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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|                                  |  |                                                                                                                                                                           
|--------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)                        |  |                                                                                                                                                                           
|þ                                 |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE
    SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2002                              
|or                               
|o                                 |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
    For the transition period
    from                to                .
|Commission file number: 000-22891

Corixa Corporation

(Exact name of registrant as specified in its
charter)


|                                                                           |  |                                                   
|-------------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or other jurisdiction of
    incorporation or organization) |  | 91-1654387(I.R.S. Employer
    Identification No.)

1124 Columbia St., Suite 200

Seattle, WA 98104


(Address of principal executive offices,
including zip code)


Registrants telephone number, including
area code: (206) 754-5711

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.001 par value per
share


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 þ          NO o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     YES þ          NO o

The aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately
$263,261,858 million as of February 18, 2003, based
upon the closing sale price on the Nasdaq National Market
reported for such date. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of
the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination
for other purposes.

There were 50,229,992 shares of the
registrants Common Stock outstanding as of February 18,
2003.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates information by
reference to the Registrants Proxy Statement for its 2003
Annual Meeting of Stockholders.









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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosure About Market Risk                           
|              | Item 8. Financial Statements and Supplementary Data                                          
|              | Item 9. Changes in and Disagreements with Accountants and Financial Disclosure               
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                  
|              | Item 11. Executive Compensation                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13. Certain Relationships and Related Transactions                                      
|              | Item 14. Controls and Procedures                                                             
|PART IV      
|              | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                    
|EXHIBIT INDEX
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 10.15
|EXHIBIT 10.16
|EXHIBIT 10.17
|EXHIBIT 10.51
|EXHIBIT 10.62
|EXHIBIT 10.63
|EXHIBIT 10.76
|EXHIBIT 10.83
|EXHIBIT 10.84
|EXHIBIT 10.85
|EXHIBIT 10.86
|EXHIBIT 10.87
|EXHIBIT 10.88
|EXHIBIT 10.89
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 99.1 



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CORIXA CORPORATION

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002


TABLE OF CONTENTS

|           |  |                                                                                           |  |  |    | 
|---------- |  | ----------------------------------------------------------------------------------------- |  |  | -- | 
|PART I    
|Item 1.    |  | Business                                                                                  |  |  | 2  | 
|Item 2.    |  | Properties                                                                                |  |  | 26 | 
|Item 3.    |  | Legal Proceedings                                                                         |  |  | 27 | 
|Item 4.    |  | Submissions of Matters to a Vote of Security
    Holders                                  |  |  | 27 | 
|PART II   
|Item 5.    |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |  |  | 27 | 
|Item 6.    |  | Selected Consolidated Financial Data                                                      |  |  | 29 | 
|Item 7.    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |  | 31 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosure About
    Market Risk                             |  |  | 44 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                               |  |  | 60 | 
|Item 9.    |  | Changes in and Disagreements with Accountants and
    Financial Disclosure                |  |  | 87 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                        |  |  | 87 | 
|Item 11.   |  | Executive Compensation                                                                    |  |  | 87 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |  | 87 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                            |  |  | 87 | 
|Item 14.   |  | Controls and Procedures                                                                   |  |  | 87 | 
|PART IV   
|Item 15.   |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |  | 87 | 
|Signatures |  |                                                                                           |  |  | 95 | 

In this Annual Report Corixa or the
company, we, us and
our refer to Corixa Corporation and our wholly owned
subsidiaries.

CORIXA®, BEXXAR®, ANERGIX®,
ANERGEN® and the Corixa logo are registered trademarks and
MELACINETM, MPLTM,
ANERGIX.MGTM, ANERGIX.MSTM,
ANERGIX.RATM, ENHANZYNTM, POWERED BY
CORIXATM and the BEXXAR logo are trademarks of Corixa
Corporation. All other brand names, trademarks or service marks
referred to in this Annual Report are the property of their
respective owners.

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##### Table of Contents






PART I

Our disclosure and analysis in this Annual Report
and the documents incorporated by reference contain
forward-looking statements, which provide our current
expectations or forecasts of future events. Forward-looking
statements include, without limitation:



| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | information concerning possible or assumed future
    results of operations, trends in financial results and business
    plans, including those relating to earnings growth and revenue
    growth;            
|
| |  | statements about the level of our costs and
    operating expenses relative to our revenues, and about the
    expected composition of our revenues;                                                            
|
| |  | statements about our product development schedule;                                                                                                                                                              
|
| |  | statements about our expectations for regulatory
    approval of any of our product candidates;                                                                                                                 
|
| |  | statements regarding expected payments under
    collaboration agreements;                                                                                                                                      
|
| |  | statements about our future capital requirements
    and the sufficiency of our cash, cash equivalents, investments
    and available equity line facilities and bank borrowings to meet
    these requirements;
|
| |  | statements about our future operational and
    manufacturing capabilities;                                                                                                                                     
|
| |  | other statements about our plans, objectives,
    expectations and intentions; and                                                                                                                              
|
| |  | other statements that are not historical facts.                                                                                                                                                                 

Words such as believes,
anticipates, expects and
intends may identify forward-looking statements, but
the absence of these words does not necessarily mean that a
statement is not forward-looking. Forward-looking statements are
subject to known and unknown risks and uncertainties and are
based on potentially inaccurate assumptions that could cause
actual results to differ materially from those expected or
implied by the forward-looking statements. Our actual results
could differ materially from those anticipated in the
forward-looking statements for many reasons, including the
factors described in the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Important
Factors That May Affect Our Business, Our Results of Operations
and Our Stock Price in this Annual Report. Other factors
besides those described in this Annual Report could also affect
actual results. You should carefully consider the factors
described in the section entitled Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Important Factors That May Affect Our
Business, Our Results of Operations and Our Stock Price in
evaluating our forward-looking statements.

You should not unduly rely on these
forward-looking statements, which speak only as of the date of
this Annual Report. We undertake no obligation to publicly
revise any forward-looking statement to reflect circumstances or
events after the date of this Annual Report or to reflect the
occurrence of unanticipated events. You should, however, review
the factors and risks we describe in the reports we file from
time to time with the SEC after the date of this Annual Report.




Item 1.     Business

Overview

For over eight years, we have been engaged in
discovery and development of innovative immunotherapeutic
products, products that work by affecting the immune system, to
address debilitating and life-threatening conditions caused by
cancer, infectious disease and autoimmune disease. Creating
successful immunotherapeutic products requires understanding and
directing the bodys immune system to prevent and fight
disease. Variations in disease-causing organisms and human
genetics make immunotherapeutic product development a
challenging and complex undertaking, but one that we believe
will have a significant impact on human health in the coming
years.

We were originally incorporated in Delaware as
WWE Corp. on Sept. 8, 1994. Our headquarters and our
primary research and process development as well as clinical and
regulatory operations are in Seattle,

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Washington, our adjuvant manufacturing operations
are in Hamilton, Montana and our BEXXAR therapy (tositumomab and
iodine I 131 tositumomab), or BEXXAR therapy, operations are in
South San Francisco, California. We make available on our
website, free of charge, copies of our annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as soon as reasonably
practicable after filing or furnishing the information to the
SEC. The Internet address for the information is
http://www.shareholder.com/corixa/edgar.cfm.


Originally founded to pursue development of
leading, proprietary antigen discovery technology, we are
emerging as a product development company with multiple product
candidates in human clinical trials. We are driven by a
commercialization strategy that we believe will give us the
opportunity for sustained and consistent product
commercialization in the long term.

Key factors in the implementation of our strategy
include prioritization and development of product candidates
that we believe have the potential for commercialization and
execution of focused preclinical programs that we intend to move
into the clinic on a consistent basis.

Key Developments

On December 17, 2002 we presented data on
BEXXAR therapy, our most advanced product candidate, at an
Oncologics Drug Advisory Committee, or ODAC, meeting. ODAC
agreed that the data from clinical trials of BEXXAR therapy
provided substantial evidence of clinical benefit in
rituximab-refractory patients and clinical utility in
chemotherapy-refractory, low-grade and follicular
non-Hodgkins lymphoma, or NHL, with or without
transformation. The United States Food and Drug Administration,
or FDA, is not bound by ODACs action, but often takes
ODACs recommendations into consideration when determining
marketing approval of a new product. The new Prescription Drug
User Fee Act goal date for the FDA to complete its review of all
materials regarding BEXXAR therapy is May 2, 2003. The
FDAs action by that date could include approval to market
BEXXAR therapy, non-approval to market BEXXAR therapy or a
request for more information.

Product Development

Using four primary therapeutic approaches, we are
developing innovative immunotherapeutic products that address a
range of cancers, infectious diseases and autoimmune diseases.
Our primary therapeutic approaches include:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | antibody-based therapeutics;                                                           
|
| |  | therapeutic vaccines for cancer and infectious
    disease;                            
|
| |  | agonists and antagonists of innate immune
    responses; and                           
|
| |  | adjuvants designed to increase the effectiveness
    of our and our partners vaccines.

In addition, we are developing a select group of
other immunotherapeutics to address certain autoimmune diseases
and other indications.

We have one product on the market in Canada and
together with our partners, we are conducting late-stage
clinical trials for several product candidates targeting a range
of cancers, infectious diseases and autoimmune diseases.

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The following table outlines our significant
product candidates that are at the clinical stage. These
programs, as well as our programs in earlier stages of
development are described more fully in the sections following
the table below.

|                                                           |  |                                                                                                                            |  |                                                                                            |  |                                                     |  |  |  |  |  | 
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------------------------------------------- |  |  |  |  |  | 
|Product in Clinical Trials                                 |  | Disease/Indication                                                                                                         |  | Development Phase                                                                          |  | Partner(s)                                         
|                                                           |  |                                                                                                                            |  |                                                                                            |  |                                                    
|Antibody-based Therapeutics                                |  |                                                                                                                            |  |                                                                                            |  |                                                     |  |  |  |  |  | 
|BEXXAR therapy                                             |  | Low-grade and transformed NHL                                                                                              |  | Corixa U.S. Phase III BLA under review in U.S.; other Phase III trials ongoing             |  | GSK in the United States; Amersham Health in Europe
|Therapeutic Vaccines for Cancer and
    Infectious Disease |  |                                                                                                                            |  |                                                                                            |  |                                                     |  |  |  |  |  | 
|HER-2/neu vaccine                                          |  | Breast cancer                                                                                                              |  | Corixa U.S. Phase I, GSK U.S. Phase I expected in 2003                                     |  | GSK                                                
|MELACINE vaccine                                           |  | Melanoma  Stage IV                                                                                                        |  | For sale in Canada                                                                         |  | Distributed by Schering Canada                     
|MELACINE vaccine                                           |  | Melanoma  Stage II                                                                                                        |  | Corixa U.S. Phase III                                                                      |  | Unpartnered                                        
|Tuberculosis vaccine                                       |  | Tuberculosis                                                                                                               |  | Corixa U.S. Phase I initiation expected in 2003                                            |  | GSK                                                
|Leishmaniasis vaccine                                      |  | Leishmaniasis                                                                                                              |  | Corixa U.S. Phase I initiated in 2003                                                      |  | IDRI, Gates Foundation                             
|Adjuvants                                                  |  |                                                                                                                            |  |                                                                                            |  |                                                     |  |  |  |  |  | 
|MPL adjuvant                                               |  | Hepatitis B adjuvant component in Engerix B                                                                                |  | GSK E.U. Phase III                                                                         |  | GSK                                                
|MPL adjuvant                                               |  | Certain allergies  adjuvant component in ATLs Pollinex Quattro for allergies caused by grasses, trees, weeds and pollens |  | ATL E.U. Phase III  approved on named patient basis in Germany, Spain, Italy and the U.K. |  | Allergy Therapeutics                               
|RC-529 adjuvant                                            |  | Hepatitis B adjuvant component in Berna Biotechs Hepatitis B vaccine                                                      |  | Berna Biotech Argentinean Phase III                                                        |  | Berna Biotech                                      
|ENHANZYN adjuvant                                          |  | Breast cancer adjuvant component in Biomiras THERATOPE                                                                    |  | Biomira U.S. Phase III                                                                     |  | Biomira                                            
|ENHANZYN adjuvant                                          |  | Colorectal cancer adjuvant component in Biomiras THERATOPE                                                                |  | Biomira U.S. Phase II                                                                      |  | Biomira                                            
|ENHANZYN adjuvant                                          |  | Melanoma adjuvant component in our MELACINE vaccine                                                                        |  | MELACINE for sale in Canada;                                                               |  | Distributed by Schering Canada                     
|ENHANZYN adjuvant                                          |  | Melanoma adjuvant component in our MELACINE vaccine                                                                        |  | Corixa U.S. Phase III                                                                      |  | Unpartnered                                        

