to common stockholders in future periods,
due to subsequent periods including additional grants and periods of vesting. The fair value of options was estimated as of the date of grant using the
Black-Scholes option-pricing method with the following assumptions: Year Ended December 31,2001
    
    2002
    
    2003Risk-free interest rate
    
    
    4.34
    %
    
    
    3.88
    %
    
    
    2.82
    %Expected average life
    
    4 years
    
    4 years
    
    4 yearsDividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    
    
    
    
    
    
    
    
    92
    %Weighted average fair values of option grants per share:Fair value equal to exercise price
    
    $
    
    
    
    $
    
    
    
    $
    8.29Fair value greater than exercise price
    
    $
    4.70
    
    
    $
    5.03
    
    
    $
    6.61
 Prior to the closing of the Companys initial public offering, the fair
value of options was computed using the minimum value method. Following the
offering, the value of each option has been estimated using the Black-Scholes
Model with a volatility rate of 92% which is based upon the expected volatility
of the Companys stock price over the life of the option. The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
The equity instruments are valued using the Black-Scholes Model. All unvested
shares are marked to market until such options vest. Comprehensive Loss The Company has adopted the provisions of SFAS No. 130, Comprehensive
Income. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components for general purpose financial 52




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##### Table of Contents



statements. For all periods presented, there were no differences between net
loss and comprehensive loss. Income Taxes The Company uses the liability method to account for income taxes as
required by SFAS No. 109, Accounting for Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured
using enacted tax rules and laws that will be in effect when differences are
expected to reverse. Segments The Company operates in one segment, using one measurement of
profitability to manage its business. All long-lived assets are maintained in
the United States of America. Reclassifications Certain prior year amounts have been reclassified to conform to current
year presentation. NOTE 2  NET LOSS PER SHARE: Basic net loss per share attributable to common stockholders is calculated
based on the weighted-average number of shares of common stock outstanding
during the period, excluding those shares that are subject to repurchase.
Diluted net loss per share attributable to common stockholders would give
effect to the dilutive effect of potential issuances of common stock consisting
of stock options, warrants, common stock subject to repurchase, convertible
preferred stock and convertible notes payable. Dilutive securities have been
excluded from the diluted net loss per share computations as they have an
antidilutive effect due to the Companys net loss. A reconciliation of shares used in the calculation is as follows (in
thousands, except per share amounts): Year Ended December 31,2001
    
    2002
    
    2003Numerator:Net loss attributable to
common stockholders
    
    $
    (9,780
    )
    
    $
    (19,864
    )
    
    $
    (48,870
    )Denominator:Weighted average
common shares outstanding
    
    
    1,533
    
    
    
    1,888
    
    
    
    4,233Less: Weighted average unvested
common shares subject to
repurchase
    
    
    (46
    )
    
    
    (178
    )
    
    
    (111
    )Denominator for basic and diluted
calculations
    
    
    1,487
    
    
    
    1,710
    
    
    
    4,122Net loss per share attributable to
common
stockholders, basic and diluted
    
    $
    (6.58
    )
    
    $
    (11.62
    )
    
    $
    (11.86
    )
 53




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The following outstanding stock options and warrants, common stock subject
to repurchase and convertible preferred stock (on an as-if-converted basis)
were excluded from the computation of diluted net loss per share attributable
to common stockholders as they had an antidilutive effect (in thousands): Year Ended December 31,2001
    
    2002
    
    2003Shares issuable upon exercise of
stock options
    
    
    211
    
    
    
    395
    
    
    
    962Shares issuable upon exercise of
warrants
    
    
    30
    
    
    
    30
    
    
    
    270Common stock subject to repurchase
    
    
    99
    
    
    
    154
    
    
    
    84Shares issuable upon conversion of
convertible preferred stock
    
    
    4,500
    
    
    
    6,810
    
    
    
    4,840
    
    
    
    7,389
    
    
    
    1,316
 NOTE 3  PROPERTY AND EQUIPMENT: December 31,2002
    
    2003(in thousands)Leasehold Improvements
    
    $
    3,096
    
    
    $
    3,174Equipment
    
    
    1,976
    
    
    
    2,252Furniture and fixtures
    
    
    110
    
    
    
    1105,182
    
    
    
    5,536Less: Accumulated depreciation and amortization
    
    
    (2,903
    )
    
    
    (3,619
    )$
    2,279
    
    
    $
    1,917
 NOTE 4  ACCRUED AND OTHER CURRENT LIABILITIES: December 31,2002
    
    2003(in thousands)Employee benefits
    
    $
    242
    
    
    $
    356Professional fees
    
    
    73
    
    
    
    270Clinical trials
    
    
    70
    
    
    