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|                           |  |                            |  |                      |  |                                                      |  |  |  |  |  | 
|-------------------------- |  | -------------------------- |  | -------------------- |  | ---------------------------------------------------- |  |  |  |  |  | 
|Product in Clinical Trials |  | Disease/Indication         |  | Development Phase    |  | Partner(s)                                          
|                           |  |                            |  |                      |  |                                                     
|Other Disease Therapeutics |  |                            |  |                      |  |                                                      |  |  |  |  |  | 
|PVAC treatment             |  | Mild to moderate Psoriasis |  | Corixa U.S. Phase II |  | Medicis Pharmaceutical Corporation and Zenyaku Kogyo
|PVAC treatment             |  | Scleroderma                |  | Corixa U.S. Phase I  |  | Unpartnered                                         

In the column entitled Development
Phase:



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Phase I means products that are in,
    or have completed, Phase I clinical trials, performed to
    evaluate safety;                                         
|
| |  | Phase II means products that are in,
    or have completed, Phase II dose-ranging clinical testing,
    being tested to further determine safety and efficacy;
|
| |  | Phase III means products that
    are in, or have completed, Phase III clinical testing,
    being tested to determine efficacy; and                          
|
| |  | BLA means the product is the subject
    of a biologics license application under review by the FDA.                                                          

Antibody-Based Therapeutics

We maintain a highly focused discovery,
development and commercialization program to provide viable
monoclonal antibody candidates for the treatment of certain
types of cancer. BEXXAR therapy continues to be a focal point
for us and our co-developers GlaxoSmithKline, or GSK, and
Amersham Health, a subsidiary of Amersham plc. Through a
combination of internal discovery efforts and external
collaborations, we, with our partners, intend to take a number
of early-stage monoclonal antibody candidates into clinical
testing over the next several years.

BEXXAR Therapy.BEXXAR therapy is our investigational
radioimmunotherapy for the treatment of low-grade or transformed
low-grade NHL. We are co-developing BEXXAR therapy with GSK in
the United States and with Amersham Health in Europe.

NHL is a form of cancer that affects the blood,
bone marrow and lymphatic tissues. NHL is the fifth leading
cause of cancer death in the United States and has the second
fastest growing mortality rate. According to statistics from the
National Cancer Institute, approximately 300,000 people have
been diagnosed with NHL in the United States alone. Of those
diagnosed, there are an estimated 140,000 people with low-grade
NHL or transformed low-grade NHL, a difficult to treat, and
particularly deadly form of the disease. In 2000, there were
approximately 55,000 new diagnoses of NHL and 25,000 deaths
attributable to NHL in the United States. The incidence of NHL
increases with age, and there has been an increase in
age-adjusted incidence of approximately 1 to 2% annually for the
last four decades. The incidence of NHL has increased by 50%
over the last 15 years and is expected to increase further
with increases in expected longevity of the population.

BEXXAR therapy combines the targeting ability of
a monoclonal antibody and the therapeutic potential of
radiation, with patient-specific dosing. The radiolabeled
monoclonal antibody attaches to the target molecule CD20 found
on NHL cells, thereby delivering a dose of Iodine-131 radiation
and mediating a therapeutic immune response to the tumor cells.
BEXXAR therapy is the only investigational NHL therapy that is
precisely dosed based on individual drug clearance rates that
result from such factors as tumor size and metabolism.
Patient-specific dosing allows for the delivery of a predictable
amount of radiation to each patient.

On December 17, 2002 we presented data on
BEXXAR therapy at an ODAC meeting. ODAC agreed that the data
from clinical trials of BEXXAR therapy provided substantial
evidence of clinical benefit in rituximab-refractory patients
and clinical utility in chemotherapy-refractory, low-grade and
follicular NHL, with or without transformation. The FDA is not
bound by ODACs action, but often takes ODACs

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recommendations into consideration when
determining marketing approval of a new product. The new
Prescription Drug User Fee Act goal date for the FDA to complete
its review of all materials regarding BEXXAR therapy is
May 2, 2003.


GM-2.We are
developing an antibody for cancer therapy that reacts to a
molecule that is over-expressed on the cell surface of multiple
tumor types, including small cell lung cancer, or SCLC, melanoma
and multiple myeloma. Our antibody is a chimeric human
monoclonal antibody that has demonstrated, in preclinical
studies, the ability to induce apoptosis, or programmed cell
death, in tumor cell lines and to suppress tumor formation in
rodent models.

The American Cancer Society, or the ACS,
estimates that out of the 170,000 new cases of lung cancer each
year, approximately 34,000 will be SCLC. Standard methods for
treatment of SCLC are primarily chemotherapy and radiation.
These standard treatments do not produce durable responses in
most SCLC patients, which leads to a poor prognosis for
survival. In addition, the ACS estimates that there are 47,700
new cases of melanoma each year in the United States. Surgery,
chemotherapy, radiation and biotherapy are the standard methods
for treating melanoma. For the majority of patients who are
diagnosed in the later stages of melanoma, these standard
treatments do not produce durable responses, which leads to a
poor prognosis for survival. According to the World Health
Organization, or the WHO, there are approximately 14,000 new
cases of multiple myeloma each year in the United States.
Standard methods of treatment of multiple myeloma are
chemotherapy and bone marrow transplants. These standard
treatments do not produce durable responses which also leads to
a poor prognosis for survival.

Other Antibody-based Therapeutics.We are developing a monoclonal
antibody-based cancer therapeutic in a collaborative effort with
Medarex, Inc., or Medarex. In 2000, we initiated a collaboration
with Medarex to discover and develop fully human monoclonal
antibodies against selected targets from our library of
proprietary cancer, infectious disease and autoimmune disease
antigens. Medarex contributed its HuMAb-Mouse® technology
to the multiyear collaboration, targeted to generate, screen and
characterize fully human monoclonal antibodies directed against
our antigens. In May 2002, we amended and restated this
collaboration to cover the development and potential
commercialization of monoclonal antibody products directed
against one of our cancer antigens.

We are also developing a monoclonal
antibody-based therapeutic in collaboration with Purdue Pharma
L.P., or Purdue Pharma, for the potential treatment of female
reproductive tract cancer.

Therapeutic Vaccines For Cancer And Infectious
Disease

An important focus of our research and
development in cancer and infectious disease vaccines is to
target a therapeutic cellular immune response, or more
specifically the activation of specialized T cells that
recognize and kill pathogen-infected tissue or tumor cells. Most
marketed vaccines today stimulate a humoral, or antibody,
response based on specialized immune system cells known as B
cells. While vaccines that rely on humoral immunity have proven
useful in the setting of prophylaxis of infection, these
vaccines have typically failed to generate a sufficiently robust
cellular immune response to eliminate tumors and ongoing
infections. We believe that an effective therapeutic immune
response to particular cancers, infectious diseases and
autoimmune diseases is likely to require components of both a
humoral and a cellular immune response.

Cancer Vaccines

To induce cytotoxic T cells for therapy of cancer
tumors, we focus our discovery efforts on three complementary
technologies: proprietary tumor-specific antigens, vaccine
adjuvants, and vaccine delivery systems. Since 1995, we have
aggressively researched and discovered numerous tumor-specific
antigens in the major solid and hematological tumors. Our
ability to characterize the immunological properties of these
antigens has allowed us to select the antigens that we believe
will work most effectively in a vaccine. In the selection
process, we focus on antigens that are recognized by the
greatest percentage of individuals, that stimulate the most
potent immune responses, and that are expressed by the greatest
percentage of patients. We then screen the antigens as vaccine
candidates with our proprietary adjuvants and vaccine delivery
systems to identify the most promising vaccine formulations.

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HER-2/neu Breast Cancer Vaccine.Under our vaccine development
collaboration with GSK, we have developed a potential breast
cancer vaccine based on HER-2/neu, a well-established target in
the development of tumor malignancy. According to the ACS, more
than 200,000 people will be diagnosed with breast cancer this
year and an estimated 40,000 will die in the United States
alone. HER-2/neu is a protein that is normally expressed at very
low levels by cells of the breast, ovaries, skin, lung, liver,
intestines and prostate, but that is over expressed in 25-30% of
breast cancers. HER-2/neu is a growth factor receptor involved
in normal cell growth and differentiation. Gene amplification
and protein over expression of HER-2/neu are associated with
aggressive breast cancers and accelerated growth rates. In
preclinical models, potential vaccines can induce antibody and
T-cell responses against HER-2/neu protein that can kill cancer
cells that over express HER-2/neu. Accordingly, we have
identified a form of the HER-2/neu protein as a promising
candidate for therapeutic cancer vaccine development.

We and GSK expect to initiate a Phase I clinical
trial in 2003 to test the safety of a new therapeutic breast
cancer vaccine formulation that is designed to potentially
trigger both an antibody and T cell response to tumors that over
express the HER-2/neu protein. We and GSK designed the vaccine
formulation, which was derived in part from a series of Phase I
clinical trials conducted by the University of Washington and
us. The series of Phase I clinical trials tested HER-2/neu
vaccine formulations, including peptide and protein-based
vaccines, in patients with breast and ovarian cancer. The prior
HER-2/neu vaccine trials conducted at the University of
Washington by Dr. Mary L. Disis validated that HER-2/neu
vaccines can induce both antibody and T cell immune responses to
HER-2/neu.

Under an FDA Investigational New Drug
Application, or IND, filed in GSKs name, the FDA has
allowed us to proceed with a Phase I clinical trial that we and
GSK expect to initiate in 2003; GSK has produced the clinical
lots, and we and GSK have chosen the clinical sites. We and GSK
will test the vaccine in patients who have HER-2/neu positive
breast cancer in remission, but who are at high risk for
relapse. The clinical trial will test three dose levels of the
vaccine to determine the safety of the vaccine and to begin to
identify the optimal dose.

Lung Cancer Vaccine.We have characterized numerous
antigens discovered under our lung cancer collaborations with
Japan Tobacco Inc., or JT, and Zambon Group spa or its
subsidiaries, collectively referred to herein as Zambon. We have
identified a candidate antigen and the FDA has allowed us to
proceed with a Phase I clinical trial for non-SCLC that we
expect to initiate in 2003. According to the WHO, lung cancer is
the most deadly form of cancer worldwide (1.1 million
deaths) based on data from 2001. According to the ACS, in the
United States an estimated 169,400 new cases were diagnosed in
2002 and an estimated 154,900 died from the disease. Current
therapeutic options for patients diagnosed with lung cancer are
limited, and metastasis of the cancer following surgery of the
primary lesion is a common outcome.

Prostate Cancer Vaccine.Following completion of the discovery
phase of our vaccine collaboration agreement with GSK, we and
GSK have agreed to continue prostate cancer vaccine development
and to potentially conduct proof-of-principle clinical trials.
Under our new cancer vaccine collaboration with GSK, we have
identified a potential prostate cancer vaccine based on our lead
prostate cancer antigen. Other than skin cancers, prostate
cancer is the most commonly diagnosed cancer in men in the
United States. According to the ACS, in 2003 an estimated
220,900 patients will be diagnosed with prostate cancer and an
estimated 28,900 will die in the United States alone.

Hematologic Vaccines.We have continued our antigen
discovery programs in leukemia by partnering our WT1 vaccine
candidate for the treatment of hematologic, or blood-based,
tumors with Kirin Brewery Company, Ltd, or Kirin. In December
2002, we granted Kirin exclusive rights to WT1 in Asia/
Australasia and co-development rights in North America. The ACS
projects that 30,600 new cases of leukemia will be diagnosed in
the United States in 2003, and predicts that leukemia will cause
21,900 deaths in the United States in 2003. Current treatments
for hematologic tumors have improved recently through the
introduction of novel biological antibody therapies. Our
potential vaccine will address the need for an immunotherapeutic
that recruits the immune system to identify and eliminate the
tumor without the significant side effects of current
chemotherapeutic regimens.

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MELACINE Vaccine.Our MELACINE vaccine, approved and
available for sale in Canada, consists of lysed, or broken,
cells from two human melanoma cell lines combined with our
proprietary adjuvant, ENHANZYN adjuvant. As noted above,
melanoma is a prevalent and potentially fatal cancer. If not
detected and treated early, melanoma can metastasize and spread
to other parts of the body. Standard treatment of melanoma
includes surgery with observation follow-up for primary skin
tumors. In addition, certain chemotherapy drugs and alpha
interferon therapy have been approved for treatment of melanoma,
but confer minimal survival benefit to patients in the advanced
stages of the disease.

Following our presentation to ODAC in February
2002, ODAC endorsed our Phase III clinical trial design for
MELACINE melanoma vaccine. We presented results from the
Southwest Oncology Group trial that demonstrated MELACINE
vaccine is effective in prolonging relapse-free survival
(p = 0.005) and overall survival (p = 0.003)
compared with observation in patients who expressed HLA A2
and/or HLA C3. ODAC agreed that the proposed second
Phase III clinical trial, with overall survival as the
primary endpoint, in addition to the supportive data from the
first Phase III clinical trial, would be acceptable for approval
of MELACINE vaccine in the United States. In the event we
proceed with this Phase III clinical trial, we would
evaluate MELACINE vaccine versus observation in HLA A2
and/or HLA C3 positive, Stage II melanoma patients
following surgery.

Infectious Disease Vaccines

Our primary focus in infectious disease vaccine
development is to create vaccines that can be used as
therapeutics. Therapeutic infectious disease vaccines require
antigens that are specific to the pathogen of interest and that
are capable of being recognized by the patients immune
system. As with cancer vaccines, our approach combines the
benefits of disease specific antigens, potent adjuvants to
amplify recognition by the immune system, and novel delivery
systems to enable site specific delivery of the antigen to
lymphocytes and antigen-presenting cells, or cells that present
processed antigens to the immune system. Our potential
infectious disease, vaccines may, in addition to enabling
treatment of specific infections, also provide protection as
prophylactic vaccines.

Tuberculosis Vaccine.Our product candidate, which we are
developing in collaboration with GSK, is a combination of a
proprietary antigen with an adjuvant. Mycobacterium
tuberculosis, or Mtb, infection causes more deaths than any
other infectious disease in the world. Each year, according to
the WHO, approximately 8 million people worldwide become
sick with tuberculosis. According to the WHO statistics, an
estimated 2 million die annually from the disease. The WHO
estimates that between 2000 and 2020 nearly 1 billion
people will be newly infected with Mtb, 150 million people
will get sick and 36 million will die. According to the National
Institute of Allergy and Infectious Diseases, an estimated
2 billion people are infected with Mtb, including
approximately 15 million people in the United States. Any
of these people may develop active tuberculosis during the
course of their lives. In addition, the Sequella Global
Tuberculosis Foundation estimates that more than 50 million
people worldwide may be infected with drug-resistant strains of
tuberculosis. Our goal is to develop specific vaccines for both
conventional and drug-resistant strains of Mtb. We expect to
initiate a United States Phase I clinical trial in 2003.

Leishmaniasis
Vaccine.In March 2000, the Infectious Disease
Research Institute, or IDRI, received a $15 million grant
from the Bill & Melinda Gates Foundation to fund its ongoing
effort with us to develop a vaccine to prevent and treat
leishmaniasis. Leishmaniasis is a skin and visceral disease
endemic to South America, Africa, the Middle East and the Indian
subcontinent. Caused by the parasite Leishmania, the disease
afflicts at least 12 million people throughout the world
according to the WHO. In January 2003, we initiated a
Phase I clinical trial to test the safety and tolerability
of an investigational vaccine to treat various forms of
leishmaniasis. The investigational vaccine, identified as
Leish-111f, consists of a fusion of three Leishmania proteins in
combination with our proprietary MPL-SE adjuvant. We designed
the Phase I double-blind, randomized clinical trial to
evaluate the safety of Leish-111f plus adjuvant administered
subcutaneously to healthy adult volunteers at three dose levels,
as compared to adjuvant-alone and placebo-alone groups. The
Phase I clinical trial will evaluate the safety of
escalating doses of the vaccine, as well as its effects on the
immune response. We are conducting the Phase I clinical
trial in the United States under an IND.

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Other Infectious Disease Vaccines.We are identifying candidate Chlamydia
trachomatis, or C. trachomatis, antigens for use in a
potential preventative vaccine for C. trachomatis. This
pathogen causes the most common sexually transmitted disease in
the United States. Although C. trachomatis can be
transmitted during sexual contact with an infected partner, it
is often not diagnosed and treated until complications develop.
Studies show that as many as 85% of women and 40% of men with
chlamydial infections have no symptoms. The Center for Disease
Control, or CDC, estimates that in the United States alone,
there are over 4 million new cases each year. The highest
rates of chlamydial infections are among 15 to 19 year
olds, regardless of demographics or geographic location.
Complications from the disease include Pelvic Inflammatory
Disease, a serious cause of infertility among women of
childbearing age. Further, a woman may pass the infection to her
newborn during delivery, with subsequent neonatal eye infection
or pneumonia. The WHO estimates that 89 million
C. trachomatis infections occur each year. We conduct our
C. trachomatis program in collaboration with GSK pursuant
to a collaboration and license agreement with them.

Agonists and Antagonists

The Innate Immune Response.We have developed a class of synthetic
compounds that interact with a type of cell receptor that, when
stimulated, initiates the bodys innate immune response.
Innate immunity provides the first line of defense against a
variety of pathogens. A key component of innate immunity is a
family of cell-surface receptors that recognize molecular
signatures presented by invading microorganisms and are
involved in turning on and turning off critical aspects of the
innate immune response. Our synthetic compounds present such
molecular signatures to a class of these cell-surface receptors
know as toll-like receptors, or TLRs.

There are 10 kinds of TLRs, and each recognizes a
different type of antigen. Our synthetic compounds are
recognized by toll-like receptor 4, or TLR4, which can be found
on a range of antigen-presenting cell types, including
hematopoietic, or blood-forming, cells, many epithelial cells,
and cells associated with vascular stability. We are exploring
the use of these synthetic compounds as monotherapies based on
their recognition by TLR4 receptors, and their possible lack of
toxicity associated with natural TLR4 immunostimulants such as
lipopolysaccharide, or LPS.

We have discovered that some of our synthetic
compounds act as agonists, or stimulants, of the TLR4 based
innate immune response and some act as antagonists, or
deactivators, of this innate immune response. The structure of
each of our synthetic compounds differs slightly. Therefore, we
have screened each TLR4 agonist and antagonist for its ability
to protect the body from viral, bacterial, fungal and parasitic
infection. The variety of our compounds may give our TLR4
agonist and antagonist program multiple applications for
immunotherapy.

We intend to pursue several indications using our
TLR4 agonists and antagonists as stand alone immunotherapeutic
agents. Potential applications for the agonists include chronic
obstructive pulmonary disease, which is often triggered by
respiratory viral infections and so treatment with antibiotics
is often ineffective, upper airway resistance to biological
warfare agents, seasonal or constitutive rhinitis, allergies and
asthma. Potential applications for the antagonists include
inflammatory bowel disease, or IBD, and cystic fibrosis.

In June 2001, the Space and Naval Warfare, or
SPAWAR, Systems Center, granted us a $3.5 million contract
for a Defense Advanced Research Projects Agency, or DARPA,
sponsored program to develop methods of enhancing immune
responses to infectious diseases, including agents of biological
warfare. Pursuant to the DARPA program we have been studying the
potential use of our TLR4 agonists and antagonists for the
potential treatment and prevention of infectious disease.

TLR4 Agonist.We are
currently evaluating a TLR4 agonist lead candidate for use in
the treatment of atopic diseases, or genetically determined
hypersensitivity diseases such as hay fever and asthma. Our
preclinical studies indicate that our TLR4 agonist candidate is
absorbed into the body and biologically active at mucosal, or
mucous membrane, surfaces. The tolerability and effectiveness
demonstrated by preclinical mucosal delivery models indicate
that aqueous formulations of the agonist may have particular
utility in treating or preventing atopic diseases of the
respiratory tract.

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TLR4 Antagonist.Our
TLR4 antagonist lead candidate, has shown the ability to
quantitatively block signaling through TLR4 and therefore has
potential use as an anti-inflammatory compound in IBD and other
indications. Several formulations of the antagonist, including
an aqueous formula and stable emulsion formula may provide
unique benefits. We are also exploring whether the antagonist
may be formulated and delivered orally.

Adjuvants

An adjuvant is a formulated compound or additive
that, when combined with a vaccine, boosts the bodys
immune response to antigens contained in the vaccine. Our
adjuvant technology is based on the fact that certain microbial
products have long been recognized as potent immune system
regulators and have been shown to induce a broad range of known
cytokines, a class of substances that are produced by cells of
the immune system and can affect the immune response.
Modifications of these microbial products and their physical and
biological delivery to the immune system can influence the way
cytokines are expressed, as well as the recipients own
physiological responses. Such responses mimic the normal,
protective responses that are initiated during infection or
injury. With our partners, we are evaluating our adjuvants in
adult and pediatric vaccines that are designed to be safer and
more effective and to protect against a broad range of diseases.