    64Other
    
    
    46
    
    
    
    91$
    431
    
    
    $
    781
 54




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##### Table of Contents



NOTE 5  LEASES AND COMMITMENTS: The Company lease space under three noncancelable operating leases with
terms through 2006. The Company also leases equipment to support its research
and development activities. The future minimum payments under the leases as of
December 31, 2003 are as follows (in thousands): Operating
    
    CapitalLeases
    
    LeasesYear Ending December 31:2004
    
    $
    704
    
    
    $
    282005
    
    
    409
    
    
    
    232006
    
    
    214
    
    
    
    2007
    
    
    
    
    
    
    2008 and beyond
    
    
    
    
    
    
    Total minimum lease payments
    
    $
    1,327
    
    
    
    51Less: amount representing interest
    
    
    
    
    
    
    (3
    )Present value of minimum lease payments
    
    
    
    
    
    
    48Less: current portion
    
    
    
    
    
    
    (26
    )Noncurrent portion
    
    
    
    
    
    $
    22
 Rent expense for the years ended December 31, 2001, 2002 and 2003, and the
period from August 15, 1996 (date of inception) to December 31, 2003 was
$932,000, $1,352,000, $803,000 and $3,655,000 respectively. In May 2003, the
Company extended one of its facility leases through May 2006. NOTE 6  CONVERTIBLE PREFERRED STOCK (PREFERRED STOCK) The Companys certificate of incorporation, as amended and restated,
authorizes the Company to issue up to 5,000,000 shares of preferred stock, with
a par value of $0.001, in one or more series. The Board of Directors may
authorize the issuance of preferred stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of the
common stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could,
among other things, have the effect of delaying, deferring or preventing a
change in control of the Company and may adversely affect the market price of
the common stock and the voting and other rights of the holders of common
stock. As of December 31, 2003, no shares of preferred stock were issued and
outstanding. Preferred stock at December 31, 2002 consisted of the following (in
thousands): December 31, 2002SharesLiquidationSeries
    
    Authorized
    
    Outstanding
    
    AmountA
    
    
    2,210
    
    
    
    607
    
    
    $
    911B
    
    
    2,800
    
    
    
    624
    
    
    
    2,359C
    
    
    2,125
    
    
    
    700
    
    
    
    3,150D
    
    
    7,807
    
    
    
    2,569
    
    
    
    20,038E
    
    
    11,667
    
    
    
    2,310
    
    
    
    20,79026,609
    
    
    
    6,810
    
    
    $
    47,248
 In April and May 2003, the Company issued approximately 473,000 and 48,000
shares, respectively, of Series E preferred stock (Series E) for $4.50 per
share resulting in aggregate net cash proceeds of $2,181,000. The difference
between the conversion price and the deemed fair value of the common stock on
the respective transaction dates resulted in a total beneficial conversion
feature of $1,496,000, which has been reflected as a deemed dividend on
preferred stock for the year ended December 31, 2003. In March 2003, the Company amended the 2002 Series E stock purchase
agreement to allow for a purchase price adjustment in the event that additional
shares of Series E were sold for less than $9.00 per share. As a result of the
issuance of the Series E in April 2003 at $4.50 per share, the Company issued
an additional 2,310,000 shares of 55