MPL Adjuvant.Our
flagship adjuvant, MPL adjuvant, is a derivative of the lipid A
molecule found in gram-negative bacteria, one of the most potent
immune system stimulants. We also own patented technology for
extracting MPL adjuvant from bacterial cell walls. Several of
our partners are evaluating MPL adjuvant in vaccines for
development in allergy, cancer and infectious disease targets.
MPL adjuvant has been administered to more than
12,000 patients in more than 33,000 doses as a vaccine
adjuvant.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hepatitis B.In
    December 1998, GSK developed a new Hepatitis B vaccine,
    which includes MPL adjuvant, to address low- or nonresponding
    patients to GSKs current Hepatitis B vaccine,
    Engerix B. Engerix B is the leading Hepatitis B
    vaccine, with more than 450 million doses administered
    worldwide. GSKs new vaccine combines Engerix B with a
    GSK adjuvant, which contains MPL adjuvant. The resulting vaccine
    has an increased immune potency that allows it to be effective
    at two doses rather than three. We expect our partner, GSK, to
    file for European approval in early 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Allergies.Allergy
    Therapeutics Ltd., or ATL, incorporates MPL adjuvant as a
    component in ATLs Pollinex Quattro, an allergy vaccine,
    which is in Phase III clinical trials in Europe. ATL
    specifically targets allergies caused by grasses, trees, weeds
    and pollens. ATLs allergy vaccine has been approved for
    sale on a named patient basis in Germany, Spain, Italy and the
    U.K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Other Infectious Diseases.GSK incorporates MPL adjuvant as a
    component in its herpes, human papilloma virus, or HPV, and
    malaria vaccines. Herpes simplex virus, or HSV, infection is
    among the most common communicable diseases in humans.
    GSKs HSV vaccine, SimplirixTM entered into a
    Phase III clinical trial near the end of 2002 in HSV-1 and
    HSV-2 sero-negative women in the United States. According to the
    WHO, scientists believe that infections with oncogenic genotypes
    of HPV are responsible for most, if not all cervical cancers.
    Cervical cancer is the second leading cause of cancers in
    females worldwide, with approximately 500,000 new cases
    occurring annually. GSK is currently developing a prophylactic
    HPV vaccine covering the most prominent high-risk HPV types
    16-18. Malaria is one of the worlds leading causes of
    mortality and morbidity. According to the WHOs worldwide
    statistics, there are over 300,000 new cases of malaria and in
    excess of 1 million malaria-related deaths each year. GSK
    is conducting Phase I/ II clinical trials in children with its
    malaria vaccine.

RC-529 Adjuvant.Berna Biotech has administered RC-529
to patients as a vaccine adjuvant in Phase III clinical
trials in Argentina as part of their two-dose Hepatitis B
vaccine. Preliminary results indicate that patients achieved
more than 95% seroprotection after two injections within one
month. We are involved in multiple partnership discussions
pertaining to this novel vaccine adjuvant.

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ENHANZYN Adjuvant.The ENHANZYN adjuvant consists of the
MPL adjuvant and mycobacterial cell wall skeleton, structural
compounds from the bacteriums cell wall. Biomira Inc., or
Biomira, licensed ENHANZYN for use with its THERATOPE vaccines
for the potential treatment of breast, lung and gastrointestinal
cancers. THERATOPE is in Phase III clinical trials for
metastatic breast cancer, Phase II clinical trials for
treating colorectal and pancreatic cancers, and Phase IIb
clinical trials for treating non-small cell lung cancer.
ENHANZYN adjuvant is also a key component of our MELACINE
vaccine for melanoma.

Other Disease Therapeutics

We are also developing potential products based
on technology that may interrupt the chain of events involved in
certain autoimmune diseases. In contrast to todays
therapies, which often suppress the overall immune system, our
technologies may provide a means to target the disease process
while leaving the normal immune system unaffected.

Autoimmune diseases include psoriasis, rheumatoid
arthritis, or RA, multiple sclerosis, or MS, myasthenia gravis
or MG, and diabetes. T cells and antibodies in the
bodys immune system normally identify and destroy foreign
substances and malignant cells. Autoimmune diseases are caused
by the abnormal destruction of healthy body tissues when
T cells and antibodies react against normal tissue.

PVAC Treatment for Psoriasis.PVAC treatment, a chemically refined
preparation of Mycobacterium vaccae, is an immunotherapeutic
agent with potential utility for the treatment of select
autoimmune diseases. In collaboration with our partners Medicis
Pharmaceutical Corporation, or Medicis, Zenyaku Kogyo Co. Ltd.,
or Zenyaku Kogyo, and Genesis Research and Development
Corporation, Ltd., or Genesis, we are developing PVAC treatment
as a product candidate for treatment of mild to moderate
psoriasis, and are producing this product candidate for United
States clinical trials at our Hamilton, Montana facility.

Psoriasis, a chronic skin disease, affects an
estimated 75 million people worldwide. According to the
National Psoriasis Foundation, psoriasis affects more than
7 million Americans, or about 2.6% of the United States
population. Approximately 150,000 to 260,000 new cases of
psoriasis are diagnosed each year. Annual costs associated with
treating psoriasis in the United States are currently estimated
at $1.6 billion to $3.2 billion.

In February 2001 we, Medicis and Genesis
announced results of an initial Phase II four-arm,
randomized, double-blinded, controlled clinical trial,
suggesting that PVAC treatment therapy at a dose of
15 micrograms per injection provides appreciable clinical
benefit in patients with moderate to severe psoriasis. Although
results were encouraging in terms of patient improvement, we
believe that greater exposure to PVAC treatment may be required
to achieve a statistically significant effect. To that end we
are working to complete recruitment for a second double-blinded,
placebo-controlled United States Phase II clinical trial
that commenced enrollment in the second quarter of 2002, in this
case for the treatment for patients with mild to moderate plaque
psoriasis. As of January 2, 2003 the United States
Phase II clinical trial was approximately seventy-five
percent enrolled. In the United States Phase II clinical
trial, which began in May 2002, patients are randomized to one
of four groups. Individual groups (60 patients each) are treated
with either a placebo or one of three dosages of PVAC treatment
(2, 15 or 50 micrograms). Four doses are given over a
15-week period with final efficacy evaluation conducted at
24 weeks. Efficacy endpoints include improvements in
disease severity as assessed by a decrease in baseline psoriasis
area and severity index, or PASI scores. PVAC treatment or
placebo is administered via intradermal injection.

On November 7, 2002 we announced with our
partner Genesis that two recently completed 12-week
Phase II trials in Brazil and the Philippines indicated
clinical activity and safety in patients with moderate to severe
cases of psoriasis. Like the initial United States Phase II
clinical trial, the clinical trials in Brazil and the
Philippines targeted patients with moderate to severe psoriasis
and examined two doses of PVAC treatment with efficacy
assessment at 12 weeks. Findings in these studies were
consistent with our findings from the initial United States
Phase II clinical trial announced in 2001.

To further evaluate the efficacy of PVAC
treatment in patients with psoriasis, Genesis is conducting a
60-patient trial in New Zealand that evaluates PVAC treatment
administered in combination with ultraviolet

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light delivered in a controlled treatment
schedule. This trial was fully recruited in 2002 and results are
anticipated in the third quarter of 2003.


PVAC Treatment for Scleroderma.We have also initiated a Phase I
clinical trial to test the safety of PVAC treatment for
scleroderma which affects 40,000 to 165,000 people in the United
States according to the National Institute of Arthritis and
Musculoskeletal and Skin Diseases. Scleroderma is an autoimmune
connective disorder characterized by sclerosis, or the
progressive hardening of the skin of the hands, arms, face and
torso as well as sclerosis of certain internal organs. Sclerosis
occurring in the kidneys, heart, gastrointestinal tract, lungs
and vascular system result in mortality associated with
scleroderma. Although the course of scleroderma is highly
variable among patients, overall survival is poor and the
disease is severely debilitating.

ANERGIX Complex.In
November 2002, in collaboration with Organon Inc., or Organon,
we completed a randomized placebo-controlled Phase I/ II
clinical trial of ANERGIX.RA complex, a multihistocompatability
complex, or MCH, -class II molecule loaded with a collagen
peptide for treating RA, in patients with advanced RA.

The ANERGIX complex products that we have
evaluated in clinical trials are natural products. Because the
high cost of manufacturing this particular material, these
products in their purified natural form are likely to be
difficult to commercialize. For this reason, our scientists have
developed recombinant forms of ANERGIX complex products that may
be far less expensive to produce and have demonstrated efficacy
in both in vitroand in vivomodels of autoimmune
disease. We intend to select one of these recombinant candidates
to use in continued clinical evaluation of ANERGIX complex
products.

In collaboration with Beaufour Ipsen Group, or
Beaufour Ipsen, a European-headquartered global pharmaceutical
company, we are developing ANERGIX.MG complex, an
MHC-class II molecule loaded with an MG associated peptide
for treating MG, a chronic autoimmune neuromuscular disease that
causes varying degrees of weakness of the skeletal
(voluntary) muscles of the body. The Myasthenia Gravis
Foundation of America estimates that the prevalence of MG is
approximately 14 out of 100,000 in the United States.

Corporate Partnerships

As a developer of immunotherapies, we remain
committed to existing collaborations and the pursuit of select
partnerships with pharmaceutical, biopharmaceutical and
diagnostic companies. We focus our partnership efforts on
broadly partnering our core technologies at various stages in
the research, development and commercialization processes. We
target partners that have the expertise and capability to
develop, manufacture and commercialize our products. In our
corporate partnerships we seek to cover our research,
development and commercialization expenses through research
funding, milestone payments, collaborative agreement credit
lines and option, technology or license fees. We also seek to
retain significant downstream participation in product sales
through either profit sharing or product royalties paid on
annual net sales.

Antibody-Based Therapeutics

GSK-BEXXAR.As a
result of our acquisition of Coulter Pharmaceutical, Inc., or
Coulter, a biopharmaceutical company engaged in developing novel
drugs and therapies for treating cancer and autoimmune diseases,
we acquired the 1998 collaboration agreement between Coulter and
GSK for the development and commercialization of BEXXAR therapy,
for which we have completed Phase III clinical trials in
the United States and which is the subject of a BLA currently
under review by the FDA for the treatment of NHL. Under the
agreement, as amended in April 2000, GSKs territory was
reduced to the United States and, following regulatory approval
of BEXXAR therapy, GSK would be required to pay us a milestone
payment. We and GSK agreed to co-promote BEXXAR therapy in the
United States following regulatory approval, with each company
contributing to the sales force and both companies sharing
profits equally. In addition, the agreement provides for the
sharing of certain costs by us and GSK related to clinical and
manufacturing development activities. Under the agreement, GSK
provided us with a $15 million credit line that was fully
drawn by Coulter in December 2000 and which we may choose to
repay in cash or in shares of our common stock on or prior to
the October 2003 maturity date.

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Amersham Health-BEXXAR.In October 2001, we entered into an
agreement whereby Amersham Health will market BEXXAR therapy in
Europe. We and Amersham Health will cooperate to register the
product in Europe. Amersham Health will be the holder of the
Marketing Authorization Application, or MAA (the European
equivalent of the BLA), for BEXXAR therapy in Europe. We will be
responsible for the generation of clinical trial data to support
registration in Europe. Amersham Health will be responsible for
manufacture and sale of BEXXAR therapy in Europe. Under the
terms of a stock purchase agreement with Amersham Health, at our
option, we may choose to sell up to $5 million of
additional shares of our common stock to Amersham Health at fair
market value, which is determined according to the average of
the closing prices of our common stock over a specified period
surrounding the date of issuance. Upon execution of the
agreement Amersham Health purchased 271,343 shares of our
common stock at a price of $18.43 per share, which represented a
forty percent premium of approximately $1.4 million to the
then current market value of our common stock. On
December 4, 2002, we sold 636,173 shares of our common
stock to Amersham Health for a total purchase price of
$5 million or $7.86 per share, which represents the average
price over a specified period around the date of the sale. In
addition, Amersham Health has agreed to pay us milestone
payments upon regulatory approval in Europe as well as milestone
payments based on achievement of certain sales volume targets.
In addition, Amersham Health has agreed to pay us royalties on
all future product sales in Europe.

Medarex.In 2000, we
initiated a collaboration with Medarex to discover and develop
fully human monoclonal antibodies against selected targets from
our library of proprietary cancer, infectious disease, and
autoimmune disease antigens. Medarex contributed its
HuMAb-Mouse® technology to the multiyear collaboration,
targeted to generate, screen and characterize fully human
monoclonal antibodies directed against our antigens. In May
2002, we and Medarex amended and restated this collaboration. In
May 2002, Medarex also acquired our proprietary Ultra-Potent
Toxin, or UPT, technology for creating antibody-toxin conjugates
and acquiring certain preclinical product development programs
in the field of oncology and other disease indications. In
return, we received $21 million in cash and shares of
Medarex common stock Medarex also purchased certain equipment
from us to support Medarexs continuing research efforts
for an additional $2.5 million. As part of the transaction,
Medarex will provide us with a license to use the UPTs with
certain monoclonal antibodies, pursuant to which Medarex may
receive milestone payments and royalties.

Purdue Pharma.In
September 2000, we entered into an agreement with Purdue Pharma
to develop therapeutic antibodies directed against cell surface
antigens identified by our tumor-antigen discovery programs.
Under the terms of the agreement, Purdue Pharma has agreed to
pay to us a total of $2.5 million in license fees. In
addition, Purdue Pharma may be required to pay us success-based
milestone payments and royalties on potential product sales. In
November 2002, Purdue Pharma exercised an option under the
agreement and licensed one of our antigens to use in its
development of monoclonal antibodies to be used as anti-tumor
agents in treatment of female reproductive tract cancer. Purdue
Pharma has agreed to pay for development and commercialization
of a monoclonal antibody based on our antigen and Purdue Pharma
and an affiliate will retain worldwide rights.

Abgenix.In March
2000, we entered into an agreement with Abgenix, Inc., or
Abgenix, to discover and develop human monoclonal antibodies
against selected targets from our library of proprietary cancer,
infectious disease and autoimmune disease antigens. Under the
agreement, when we and Abgenix determine antibodies to be worthy
of clinical investigation, a closed auction will be held between
the two parties for the rights to develop the specific
antibody-based product. The party that obtains the right to
develop and commercialize a particular product candidate agreed
to pay the other party an up-front fee, milestones based on
clinical development and royalties on any product sales.

Other Antibody
Partnerships.In our current vaccine
collaboration and license agreement with GSK, as well as in our
agreement with Zambon, our partners have either an option,
license or the right to develop novel antigens discovered under
the respective collaborations as targets for therapeutic
monoclonal antibodies. If our partners develop therapeutic
monoclonal antibodies, they agreed to pay us additional funding,
milestone payments and royalties on such products. In accordance
with the terms of our vaccine collaboration and license
agreement with GSK, we have licensed to GSK certain antibody
targets in prostate, colon and breast cancer.

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Therapeutic Vaccines for Cancer and Infectious
Disease

GSK.Effective
September 1998, we entered into a collaboration and license
agreement with GSKs wholly owned subsidiary,
SmithKlineBeecham plc, referred to collectively as GSK. Under
the agreement, we granted GSK an exclusive worldwide license to
develop, manufacture and sell vaccine products and certain
dendritic cell therapy products that incorporate antigens
discovered or in-licensed under this corporate partnership. We
also granted GSK license rights to develop, manufacture and sell
passive immunotherapy products, such as T cell or antibody
therapeutics, and therapeutic drug monitoring products in each
case that incorporate these antigens. GSKs rights under
the agreement are co-exclusive with us in Japan with respect to
tuberculosis.

The rights that we granted to GSK under the
agreement covered:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | our cancer antigen discovery programs in breast,
    colon, ovarian and prostate cancer;                                  
|
| |  | our HER-2/neu breast and ovarian cancer vaccine
    program;                                                              
|
| |  | our mammaglobin breast cancer vaccine program; and                                                                        
|
| |  | our infectious disease antigen discovery programs
    in C. pneumoniae, C. trachomatis and Mycobacterium
    tuberculosis.

In January 2003, we and GSK entered into new
agreements to further advance the development of multiple solid
tumor vaccines. Following expiration of the funded research
period for the cancer fields under the original agreement, one
of the new agreements extends the companies collaborative
efforts into vaccine development and potential
proof-of-principle clinical trials. Under the terms of this new
agreement, GSK granted us a worldwide, exclusive license to
develop a vaccine-candidate for prostate cancer and a vaccine
candidate for breast cancer. As a part of this agreement, GSK
retains the option to buy-back exclusive worldwide rights for
either or both vaccine candidates following the completion of
proof-of-principle clinical trials. If GSK exercises its
buy-back rights, we have the option of participating in further
development, up to and including a sharing of promotion rights
in the United States. In the event GSK does not exercise its
buy-back option, we will be free to develop the vaccines alone
or with other partners and we have agreed to pay GSK
success-based milestones and royalties in the event of product
sales. Under this new agreement, we will be responsible for
providing resources and development funding of up to
$32 million to complete proof-of-principle clinical studies
over a period of time in excess of five years. This funding will
be used to pay for Good Manufacturing Practice, or GMP, grade
material, production and clinical trials for prostate and breast
vaccine development efforts.

Under the original agreement, GSK will continue
development of an alternative version of the prostate cancer
vaccine at its own expense and has agreed to pay us milestones
and royalties on potential product sales. Under the original
agreement, GSK is also continuing the development of our
HER-2/neu vaccine. A proprietary formulation of this vaccine has
been manufactured by GSK and an IND application has been
approved for the products clinical testing in the United
States.

In a related, new agreement, we acquired vaccine
and antibody development rights to all ovarian cancer antigens,
whose discovery resulted from the original agreement, as well as
all cancer diagnostic rights and T cell adoptive cancer
immunotherapy rights, for all antigens discovered by us in the
breast, prostate, colon and ovarian cancer fields.

In the area of infectious disease, GSK will
continue to fund our research and development efforts under the
original agreement for the further development of chlamydia and
tuberculosis vaccines.

Pursuant to the original agreement, GSK purchased
427,807 shares of our common stock at a premium to its fair
market value. In addition, under the original agreement, we have
an outstanding loan in the amount of $5 million. That
amount, together with all accrued unpaid interest is due on
September 1, 2003. At GSKs option, GSK may choose to
receive the outstanding principal and accrued unpaid interest in
cash or shares of our common stock at an undisclosed premium to
our then-current fair market value. To the extent that clinical
and commercial milestones in the programs are achieved, GSK is
required to pay us additional amounts. The

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individual amounts of such payments vary,
depending on the milestones achieved and the types of product
sold. GSK is also required to pay us future royalty payments on
all product sales, which royalties vary depending on the types
of products sold.


Zambon Group and the Pharmaceutical Division
of Japan Tobacco.During May and June
1999, we entered into corporate partnerships with Zambon and JT,
respectively, for the research, development and
commercialization of vaccine products aimed at preventing and/or
treating lung cancer. Zambon has exclusive rights to develop and
sell vaccine products in Europe, the former countries of the
Soviet Union, Argentina, Brazil and Columbia and co-exclusive
rights in China. Under the June 1999 agreement, we granted JT
exclusive rights to develop and sell vaccine products outside of
the territory licensed to Zambon, including the United States
and Japan, and co-exclusive rights to develop and sell vaccine
products in China. We also granted Zambon a nonexclusive license
and JT an option to formulate vaccines that may result from the
collaboration using our microsphere delivery system with our
proprietary adjuvants. During 2002, the 3-year research terms of
the agreements expired and the respective research funding
obligations ceased. In November 2002, we and Zambon amended our
agreement so that we jointly fund clinical testing of a
non-small cell lung cancer vaccine. In addition, Zambons
option to sell $2.0 million of our common stock back to us
expired upon termination of the research phase. In December
2002, we recorded a milestone payment of $1.0 million from
Zambon in connection with the filing of our IND for a lung
cancer vaccine candidate in the United States. In January 2003,
we amended and restated our agreement with JT so that we hold
exclusive rights to all antigens discovered in our lung cancer
vaccine program in all countries previously licensed to JT, with
the exception of rights associated with commercialization of a
non-small cell, lung carcinoma vaccine candidate in Japan. Under
the terms of our amended agreement with JT, JT will continue to
hold an exclusive license to this vaccine candidate for
development and commercialization in Japan, and we will hold all
rights in North America and in those territories not previously
licensed to Zambon. In connection with the restructuring of the
JT agreement, we and JT have agreed to pay each other fees,
milestones and royalties in the event that development
milestones and product sales are achieved.

Kirin Brewery Company, Ltd.In December 2002, we entered into a
multiyear development and commercialization agreement with Kirin
for a potential cancer vaccine for the treatment of multiple
forms of cancer, including leukemia, myelodysplasia and
melanoma. Under the agreement we grant Kirin exclusive rights to
develop and market vaccine products resulting from our WT1
antigen vaccine program in Asia/ Australasia. We and Kirin have
agreed to share WT1 vaccine commercialization rights and Kirin
has agreed to fund one-half of the research and development
costs in North America. We will retain marketing rights for the
potential vaccine in Europe. Upon effectiveness of the
agreement, Kirin paid us $3 million in up front license
fees. Under the terms of the agreement, Kirin has agreed to
co-fund development of WT1 vaccine products and will pay us
success-based milestone payments and royalties on future product
sales in Asia/ Australasia.

Agonists and Antagonists

DARPA/SPAWAR.In
June 2001, we entered into a $3.5 million, 2-year contract
from the SPAWAR Systems Center San Diego for a DARPA sponsored
program to develop methods of enhancing immune responses to
infectious diseases, including agents of biological warfare. In
connection with the the DARPA sponsored program we are
conducting preclinical testing of our proprietary portfolio of
synthetic lipid A-like compounds that contain TLR4 agonists, or
in some cases, TLR4 antagonists. These drugs act on TLR4 to
generate protective immunity to a wide variety of infectious
agents. Certain TLRs are present in the upper airways and
stimulation of these receptors may induce the immune system to
prevent infections of various types, especially those
transmitted by inhalation. Our scientists have already
demonstrated that administration of some of these potential
drugs by the intranasal route is highly efficient at protecting
against influenza virus infection in experimental animal models.

Adjuvants

GSK.We have
licensed MPL adjuvant to GSK under three separate agreements for
use in infectious disease vaccines, under one agreement for use
in cancer caccines and under one agreement for use in products

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to treat and prevent allergies. Under the first
agreement, entered into in 1991, we granted GSK exclusive,
worldwide rights to use MPL adjuvant in vaccines in a number of
infectious disease fields, including Hepatitis B. Under the
agreement, GSK has agreed to pay us transfer payments for
supplies of MPL adjuvant and royalties upon commercialization of
products developed under the agreement.


Under the second agreement, entered into in 1992,
we granted GSK the co-exclusive right to develop vaccines that
include MPL adjuvant against several bacterial infections as
well as combination vaccines that contain diphtheria, pertussis,
tetanus, Haemophilus influenza b and polio antigens. In addition
to an annual license fee, GSK has agreed to pay us transfer
payments for supplies of MPL adjuvant and royalties upon
commercial sale of the vaccines.

Under the third agreement, effective in 1996, we
granted GSK rights to use MPL adjuvant in an additional group of
vaccines against infectious diseases, including tuberculosis.
The license is exclusive for HPV vaccines, co-exclusive for
tuberculosis vaccines, and nonexclusive for specified additional
infectious disease vaccines. In addition to annual license fees,
GSK has agreed to pay us transfer payments for clinical and
commercial quantities of adjuvant and royalties on any
commercial sales of vaccines incorporating MPL adjuvant.

Under the fourth agreement, effective in 1995, we
granted GSK rights to use MPL adjuvant in cancer vaccines. The
license is non-exclusive. In addition to annual license fees,
GSK has agreed to pay us transfer payments for clinical and
commercial quantities of adjuvant and royalties on any
commercial sales of cancer vaccines whether therapeutic or
prophylactic incorporating MPL adjuvant.