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Series E to the pre-existing Series E
stockholders in accordance with the amended Series E stock purchase agreement.
In connection with the issuances of Series E in 2003, the stockholders of the
Company agreed to reduce the liquidation value of the Series E from $9.00 to
$4.50 per share. The Company recorded a dividend to these preferred
stockholders equal to the fair value of the underlying common stock into which
these additional shares of Series E convert in the amount of $16,911,000 for
the year ended December 31, 2003. Upon closing of the initial public offering, all of the convertible
preferred stock outstanding automatically converted into common stock at a
one-to-one ratio. Series C and D Convertible Preferred Stock Warrants During 2000, warrants to purchase up to 27,000 shares of the Series D
convertible preferred stock, with an exercise price of $7.80 per share expiring
in June 2005, were issued to individuals for services rendered in conjunction
with a private placement of common stock. The aggregate value of these warrants
of $144,000, determined using a Black-Scholes valuation model, has been
recorded as issuance costs and netted against the proceeds received on the
Series D convertible preferred stock. In connection with the initial public
offering, these warrants were fully exercised and converted into 19,000 shares
of common stock. During 1999, warrants to purchase up to 3,000 shares of Series C
convertible preferred stock, with an exercise price of $4.50 per share expiring
on the longer of 10 years from the date of issue or 7 years from the date of
the initial public offering of the Company, were issued to a bank in connection
with a credit arrangement. The value of these warrants, determined using
Black-Scholes model, was not material. As of December 31, 2003, all of these
warrants were outstanding. The warrants expire in October 2010. NOTE 7  CONVERTIBLE NOTES, LINES OF CREDIT AND WARRANTS: In April 2003, the Company entered into a note and warrant purchase
agreement pursuant to which convertible notes (the Notes) and warrants (the
Warrants) were issued to existing preferred stockholders. The Company
received $4,280,000 in cash in exchange for the Notes bearing interest at 8%
per annum and the Warrants to purchase approximately 285,000 shares of Series E
(or an equal number of shares of common stock if converted after a qualified
public offering) for an exercise price of $4.50 per share. In the event that
certain initial public offering procedures occurred, as defined in the
agreement, on or before August 22, 2003, and the initial public offering closed
on or before October 22, 2003, the outstanding principal balance of the Notes
would have automatically converted into common stock at a conversion price
equal to the initial public offering price. If these
events did not occur, the Notes would have automatically converted into
Series E on October 22, 2003 at a conversion price of $4.50 per share. The
Company was required to pay any accrued interest on the Notes in cash at the
time of any of the aforementioned conversions. The difference between the
conversion price and the fair market value of the common stock on the
commitment date (transaction date) resulted in a beneficial conversion feature
recorded on the convertible debt of $3,085,000. The Warrants were assigned an
initial value of $1,195,000, estimated using the Black-Scholes valuation model
and have been classified as equity. The Warrants became exercisable upon
stockholder approval, which was obtained in August 2003, and would have expired
in 5 years. The following assumptions were used to determine the fair value of
the Warrants using the Black-Scholes valuation model: term of 5 years, risk
free rate of 3.10%, volatility of 90% and a dividend yield of zero. The initial
values assigned to both the Notes and the Warrants were allocated based on the
relative fair values of the Notes and Warrants. The discount on the Notes for
the beneficial conversion feature and Warrants were being amortized, using the
effective interest method, to interest expense over the stated term of the
Note, which was six months. In connection with the line of credit facilities discussed below, on
August 29, 2003 upon receipt of stockholder approval of an amended and restated
certificate of incorporation authorizing shares of Series F preferred stock,
pursuant to agreements the Company entered into with the holders of the Notes
and Warrants, the Notes and the accrued interest thereon automatically
converted into 978,000 shares of Series E at a conversion price of $4.50 per
share and the Warrants were cancelled. As a result, the Company recorded a loss
of $3,509,000, on the extinguishment of the Notes and cancellation of the
Warrants, in the accompanying statement of operations for the year ended
December 31, 2003. In August 2003, the Company entered into two line of credit facilities for
an aggregate of $8,000,000 with a financial institution. The first line of
credit for $3,000,000 bore interest at the prime rate, and the second line of
credit for $5,000,000 bore interest at prime plus one-half percent. Both line
of credit facilities had a maturity date of December 6, 2003. In connection
with the line of credit facilities, the Company entered into an agreement, with
a stockholder who is also a member of the Board of Directors, acting as a
guarantor on the line of credit facilities, to issue to the guarantor a
warrant. The warrant is to purchase 533,333 shares of Series F convertible
preferred stock at an exercise price of $4.50 per share, which, upon the
closing of the initial public offering became exercisable into 56