Under the fifth agreement, a license and supply
agreement effective in 1999, GSK has agreed to pay us annual
license fees prior to, and minimum annual royalties subsequent
to, regulatory approval of any allergy vaccine developed under
the agreement. GSK will also purchase its clinical and
commercial quantities of MPL adjuvant from us and pay royalties
on any commercial sales of approved allergy vaccines.

Wyeth.We are also a
party to a license agreement and related supply agreement that
was amended and restated effective October 29, 2001, with
Wyeth. Under the amended and restated license agreement we
granted Wyeth co-exclusive use of MPL adjuvant in certain
infectious disease fields licensed co-exclusively to GSK under
our 1992 agreement with GSK, as well as adding new infectious
disease fields. Under the supply agreement, we will provide
Wyeth commercial quantities of MPL adjuvant for use in any
vaccines that Wyeth may develop under the license agreement.
Under the agreements, Wyeth has agreed to pay us an annual
license fee until a threshold level of earned royalties is met,
transfer payments for supplies of MPL adjuvant and annual
minimum and earned royalty payments when commercial sale of
vaccines are made. The license includes an oil-based formulation
of MPL adjuvant. Under the amended and restated agreement we
also grant Wyeth the right to include our RC-529 adjuvant in
vaccines to prevent or treat a variety of diseases, including
certain infectious diseases and one autoimmune disease.

Allergy Therapeutics Ltd.In 1996 we entered into a license and
supply agreement with ATL under which we licensed MPL adjuvant
to ATL for use in products to treat and prevent allergies. Under
our agreement with ATL, ATL has agreed to pay us annual license
fees prior to, and minimum annual royalties subsequent to,
regulatory approval of any allergy vaccine developed under the
agreement. ATL will also purchase its clinical and commercial
quantities of MPL adjuvant from us and pay royalties on any
commercial sales of approved allergy vaccines.

Berna Biotech.In
February 2002, we entered into a license and supply agreement
with Berna Biotechs subsidiary, Rhein Biotech N.V., or
Rhein, under which we granted Rhein a coexclusive, worldwide,
license to our RC-529 adjuvant for use in developing a Hepatitis
B vaccine. Under the agreement, Rhein paid us an up front fee
and has agreed to pay us milestone payments, annual license fees
until commercial launch of a product and earned royalty payments
or annual license fees after launch of a product.

Biomira Inc.In
1990, we entered into a collaboration with Biomira covering the
use of one of our formulations of ENHANZYN adjuvant in
Biomiras THERATOPE vaccines for the potential treatment of
breast, lung and gastrointestinal cancers. In 1996, Biomira
announced that final Phase II clinical data demonstrated that
its THERATOPE vaccine for metastatic breast cancer provided a
median survival of more

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than 26 months compared to less than
10 months achieved historically with chemotherapy. In
November 1998, Biomira announced the start of a pivotal
Phase III clinical trial to evaluate the effectiveness of
THERATOPE vaccine in treating metastatic breast cancer. Under
our agreement with Biomira, Biomira has agreed to purchase the
ENHANZYN adjuvant exclusively from us at an agreed upon transfer
price.


Other Disease Therapeutics

Medicis and Zenyaku Kogyo.In August 2000, we entered into a
multi-year development, commercialization and license agreement
with Medicis covering our psoriasis immunotherapeutic product,
PVAC treatment. Under the agreement we provide Medicis exclusive
rights to PVAC treatment in the United States and Canada. We are
predominately responsible for development and manufacturing, and
Medicis will be responsible for commercialization and
distribution. Under the terms of the agreement, Medicis may be
required to pay us license fees, research funding and earned
milestone payments, including commercialization and cumulative
net sales threshold milestone payments. Medicis made a
nonrefundable payment of $17 million upon effectiveness of
the agreement. Additionally, upon commercial sale of the
product, Medicis has agreed to purchase inventory from us and
pay a royalty on net sales of the product.

In August 1999, we entered into a corporate
partnership with Zenyaku Kogyo for researching and developing
PVAC treatment. Under the agreement we grant Zenyaku Kogyo
exclusive rights to PVAC treatment in Japan. In May 2002 the
3-year research term of the agreement expired and Zenyaku
Kogyos research funding obligation ceased. Under the terms
of the agreement, Zenyaku Kogyos rights to PVAC treatment
in Japan continue and Zenyaku Kogyo is responsible for future
milestone payments based on successful clinical and commercial
progress, and a royalty stream on future product sales.

Organon Inc.In
1996, we entered into a product development and license
agreement with Organon, the human healthcare unit of Akzo Nobel.
The Organon partnership targets the development of an ANERGIX.RA
complex that incorporates Organons proprietary RA peptide
into our ANERGIX complex. We have completed a Phase I/II
clinical trial of ANERGIX.RA in patients with moderate to severe
RA. Under the terms of our product development and license
agreement, Organon has agreed to pay the majority of current
clinical trials costs and in the event of our success, Organon
has agreed to pay us milestone and royalty payments. Effective
January 3, 2001, we amended and restated the agreement to
cover the continued development of the recombinant form of our
ANERGIX.RA complex treating RA. Under the terms of the amended
agreement, we and Organon have agreed to share ANERGIX.RA
complex project costs through Phase II clinical trial and
will also share profits in the event of product sales. We retain
the option to co-promote ANERGIX.RA complex with Organon in the
United States.

Beaufour Ipsen Group.On December 31, 2001, we entered
into an agreement with Beaufour Ipsen to develop and
commercialize an autoimmune vaccine for MG, based on our
proprietary ANERGIX vaccine platform. We have granted Beaufour
Ipsen exclusive worldwide rights to develop and market our
ANERGIX.MG technology for the treatment of MG. Beaufour Ipsen
will manage product development, including clinical trials and
regulatory submissions. Along with supplying guaranteed research
support, Beaufour Ipsen will pay us an up front license fee and
may be required to pay us success-based milestone payments and
royalties on future sales of licensed products. A joint steering
committee made up of representatives from both companies will
oversee the collaboration.

Other Partnered Programs

Infectious Disease Research
Institute.In March 1999, we entered
into a research agreement with IDRI and received research
funding payments. Under this agreement we used cancer antigens
in an effort to create a reproducible method for activating
dendritic cells or T cells that could then be infused into a
cancer patient as part of a therapeutic treatment. The research
component of the agreement expired in March 2002.

Introgen.In July
1999, we entered into a license agreement with Introgen
Therapeutics, Inc., or Introgen, under which we granted Introgen
an exclusive license to a gene that induces apoptosis in a
diverse group of cancer cells. Introgen completed a Phase I
study testing MDA-7 delivered by adenovirus in patients with
cancer in 2002.

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Other Strategic Relationships

We seek to obtain technologies that complement
and expand our existing technology base. When consistent with
our strategy, we have licensed and intend to continue to license
product and marketing rights from research and academic
institutions in order to capitalize on the capabilities and
technology bases of these entities. Under our license agreements
with research and academic institutions, we generally seek to
obtain unrestricted sublicense rights consistent with our
partner-driven strategy. We are generally obligated under these
license agreements to diligently pursue product development,
make development milestone payments and pay royalties on any
product sales.

SR Pharma plc.In
December 1998, we entered into an exclusive worldwide license
agreement with Stanford Rook Ltd., a wholly owned subsidiary of
SR Pharma plc, or SR Pharma, pursuant to which SR Pharma
granted us rights to its M. vaccae-related intellectual property
in connection with the development and commercialization of PVAC
treatment for treating psoriasis, RA, MS and diabetes. SR Pharma
also granted us an option to additional autoimmune disease
fields, which we exercised at the end of 2000. Under the license
agreement, we agreed to pay SR Pharma license fees, milestone
payments and a percentage of any revenues that we receive from
product sales. Pursuant to a February 1999 amendment to the
agreement, SR Pharma granted us manufacturing rights. In
February 1999, we also entered into a non-exclusive worldwide
license agreement with SR Pharma pursuant to which SR Pharma
granted us rights under its M. vaccae-related intellectual
property for the manufacture, development and commercialization
of specified M. vaccae-derived products for use as adjuvants in
our proprietary vaccines other than tuberculosis vaccines.

Genesis Research and Development.In January 1998, we entered into a
collaborative research and development agreement with Genesis to
develop and commercialize the M. vaccae-derived product, PVAC
treatment, for psoriasis. Under the agreement, we and Genesis
have agreed to share the costs of product development and the
revenue received related to PVAC treatment with Genesis. If one
party incurs more than 50% of product development costs, that
party will receive a pro rata increased portion of revenues
related to product sales. Under the agreement, Genesis also
granted us an exclusive worldwide right to develop the
M. vaccae-derived product for certain other autoimmune
diseases, including RA, MS and diabetes. We also entered into a
separate agreement with Genesis, effective in January 1998, to
research and develop M. vaccae-derived products as vaccine
adjuvants. Under the agreement Genesis granted us an exclusive
license to use these adjuvant products in our proprietary
vaccines. Our chairman and chief executive officer is a member
of Genesis board of directors.

Infectious Disease Research Institute.In September 1994, we entered into a
research services and intellectual property agreement with IDRI,
a not-for-profit, private research institute. Under this
agreement, as amended and restated effective October 1999, we
agreed to provide IDRI with research funding and administrative
and facilities support and IDRI pays us a services fee for the
administrative and facilities support that we provide. Our
funded research that IDRI performs is in the areas of cancer and
infectious disease. Under the agreement, IDRI must disclose to
us all significant developments relating to information or
inventions discovered at IDRI. Under the agreement, we will own,
on a royalty-free basis, all of IDRIs interest in
inventions and patent rights arising out of the research IDRI
performs with our funding during the term of the agreement
(other than inventions and patent rights arising out of research
that is or in the future may be funded by certain governmental
or not-for-profit organizations). With respect to rights arising
out of research funded by governmental and not-for-profit
organizations, IDRI granted us a right of first negotiation for
a royalty-bearing, worldwide, perpetual license, exclusive
except as to rights held by the governmental or not-for-profit
organizations. In late 1999, IDRI relocated to facilities
outside of our facilities. Since this move, we have provided
only limited services to IDRI.

Dana-Farber Cancer Institute,
Inc.Pursuant to the April 1994
agreement between Coulter Corporation and Dana-Farber Cancer
Institute, Inc., or DFCI, the 1995 assignment agreement between
Coulter Corporation and us, and the December 1998 agreement
regarding sublicenses among us, DFCI and Coulter Corporation, we
have acquired an exclusive, worldwide, royalty-bearing
sublicense to the B1 antibody for therapeutic applications and a
non-exclusive license for diagnostic applications along with the
right to use the hybridoma from which the B1 antibody was
derived.

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University of
Michigan.In November of 1994 we
entered into a commercialization agreement with the University
of Michigan pursuant to which the University of Michigan granted
us an exclusive, worldwide, royalty-bearing license to
technology related to the use of unlabeled and radiolabeled
anti-CD20 antibody in accordance with a radioimmunotherapy
protocol.

Other License Agreements

Additionally, we are party to other exclusive
license agreements under which academic institutions grant
licenses to us, including the following:



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | DFCI for the use of certain microsphere
    technology;                                                                            
|
| |  | the University of Washington for the use of
    HER-2/neu technology in all fields;                                                
|
| |  | Massachusetts Institute of Technology for the use
    of WT1, a leukemia-related gene and protein, in therapeutic
    applications;
|
| |  | University of Massachusetts for use of anti-tumor
    GM2 antibodies;                                                              
|
| |  | Columbia University for use of MDA-7 in
    therapeutic and prophylactic applications; and                                         
|
| |  | Southern Research Institute, or SRI, for use of
    certain microsphere technology.                                                

Some of these agreements require us or other
parties to achieve certain performance obligations to retain
rights under the agreements or require us to make payments in
order to obtain or maintain rights to the subject technology.