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##### Table of Contents



266,666 shares
of common stock at an exercise price per share based on the initial public
offering price per share. The aggregate fair value of the warrant was
$1,933,000, which was determined using the Black-Scholes valuation model with
the following assumptions: term of 5 years, risk free rate of 3.43%, volatility
of 90% and a dividend yield of zero. The warrant was recorded as a deferred
guarantee cost and was being amortized on straight-line basis over the term of
the line of credit. Total expense recognized relating to the amortization of
the warrant was $1,933,000 for the year ended December 31, 2003. As of December
31, 2003, this warrant remains outstanding. The warrant expires in August 2008. During October and November 2003, the Company repaid all outstanding debt
under the two line of credit facilities. In November 2003, the Company
terminated the two line of credit facilities. As a result, the Company
recorded the remaining unamortized deferred guarantee costs of $1,295,000 to
expense in the fourth quarter of 2003. As of December 31, 2003, the Company had
no borrowings other than the equipment capital lease described in Note 5. NOTE 8  COMMON STOCK: The Companys certificate of incorporation, as amended and restated,
authorizes the Company to issue 65,000,000 shares of $0.001 par value common
stock. Certain shares issued are subject to a right of repurchase by the
Company subject to vesting, which is generally over a four-year period from the
issuance date until vesting is complete. NOTE 9  STOCK OPTION PLANS AND OTHER EMPLOYEE BENEFITS: 1996 Stock Option Plan The 1996 Stock Option Plan (the 1996 plan) was adopted in November 1996
and provides for the issuance of stock options. The 1996 plan will terminate in
November 2006, unless the Board of Directors terminates the plan earlier. The
1996 plan provides for the issuance of up to 1,665,500 shares of common stock
upon the exercise of options under the plan. Options to purchase an aggregate
of 828,597 shares of common stock were outstanding under the 1996 plan as of
December 31, 2003. Stock options granted under the 1996 plan may be either incentive stock
options or nonstatutory stock options. Incentive stock options may be granted
to employees with exercise prices of no less than fair value and nonstatutory
options may be granted to employees, directors, or consultants at exercise
prices of no less than 85% of the fair
value of the common stock on the date of grant. If, at the time the
Company grants an option, the optionee owns or is deemed to own stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the option price shall be at least 110% of the fair value
and shall not be exercisable more than five years after the date of grant.
Options may be granted with vesting terms as determined by the Board of
Directors, which is generally four years, with 25% vesting upon the first
anniversary of the grant date, and the balance vesting ratably each month over
a thirty-six month period. Except as noted above, options expire no more than
10 years after the date of grant or earlier if employment is terminated. Stock options granted under the 1996 plan may include a provision whereby
the holder may elect at any time while an employee, director, or consultant to
exercise the option as to any part or all of the shares subject to the option
prior to the full vesting of the option. Any unvested shares so purchased are
subject to repurchase by the Company at the option exercise price. As of
December 31, 2003, approximately 84,000 shares of common stock are subject to
repurchase. 2003 Equity Incentive Plan The 2003 Equity Incentive Plan (the incentive plan) was adopted in
August 2003 and became effective upon the closing of the initial public
offering. The incentive plan will terminate when the Board of Directors
terminates the incentive plan. The incentive plan provides for the grant of
nonstatutory stock options, restricted stock awards, stock appreciation rights,
phantom stock and other forms of equity compensation, which may be granted to
employees, including officers, non-employee directors and consultants. The
incentive plan provides for the issuance of 2,083,333 shares of common stock
upon the exercise of options under the plan. Authorized shares shall be
increased annually on January 1st from 2004 until 2013, by 5% of the number of
shares of common stock outstanding on such date, however, the Board of
Directors has the authority to designate a smaller number of shares. Options to
purchase an aggregate of 8,400 shares of common stock were outstanding under
the incentive plan as of December 31, 2003. The shares reserved under the
incentive plan were increased by 840,975 on January 1, 2004 in accordance with
the plan provisions as noted above. 57




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Nonstatutory options may be granted at exercise prices of no less than 85%
of the fair market value of the common stock, which is the closing sales price
as quoted on the Nasdaq National Market on the last trading day prior to the
date of grant. If, at the time the Company grants an option, the optionee owns
or is deemed to own stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, the option price shall be at
least 110% of the fair market value and shall not be exercisable more than five
years after the date of grant. Options granted generally vest over four years,
with 25% vesting upon the first anniversary of the grant date, and the balance
vesting ratably each month over a thirty-six month period. Except as noted
above, options expire no more than 10 years after the date of grant or earlier
if employment is terminated. 2003 Non-Employee Directors Stock Option Plan The 2003 Non-Employee Directors Stock Option Plan (the directors plan)
was adopted in August 2003 and became effective upon the closing of the initial
public offering. The directors plan provides for the automatic grant of
nonstatutory stock options to purchase shares of common stock to the Companys
non-employee directors. The directors plan provides for the issuance of
133,333 shares of common stock upon exercise of options under the plan.
Authorized shares shall be increased annually on January 1st from 2004 until
2013, by the number of shares of common stock subject to options granted during
the prior calendar year, however, the Board of Directors has the authority to
designate a smaller number of shares. Options to purchase an aggregate of
125,000 shares of common stock were outstanding under the directors plan as of
December 31, 2003. The shares reserved under the directors plan were increased
by 125,000 on January 1, 2004 in accordance with the terms of the plan as
noted above. Upon completion of the initial public offering, each non-employee director
was automatically granted an option to purchase 25,000 shares of common stock,
the initial grant. Any new non-employee director thereafter will automatically
be granted the initial grant upon being elected to the board of directors. Each
non-employee director will automatically be granted an option to purchase an
additional 10,000 shares of common stock on the day following the Companys
annual stockholders meeting, the annual grant. Each non-employee director who
has been a director for less than 12 months will receive an annual grant that
has been reduced pro ratafor each quarter prior to the date of grant during
which such person did not serve as a non-employee director. On the day
following the Companys annual stockholders meeting, each non-employee director
will automatically be granted an option to purchase 1,000 shares of common
stock for each committee of which they are a member. Stock options under the directors plan are granted at exercise prices
equal to the fair market value of the common stock, which is the closing sales
price as quoted on the Nasdaq National Market on the last trading day prior to
the date of grant. Initial grants and annual grants vest in 36 equal monthly
installments over three years.
Committee option grants vest in 12 equal monthly installments over one
year from the grant date. No option granted under the directors plan may be
exercised after the expiration of ten years from the date it was granted. Stock-based Compensation During the years ended December 31, 2003 and 2002, the Company issued
stock options under the plans at exercise prices below the deemed fair value of
the Companys common stock at the date of grant. Accordingly, for stock options
issued to employees, the Company has recorded deferred stock-based compensation
representing the difference between the deemed value of the common stock for
accounting purposes and the option price at the date of the option grant. This
deferred stock-based compensation is presented as a reduction of stockholders
equity and is amortized to expense over the vesting period, which is generally
four years. Compensation expense is decreased in the period of forfeiture for
any accrued but unvested compensation arising from the early termination of an
option holders services. For stock options issued to non-employees, generally
for services, the estimated fair value of the options was determined using the
Black-Scholes valuation model. As the non-employee fulfils the terms of the
option relating to the continued service to the Company, the Company revalues
the remaining unvested options, with the changes in fair value from period to
period being recognized through compensation expense. 58




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##### Table of Contents



The Companys stock option activity is as follows (in thousands, except
per share amounts):

Options Outstandingand ExercisableWeighted AverageNumber of
    
    Exercise Price perShares
    
    ShareOptions granted
    
    
    13
    
    
    $
    0.15Balances at December 31, 1996
    
    
    13
    
    
    
    0.15Options granted
    
    
    159
    
    
    
    0.21Options exercised
    
    
    (10
    )
    
    
    0.15Options canceled
    
    
    (89
    )
    
    
    0.15Balances at December 31, 1997
    
    
    73
    
    
    
    0.28Options granted
    
    
    85
    
    
    
    0.51Options canceled
    
    
    (5
    )
    
    
    0.50Balances at December 31, 1998
    
    
    153
    
    
    
    0.40Options granted
    
    
    77
    
    
    
    0.60Options exercised
    
    
    (2
    )
    
    
    0.45Options canceled
    
    
    (3
    )
    
    
    0.47Balances at December 31, 1999
    
    
    225
    
    
    
    0.47Options granted
    
    
    213
    
    
    
    1.08Options exercised
    
    
    (10
    )
    
    
    0.21Options canceled
    
    
    (6
    )
    
    
    0.60Options expired
    
    
    (1
    )
    
    
    0.60Balances at December 31, 2000
    
    
    421
    
    
    
    0.78Options granted
    
    
    258
    
    
    
    1.20Options exercised
    
    
    (365
    )
    
    
    0.88Options canceled
    
    
    (69
    )
    
    
    0.66Options expired
    
    
    (34
    )
    
    
    0.71Balances at December 31, 2001
    
    
    211
    
    
    
    1.18Options granted
    
    
    396
    
    
    
    1.49Options exercised
    
    
    (171
    )
    
    
    1.19Options canceled
    
    
    (39
    )
    
    
    1.21Options expired
    
    
    (2
    )
    
    
    1.20Balances at December 31, 2002
    
    
    395
    
    
    
    1.48Options granted
    
    
    767
    
    
    
    4.28Options exercised
    
    
    (99
    )
    
    
    1.79Options canceled
    
    
    (99
    )
    
    
    1.95Options expired
    
    
    (2
    )
    
    
    1.73Balances at December 31, 2003
    
    
    962
    
    
    
    3.66
 59




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##### Table of Contents



Additional information regarding stock options outstanding under the
Companys stock option plans as of December 31, 2003 is as follows (in
thousands, except per share data): Options Outstanding
    
    Options VestedWeighted/Average
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    average
    
    
    
    
    
    averageNumber
    
    Contractual
    
    exercise
    
    Number
    
    exerciseExercise Price
    
    Outstanding
    
    Life/yrs
    
    price
    
    Vested
    
    price$0.45
    
    
    3
    
    
    
    4.2
    
    
    $
    0.45
    
    
    
    3
    
    
    $
    0.45$1.20
    
    
    131
    
    
    
    8.0
    
    
    $
    1.20
    
    
    
    58
    
    
    $
    1.20$1.80
    
    
    259
    
    
    
    9.1
    
    
    $
    1.80
    
    
    
    75
    
    
    $
    1.80$2.70
    
    
    320
    
    
    
    9.6
    
    
    $
    2.70
    
    
    
    25
    
    
    $
    2.70$2.97
    
    
    100
    
    
    