Patents and Proprietary Technology

Our success depends in part on our ability to
obtain, protect and enforce commercially valuable patents. We
try to protect our proprietary positions by filing United States
and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to
developing our business. As of December 31, 2002, we owned,
had licensed or had options to license 168 issued United States
patents that expire at various times between April 2003 and June
2022, and had 345 pending United States. patent applications.

Our patent position is generally uncertain and
involves complex legal and factual questions. Legal standards
relating to the validity and scope of claims in the
biotechnology and biopharmaceutical fields are still evolving.
Accordingly, the degree of future protection for our patent
rights is uncertain. The risks and uncertainties that we face
with respect to our patents and the patents licensed to us
include the following:



| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the pending patent applications that we have
    filed or to which we have exclusive rights may not result in
    issued patents or may take longer than we expect to result in
    issued patents;                                                                        
|
| |  | the claims of any patents that are issued may not
    provide meaningful protection;                                                                                                                                                                                       
|
| |  | we may be unable to develop additional
    proprietary technologies that are patentable;                                                                                                                                                                                   
|
| |  | the patents licensed or issued to us may not
    provide a competitive advantage;                                                                                                                                                                                          
|
| |  | other companies may challenge patents licensed or
    issued to us;                                                                                                                                                                                                        
|
| |  | disputes may arise regarding the invention and
    corresponding ownership rights in inventions and know-how
    resulting from the joint creation or use of intellectual
    property by us, our licensors, corporate partners and other
    scientific collaborators; and
|
| |  | other companies may design around our patented
    technologies.                                                                                                                                                                                                           

We have licensed several patent applications from
SRI related to our microsphere encapsulation technology. One of
these patent applications is currently the subject of opposition
proceedings before the European Patent Office. In the
opposition, the European Patent Office has revoked a previously
issued

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European patent. Although SRI has appealed this
decision, it is uncertain whether SRI will ultimately prevail in
this opposition proceeding.


We are currently involved in litigation with IDEC
Pharmaceuticals, Inc., or IDEC. IDEC filed a complaint in the
United States District Court, Southern District of California,
against us and the Regents of the University of Michigan seeking
declaratory judgment of non-infringement and invalidity of
certain of our patents related to IDECs Zevalin product
for the treatment of NHL. We, GSK and the Regents of the
University of Michigan filed a lawsuit in the United States
District Court, District of Delaware, alleging that IDECs
activities since ODACs recommendation for approval of
Zevalin infringes our United States Patent Nos. 5,595,721,
6,015,542, 6,090,365 and 6,287,537. Issued claims in the subject
patents cover composition of matter and methods-of-use in the
treatment of NHL. Pursuant to our lawsuit against IDEC, we, GSK
and the Regents of the University of Michigan are requesting
that the court declare that IDEC is willingly infringing our
patents. In addition, we are seeking available remedies under
the patent laws including monetary damages and permanent
injunctive relief. The United States District Court, Southern
District of California has consolidated the Delaware and
Southern District of California cases and the cases are
proceeding before that court. Litigation is ongoing and we are
unable to predict an outcome at this time. However, an
unfavorable outcome of this matter could have a materially
adverse affect on our operating results from the sale of BEXXAR
therapy, if BEXXAR therapy is approved.

Under the publication provisions of the American
Inventors Protection Act of 1999, pending United States patent
applications will publish 18 months after the earliest
claimed priority date and the file histories for these
applications will be open for public inspection. Our patent
applications and the related file histories that are subject to
the American Inventors Protection Act will then be available for
review by others, including our competitors. Pre-issuance
publications could allow us to recover damages from pre-issuance
infringers of published claims that ultimately issue as patents.
Pre-issuance damages will be contingent on publication of claims
that are substantially identical to claims that actually issue
and on notifying infringers regarding subject applications. We
may elect not to publish some or all of our pending United
States patent applications if we do not file internationally. If
we elect not to publish, we will not be able to seek
pre-issuance damages.

Patent applications filed in the United States
prior to the effect of the American Inventors Protection Act of
1999, are presently maintained in secrecy until the patents are
issued. Patent applications in certain foreign countries
generally are not published until many months or years after
they are filed. Scientific and patent publications often occur
long after the date of the scientific developments disclosed in
those publications. Accordingly, we cannot be certain that we or
one of our corporate partners was the first to invent the
subject matter covered by any patent application or that we or
one of our corporate partners was the first to file a patent
application for any such invention.

Our success also depends in part on our ability
to protect trade secrets that are not patentable or for which
patents are difficult to enforce. To protect our proprietary
rights, we rely primarily on confidentiality agreements with
employees and third parties, and protective contractual
provisions such as those contained in license agreements and
research agreements. Nevertheless, other companies may
inadvertently develop similar or alternative technologies or
duplicate our technologies that are not protected by patents or
otherwise obtain and use information that we regard as
proprietary. Other parties may breach confidentiality agreements
and other protective contracts we have entered into, and we may
not become aware of, or have adequate remedies in the event of,
any breach.

Our success also depends in part on our ability
to gain access to third party patent and proprietary rights and
to operate our business without infringing on third party patent
rights. We may be required to obtain licenses to patents or
other proprietary rights from third parties to develop,
manufacture and commercialize our product candidates. Licenses
required under third-party patents or proprietary rights may not
be available on terms acceptable to us, if at all. If we do not
obtain the required licenses, we could encounter delays in
product development while we attempt to redesign products or
methods or we could be unable to develop, manufacture or sell
products requiring these licenses at all.

We attempt to protect our trademarks by filing
for United States and foreign registrations for marks that are
important to developing our business. However, the laws of some
foreign countries do not allow for

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protection of our proprietary rights to the same
extent as do the laws of the United States, and effective
trademark protection may not be available in other
jurisdictions. Our trademark, MPLTM adjuvant is
currently the subject of opposition proceedings before the
Office for the Harmonization in the Internal Market, which
handles initial prosecution and opposition of European
trademarks. We may not ultimately prevail in this opposition
proceeding. As a result, we may not receive trademark protection
for MPL adjuvant in Europe.


Government Regulation

Any products that we develop are subject to
regulation by federal, state and local governmental authorities
in the United States, including the FDA, and by similar agencies
in other countries. Any product that we develop must receive all
relevant regulatory approvals or clearances before it may be
marketed in a particular country.

The regulatory process, which includes extensive
preclinical studies and clinical trials of each clinical
candidate in order to study its safety and efficacy, is
uncertain, can take many years and requires the expenditure of
substantial resources. We cannot assure you that the clinical
trials of our product candidates under development will
demonstrate the safety and efficacy of those product candidates
to the extent necessary to obtain regulatory approval.

The nature and extent of the governmental
premarket review process for our potential products will vary,
depending on the regulatory categorization of particular
products. We believe that the FDA and comparable regulatory
bodies in other countries will regulate our vaccine and other
immunotherapeutic products and related pharmaceutical products
as biologics. The necessary steps before a new biological
product may be marketed in the United States ordinarily include
the following:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | preclinical laboratory and animal studies;                                                                                                              
|
| |  | submission to the FDA of an IND, which must
    become effective before clinical trials may commence;                                                   
|
| |  | completion of adequate and well-controlled human
    clinical trials to establish the safety and efficacy of the
    proposed drug for its intended use;
|
| |  | submission to the FDA of a BLA; and                                                                                                                     
|
| |  | FDA review and approval of the BLA before the
    product is commercially sold or shipped.                                                              

Preclinical tests include evaluating the product
in the laboratory, as well as animal studies to assess the
potential safety and efficacy of the product. Preclinical
studies must be conducted by laboratories that comply with FDA
regulations regarding good laboratory practices. The results of
preclinical studies, together with manufacturing information,
analytical data and proposed clinical trial protocols, are
submitted to the FDA as part of an IND, which must become
effective before the clinical trials can begin. The IND will
automatically become effective 30 days after the FDA
receives it, unless the FDA indicates prior to the end of the
30-day period that the proposed protocol raises concerns that
must be resolved to the FDAs satisfaction before the
trials may proceed. If the FDA raises concerns, we may be unable
to resolve the proposed protocol to the FDAs approval in a
timely fashion, if at all. In addition, the FDA may impose a
clinical hold on an ongoing clinical trial if, for example,
safety concerns arise, in which case the study cannot recommence
without FDA authorization under terms sanctioned by the agency.

Clinical trials involve administering the product
to healthy volunteers or to patients being supervised by a
qualified principal investigator. Clinical trials must be
conducted according to good clinical practices under protocols
that detail the trials objectives, inclusion and exclusion
criteria, 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
trial must be reviewed and approved by an independent
institutional review board. The institutional review board will
consider, among other things, ethical factors and the safety of
human subjects. The institutional review board may require
changes in a protocol, which may delay initiation or completion
of a study.

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Clinical trials generally are conducted in three
sequential phases that may overlap. In Phase I, the product is
introduced into healthy human or patients; the product is tested
to assess safety, metabolism, pharmacokinetics and
pharmacological actions associated with increasing doses.
Phase II usually involves studies in a limited patient
population to assess the following:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | determine the efficacy for specific, targeted
    indications;   
|
| |  | determine dosage tolerance and optimum dosage; and               
|
| |  | further identify possible adverse reactions and
    safety risks.

Once a compound is determined to be effective and
to have an acceptable safety profile in Phase II clinical
trials, Phase III trials are undertaken to evaluate further
clinical efficacy in comparison to standard therapies, within a
broader patient population, generally at geographically
dispersed clinical sites. Phase I, Phase II or Phase III
clinical trials may not be completed successfully within any
specific period of time, if at all, with respect to any of our
potential products. Furthermore, we, the FDA or an institutional
review board may suspend a clinical trial at any time for
various reasons, including a finding that the healthy
individuals or the patients are being exposed to an unacceptable
health risk.

The results of pharmaceutical development,
preclinical studies and clinical trials are submitted to the FDA
in the form of a BLA for approval of the manufacture, marketing
and commercial shipment of the product. The testing and approval
process is likely to require substantial time, effort and
resources, and we may be unable to obtain approval on a timely
basis, if at all. Regarding any BLA, the FDA may take a number
of actions, including the following:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | deny the BLA if applicable regulatory criteria
    are not satisfied;                            
|
| |  | require additional testing or information; or                                                    
|
| |  | require postmarket testing and surveillance to
    monitor the safety or efficacy of the product.

Delays in obtaining regulatory approvals:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | would adversely affect the marketing of any
    product we develop;                           
|
| |  | could impose significant additional costs on us;                                              
|
| |  | would diminish any competitive advantages that we
    may attain; and                         
|
| |  | could adversely affect our ability to receive
    royalties and generate revenues and profits.

In addition, even if marketing approval is
granted, the FDA may require post-marketing clinical trials,
which typically entail extensive patient monitoring and may
result in restricted marketing of an approved product for an
extended period of time.