    9.6
    
    
    $
    2.97
    
    
    
    8
    
    
    $
    2.97$4.50
    
    
    16
    
    
    
    9.8
    
    
    $
    4.50
    
    
    
    0
    
    
    $
    4.50$9.00 - $12.60
    
    
    133
    
    
    
    9.9
    
    
    $
    12.46
    
    
    
    4
    
    
    $
    12.60962
    
    
    
    
    
    
    $
    3.66
    
    
    
    173
    
    
    $
    1.97
 2003 Employee Stock Purchase Plan The 2003 Employee Stock Purchase Plan (the purchase plan) was adopted in
August 2003 and became effective upon the closing of the initial public
offering. The Board of Directors may suspend or terminate the purchase plan at
any time. Unless terminated earlier, the purchase plan shall terminate at the
time that all of the shares of common stock reserved for issuance under the
plan have been issued under the terms of the plan. The purchase plan provides
for the issuance of 100,000 shares of common stock under the plan. Authorized
shares shall be increased on the first day of the Companys fiscal year, from
2004 until 2023, by the lesser of 166,666 shares or 1.5% of the number of
shares of common stock outstanding on that date, however, the Board of
Directors has the authority to designate a smaller number of shares by which
the authorized number of shares of common stock will be increased on that date.
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Code. As of December 31, 2003, no
shares of common stock had been purchased under the purchase plan. The shares
reserved under the purchase plan were increased by 166,666 on January 1, 2004
in accordance with the terms of the plan as noted above. The purchase plan permits employees to purchase the Companys common stock
through payroll deductions of up to 15% of the participants earnings, or
through a single lump sum cash payment in the case of the first offering
period, subject to a maximum annual contribution of $25,000. The first offering
began on the effective date of the initial public offering and will be
approximately 24 months in duration with purchases occurring every six months.
The purchase plan contains successive six-month offering periods and the price
of common stock purchased under the purchase plan is equal to the lower of 85%
of the fair market value of a share of our common stock at the beginning of the
offering period or at the end of the offering period. There were no
participant withholdings for the purchase plan as of December 31, 2003. 401(k) Savings Plan On January 1, 1998, the Company began a 401(k) savings plan (the 401(k)
plan). The 401(k) plan is a defined contribution plan intended to qualify
under Section 401(a) and 401(k) of the Internal Revenue Code. All full-time
employees of the company are eligible to participate pursuant to the terms of
the 401(k) plan. Contributions by the Company are discretionary and the Company
has made no contributions for all periods presented. NOTE 10  INCOME TAXES: As of December 31, 2003, the Company has federal net operating loss
carryforwards of approximately $58,870,000, which expire beginning in the year
2011, if not utilized. The Company has state net operating losses carryforwards
of approximately $5,321,000 which expire beginning in 2004, if not utilized.
The Company also has
federal and state research and development tax credit carryforwards of
approximately $1,546,000 and $1,585,000, respectively. The federal research and
development tax credits will begin to expire in the year 2011 and state
research and development tax credits have no expiration date. 60




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Utilization of the net operating loss carryforwards and credits may be
subject to a substantial annual limitation due to an ownership change as
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization. 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 and liabilities are as follows: December 31,2002
    
    2003(in thousands)Deferred tax assets:Net operating loss carryforwards
    
    $
    12,400
    
    
    $
    20,327Capitalized research
    
    
    1,400
    
    
    
    2,898Research credits
    
    
    1,700
    
    
    
    2,656Other
    
    
    370
    
    
    
    584Total deferred tax assets
    
    
    15,870
    
    
    
    26,465Valuation allowance
    
    
    (15,870
    )
    
    
    (26,465
    )Net deferred tax assets
    
    $
    
    
    
    $
    
 Realization of deferred tax assets is dependent upon future earnings.
Management believes that, given the Companys historical cumulative losses and
the uncertainty regarding future profitability, it is more likely than not that
the deferred tax assets will not be utilized. Accordingly, a full valuation
allowance has been recorded for all periods presented. The change in the
valuation allowance was $4,100,000, $8,170,000 and $10,595,000 for the years
ended December 31, 2001, 2002 and 2003, respectively. The effective tax rate of 0% in all periods presented differs from the
applicable U.S. statutory federal income tax rate primarily as a result of the
full valuation allowance. NOTE 11QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents certain unaudited quarterly financial
information for the eight quarters ended December 31, 2003. In managements
opinion, this information has been prepared on the same basis as the audited
financial statements and includes all adjustments necessary to present fairly
the unaudited quarterly results of operations set forth herein. First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(in thousands, except per share data)2003Net loss
attributable to common stockholders
    
    
    (5,134
    )
    
    
    (24,941
    )
    
    
    (10,495
    )
    
    
    (8,300
    )Net loss per
share attributable to common stockholders, basic and diluted
    
    
    (2.89
    )
    
    
    (13.74
    )
    
    
    (5.62
    )
    
    
    (0.89
    )2002Net loss
attributable to common stockholders
    
    
    (4,296
    )
    
    
    (5,377
    )
    
    
    (5,110
    )
    
    
    (5,081
    )Net loss per
share attributable to common stockholders, basic and diluted
    
    
    (2.57
    )
    
    
    (3.16
    )
    
    
    (2.96
    )
    
    
    (2.92
    )
 61




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and proceduresBased on their
evaluation as of as of the end of the period covered by this Annual Report, our
principal executive officer, who is also our principal financial officer, has
concluded that our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended
(the Exchange Act)) (1) were sufficiently effective to ensure that the
information required to be disclosed by us in the reports that we file under
the Exchange Act is gathered, analyzed and disclosed with adequate timeliness,
accuracy and completeness and (2) provide reasonable assurance that information
required to be disclosed by us in the reports that it files or submits under
the Exchange Act, including information regarding its consolidated
subsidiaries, is recorded, processed, summarized and reported within the time
periods specified by the SEC. Changes in internal controls.There have been no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referred to above, nor were
there any significant deficiencies or material weaknesses in our internal
controls. Accordingly, no corrective actions were required or undertaken. Limitations on the effectiveness of controls. Our management, including
our chief executive officer/acting chief financial officer, does not expect
that our disclosure controls and procedures or our internal controls will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. Accordingly,
our disclosure controls and procedures are designed to provide reasonable, not
absolute, assurance that the objectives of our disclosure control system are
met and, as set forth above, our chief executive officer/acting chief financial
officer has concluded, based on his evaluation, that our disclosure controls
and procedures were sufficiently effective as of December 31, 2003 to provide
reasonable assurance that the objectives of our disclosure control system were
met. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item concerning the Companys directors will be
contained under the captions Election of Class I Directors and Section 16(a)
Beneficial Ownership Reporting Compliance in Genitope definitive proxy
statement with respect to our 2004 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after the end of the Companys fiscal year ended
December 31, 2003 (the Proxy Statement), and is hereby incorporated by
reference thereto. Certain information required by this item concerning the
Companys executive officers is contained in this Annual Report on Form 10-K
under Item 1. Business- Executive Officers of the Registrant. Certain
additional information required by this item concerning the Companys executive
officers will be contained under the captions Executive Officers and Key
Employees, Executive Compensation and Section 16(a) Beneficial Ownership
Reporting Compliance in the Proxy Statement, and is hereby incorporated by
reference thereto. Information concerning our code of ethics is contained in this Annual Report on
Form 10-K under Item 1. Business Available Information. 62




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION Information required by this item will be contained in the Proxy Statement
under the caption Executive Compensation, and is hereby incorporated by
reference thereto. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS Information required by this item will be contained in the Proxy Statement
under the captions Security Ownership of Certain Beneficial Owners and
Management and Equity Compensation Plan Information, and is hereby
incorporated by reference thereto. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item will be contained in the Proxy Statement
under the caption Certain Transactions, and is hereby incorporated by
reference thereto. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information required by this item will be contained in the Proxy Statement
under the caption Auditors Fees, and is hereby incorporated by reference
thereto. 
 PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are being filed as part of this report:  (1) The following financial statements of the Company and the Report of
the Independent Auditors are included in Part II, Item 8: Page #Report of PricewaterhouseCoopers LLP, Independent Auditors
    
    
    43Consolidated Balance Sheets
    
    
    44Consolidated Statements of Operations
    
    
    45Consolidated Statements of Stockholders Equity (Deficit)
    
    
    46Consolidated Statements of Cash Flows
    
    
    48Notes to Consolidated Financial Statements
    
    
    49
  (2) All financial statement schedules are omitted because the information
is inapplicable or presented in the Notes to Consolidated Financial
Statements.  (3) The items listed on the Index to Exhibits on pages 68 through 69 are
incorporated herein by reference. (b) Reports on Form 8-K.  On December 12, 2003, the Company issued a press release announcing the
Companys third quarter financial results for the period ended September 30,
2003. A copy of the press release was attached as Exhibit 99.1 to a current
report on Form 8-K filed on December 12, 2003. 63




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redwood City, State of California, on March 26,
2004. GENITOPE CORPORATIONBy:
    /s/ Dan W. Denney Jr.Dan W. Denney Jr.Chief Executive Officer Know All Persons by these Presents, that each person whose signature
appears below constitutes and appoints Dan W. Denney Jr.his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report on Form 10-K has been signed by the following persons on
behalf of the Registrant and of the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Dan W. Denney Jr.

       Dan W. Denney Jr., Ph.D.
    
    Chief Executive
Officer, Acting
Chief Financial
Officer and
Director
(Principal
Executive Officer
and Principal
Financial and
Accounting Officer)
    
    March 26, 2004/s/ Gregory Ennis

       Gregory Ennis
    
    Director
    
    March 26, 2004/s/ Stanford Finney

       Stanford Finney
    
    Director
    
    March 26, 2004/s/ Gordon D. Denney

       Gordon D. Denney
    
    Director
    
    March 26, 2004/s/ William A. Hasler

       William A. Hasler
    
    Director
    
    March 26, 2004/s/ Nicholas J. Simon III

       Nicholas J. Simon III
    
    Director
    
    March 26, 2004
 64




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INDEX TO EXHIBITS ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Genitope Corporation. (1)3.2
    
    Amended and Restated Bylaws of Genitope Corporation (1)4.1
    
    Specimen Common Stock Certificate. (1)4.2
    
    Investor Rights Agreement, dated August 29, 2003, by and among Registrant and certain investors
named therein. (1)4.3
    
    Warrant, dated July 19, 1999, between the Registrant and Silicon Valley Bank. (1)4.4
    
    Series F Warrant, dated August 29, 2003, between the Registrant and Stanford C. Finney. (1)10.1
    
    Form of Indemnity Agreement entered into by Registrant with each of its directors and certain
executive officers. (1)10.2
    
    Employment Agreement, dated January 21, 2002, between the Registrant and Fred Kurland. (1)10.3*
    
    1996 Stock Option Plan and form of related agreements. (1)10.4*
    
    2003 Equity Incentive Plan and Form of Stock Option Agreement under the 2003 Equity Incentive
Plan. (1)10.5*
    
    2003 Non-Employee Directors Stock Option Plan and Form of Nonstatutory Stock Option Agreement
under the 2003 Non-Employee Directors Stock Option Plan. (1)10.6*
    
    2003 Employee Stock Purchase Plan and Form of 2003 Employee Stock Purchase Plan Offering. (1)10.7
    
    Sublease, dated August 3, 1999, between Regen Biologics, Inc. and the Registrant. (1)10.8
    
    Second Amendment to Sublease, dated October 1, 2000, between Regen Biologics, Inc. and the
Registrant. (1)10.9
    
    Third Amendment to Sublease, dated May 16, 2003, between Regen Biologics, Inc. and the
Registrant. (1)10.10
    
    Lease, dated April 10, 1996, between Metropolitan Life Insurance Company and Regen Biologics,
Inc. (1)10.11
    
    Sublease, dated July 7, 2001, between Openwave Systems, Inc. and the Registrant. (1)10.12
    
    First Amendment to Sublease, dated January 1, 2003, between Openwave Systems, Inc. and the
Registrant. (1)10.13
    
    Lease, dated January 21, 2000, between Phone.com, Inc. and Metropolitan Life Insurance Company.
(1)10.14
    
    Sublease, dated as of June 22, 1997, between Genelabs Technologies, Inc. and the Registrant. (1)10.15
    
    Fourth Amendment to Sublease Agreement, dated November 1, 2002, between Genelabs Technologies,
Inc. and the Registrant. (1)10.16
    
    Industrial Net Lease, dated July 29, 1986, between Lincoln Property Company N.C., Inc. and
Genelabs Technologies, Inc. (1)10.17**
    
    Supply Agreement, dated December 9, 1998, between the Registrant and biosyn Arzneimittel GmbH,
and Amendment to Supply Agreement, dated March 25, 2000. (1)10.18
    
    Loan Agreements, dated July 28, 2003, by and among the Registrant, Stanford C. Finney and Bank
One, N.A., as amended by Omnibus Addendum to Promissory Notes and Related Agreements, dated
August 1, 2003. (1)23.1
    
    Consent of PricewaterhouseCoopers LLP, Independent Accountants.




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##### Table of Contents



ExhibitNumber
    
    Description24.1
    
    Power of Attorney (contained on signature page).31.1
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a)32.1
    
    Certification by the Chief Executive Officer and the Acting Chief Financial Officer of Genitope
Corporation, as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C.1350)
   *
    
    Management contract or compensatory plan.**
    
    Confidential treatment granted for certain omitted portions of this exhibit.1.
    
    Filed as an Exhibit to Genitope Corporations Registration Statement on
Form S-1 (File No. 333-107719), as filed with the Securities and Exchange
Commission on August 6, 2003, as amended, and incorporated herein by
reference.