Any diagnostic products developed by us or our
corporate partners are likely to be regulated as medical
devices. In the United States, medical devices are classified
into one of three classes on the basis of the controls deemed by
the FDA to be necessary to reasonably ensure their safety and
effectiveness:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | Class I  (general
    controls)  e.g., labeling, premarket notification and
    adherence to GMP and quality system regulation, or QSR;
|
| |  | Class II  (general controls and
    special controls)  e.g., performance standards and
    postmarket surveillance; and                
|
| |  | Class III  (premarket approval).                                                                                                        

Before a new device can be marketed, its
manufacturer generally must obtain marketing clearance through
either a premarket notification under Section 510(k) of the
Federal Food, Drug and Cosmetic Act or approval of a premarket
approval application, or PMA. A 510(k) clearance typically will
be granted if a company establishes that its device is
substantially equivalent to a legally marketed
Class I or II medical device or to a Class III device
for which the FDA has not yet required the submission of a PMA.
A 510(k)

22



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clearance must contain information to support the
claim of substantial equivalence, which may include laboratory
test results or the results of clinical trials. Commercial
distribution of a device subject to the 510(k) requirement may
begin only after the FDA issues an order finding the device to
be substantially equivalent to a predicate device. It generally
takes from 4 to 12 months from the date of submission to
obtain clearance of a 510(k) submission. The FDA may determine
that a proposed device is not substantially equivalent to a
legally marketed device, that additional information is needed
before a substantial equivalence determination may be made, or
that the product must be approved through the PMA process. An
FDA determination of not substantially equivalent, a
request for additional information, or the requirement of a PMA
could delay market introduction of products that fall into this
category. Furthermore, modifications or enhancements that could
significantly affect safety or effectiveness, or constitute a
major change in the intended use of any device, cleared through
the 510(k) process would require new 510(k) submissions.


If a device does not qualify for the 510(k)
premarket notification procedure, a company must file a PMA. The
PMA requires more extensive pre-filing testing than required for
a 510(k) premarket notification and usually involves a
significantly longer review process. A PMA must be supported by
valid scientific evidence that typically includes extensive
data, including preclinical and clinical trial data, to
demonstrate the devices safety and efficacy. If clinical
trials are required, and the device presents a significant
risk, an investigational device exemption application must
be filed with the FDA and become effective prior to the
commencement of clinical trials. If the device presents a
nonsignificant risk to trial subjects, clinical
trials may begin on the basis of appropriate institutional
review board approval. Clinical investigation of medical devices
may involve risks similar to those involved in the clinical
investigation of pharmaceutical products.

A PMA may be denied if applicable regulatory
criteria are not satisfied, and the FDA may impose certain
conditions upon the applicant, such as postmarket testing and
surveillance. The PMA review and approval process can be
expensive, uncertain and lengthy, and approvals may not be
granted on a timely basis, if at all.

Regulatory approval, if granted, may entail
limitations on the indicated uses for which the approved product
may be marketed. These limitations could reduce the size of the
potential market for the product. Product approvals, once
granted, may be withdrawn if problems occur after initial
marketing. Further, manufacturers of approved products are
subject to ongoing regulation, including compliance with
detailed FDA regulations governing GMP. Failure to comply with
manufacturing regulations can result in, among other things,
warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production,
refusal of the government to renew marketing applications and
criminal prosecution.

For clinical investigation and marketing of
products outside the United States, we and our corporate
partners may be subject to regulation by regulatory authorities
in other countries. The requirements governing the conduct of
clinical trials, marketing authorization and pricing and
reimbursement vary widely from country to country. The
regulatory approval process in other countries entails
requirements similar to those associated with FDA approval.

Our research and development involves the
controlled use of hazardous chemicals, radioactive and
biological materials. We are subject to federal, state and local
laws and regulations governing the use, storage, handling and
disposal of these materials and related waste products
including, among others, the Occupational Safety and Health Act,
the Environmental Protection Act, the Nuclear Energy and
Radiation Control Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, Title
III of the Superfund Amendments and Reauthorization Act
(Community Right-to-Know and Emergency Response Act), national
restrictions on technology transfer, federal regulations on the
protection of human subjects in clinical studies, the protection
of animal welfare in preclinical studies, import, export and
customs regulations and other present or possible future local,
state or federal regulation. From time to time congressional
committees and federal agencies have indicated an interest in
implementing further regulation of biotechnology and its
applications. Although we believe that our safety procedures for
handling, storing and disposing of these materials and related
waste comply with legally prescribed standards, we cannot
completely eliminate the risk of accidental contamination or
injury from these materials. In the event of an accident, we
could be held liable for damages or penalized with fines, and
this liability could exceed our resources.

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Competition

The biotechnology and biopharmaceutical
industries are intensely competitive. Many companies and
institutions compete with us in developing alternative therapies
to treat or prevent cancers, infectious diseases and autoimmune
diseases, including the following:



| |   |                              
| | - | -----------------------------
| |  | pharmaceutical companies;    
|
| |  | biotechnology companies;     
|
| |  | academic institutions; and   
|
| |  | other research organizations.

Moreover, technology controlled by third parties
that may be advantageous to our business may be acquired or
licensed by our competitors, thereby preventing us from
obtaining technology on commercially reasonable terms, if at all.

IDECs product, Zevalin, received FDA
approval for commercial sale in the United States in February
2002. Zevalin has been approved for the treatment of NHL, the
indication for which we are seeking approval to sell BEXXAR
therapy in the United States Consequently, IDEC could have a
significant advantage over us in sales and marketing of Zevalin
due to the fact that Zevalin has progressed further in the
regulatory approval process than BEXXAR therapy.

Many of the companies developing competing
technologies and products have significantly greater financial
resources and expertise in research and development,
manufacturing, preclinical and clinical development, obtaining
regulatory approvals and marketing than we do. Other smaller
companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and
established companies. Academic institutions, government
agencies and other public and private research organizations may
also conduct research, seek patent protection and establish
collaborative arrangements for research and development,
manufacturing, preclinical and clinical development, obtaining
regulatory approval and marketing of products similar to ours.
These companies and institutions compete with us in recruiting
and retaining qualified scientific and management personnel as
well as in acquiring and developing technologies complementary
to our programs. We face competition with respect to the
following:



| |   |                                          
| | - | -----------------------------------------
| |  | product efficacy and safety;             
|
| |  | timing and scope of regulatory approvals;
|
| |  | availability of resources;               
|
| |  | reimbursement coverage;                  
|
| |  | product price; and                       
|
| |  | patent position.                         

Our ability to compete effectively and develop
products that can be manufactured cost-effectively and marketed
successfully will depend on our ability to perform the following:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | advance our technology platforms;                                                       
|
| |  | license additional technology;                                                          
|
| |  | maintain a proprietary position in our
    technologies and products;                   
|
| |  | obtain required government and other public and
    private approvals on a timely basis;
|
| |  | availability of reimbursement from third-party
    payors;                              
|
| |  | attract and retain key personnel; and                                                   
|
| |  | enter into corporate partnerships.                                                      

24



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Manufacturing

We have manufactured pharmaceutical-grade product
to supply some of our previous and ongoing clinical trials. In
addition, we have manufactured preclinical and clinical supplies
of adjuvants and protein for our corporate partners, for
government agencies and for numerous academic researchers. We
believe that our existing facilities will be sufficient to
accommodate manufacturing of initial production quantities of
selected product candidates. Should we require additional
capacity in the future, we have space to expand our
manufacturing facility in Hamilton, Montana. We do not intend to
manufacture any radioimmunotherapeutic products.

However, our current manufacturing facilities may
not be sufficient to support our needs for clinical quantities
of our product candidates or commercial quantities of our
current adjuvant products. We have limited experience producing
commercial quantities of any product, or in producing
clinical-grade or commercial amounts of our proprietary
antigen-based products, including recombinant proteins or
antibodies. Although we currently manufacture limited quantities
of some antigens and several adjuvants, and are capable of
clinical GMP manufacturing of both adjuvants and some finished
vaccine products, we intend to rely on third-party contract
manufacturers to produce larger quantities of recombinant
protein or other cell culture-based biologicals for clinical
trials and product commercialization. We expect this strategy to
allow the following:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | accelerate the scale-up of manufacturing
    processes to commercial scale;
|
| |  | reduce initial capital investment;                                         
|
| |  | result in competitive manufacturing costs; and                             
|
| |  | provide access to a wide range of manufacturing
    technologies.          

We intend to use contract manufacturers for most
of the preclinical and clinical requirements for BEXXAR therapy
and for all of our commercial needs with respect to BEXXAR
therapy. Our collaboration agreement with GSK provides for GSK
participation in the planning, management and funding of
manufacturing development. We have entered into an agreement
with Boehringer Ingelheim Pharma KG, or
BI Pharma KG, to produce bulk Anti-B1 antibody
tositumomab, or tositumomab, a key component for BEXXAR therapy,
for use in ongoing clinical trials and to meet commercial
requirements, as well as provide for fill, finish and packaging
services. We have committed to minimum annual order quantities
of tositumomab from BI Pharma KG. The minimum annual
order for 2003 is approximately $5.3 million.
BI Pharma KG has limited experience producing,
labeling and packaging tositumomab, and they may be unable to
produce our requirement in commercial quantities or with
acceptable quality.

We have entered into an agreement with MDS
Nordion, Inc., or Nordion, for radiolabeling for the United
States supply the tositumomab component of BEXXAR therapy at
Nordions centralized radiolabeling facility. This
agreement expires on May 31, 2004. We are actively
negotiating with Nordion to enter into a new agreement to
radiolabel tositumomab. If we are unable to finalize a new
agreement with Nordion on acceptable terms, we will need to
secure a new source of radiolabeling. Although we are evaluating
additional sources of radiolabeling, we may be unable to secure
additional sources on commercially reasonable terms or on a
timely basis, if at all.

If the FDA approves BEXXAR therapy for marketing,
we expect that production for commercialization will consist of
(i) producing bulk tositumomab by BI Pharma KG,
(ii) filling and labeling of individual product vials with
tositumomab by another third-party supplier and/or BI Pharma KG,
and (iii) radiolabeling of tositumomab at Nordion. Although
we plan to develop additional suppliers for these services, we
expect to rely on our current suppliers for all or a significant
portion of our requirements for BEXXAR therapy for the
foreseeable future. We are aware of only a limited number of
manufacturers capable of producing tositumomab in commercial
quantities or radiolabeling the antibody with the
(131)I radioisotope on a commercial scale. Establishing and
qualifying a new facility to centrally radiolabel antibodies
could take 3 years or longer and could involve significant
expense. Radiolabeled antibody cannot be stockpiled against
future shortages due to the 8-day half-life of the (131)I
radioisotope. Accordingly, any change in our existing

25



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##### Table of Contents



or planned contractual relationships with, or
interruption in supply from, our producer of unlabeled antibody
or our radiolabeler would harm our ability to complete our
ongoing clinical trials and to market BEXXAR therapy, if
approved.


Marketing and Distribution

As a result of our May 2002 reduction in force we
no longer have a direct sales force for the potential launch of
BEXXAR therapy. Our ability to market BEXXAR therapy, if
approved, will be contingent upon recruiting, training and
deploying the necessary sales and marketing force, as well as
GSKs performance under our BEXXAR collaboration agreement.
The unique properties of BEXXAR therapy require tightly
controlled distribution of the product. Due to its radioactive
component, BEXXAR therapy is shipped in shielded containers and
must arrive at its destination within 24 to 48 hours
of production. BEXXAR therapy must also be temperature
controlled during shipment. We will rely on many third-party
suppliers to process orders and to package, store and ship
BEXXAR therapy. We are working with suppliers to minimize risk
and loss of inventory and provide efficient service to customers
in the event BEXXAR therapy is approved for commercial sale.
These third party suppliers may be unable to handle BEXXAR
therapy in a manner that will minimize loss of or damage to
inventory. We have entered into a contract for storing and
shipping of BEXXAR therapy in the United States. We may
negotiate other contracts for handling of BEXXAR therapy before
it is delivered to the customer. We may be unable to maintain or
establish relationships with third parties or build in-house
distribution capabilities requirements for North America.

We and Amersham Health have agreed to register
BEXXAR therapy in Europe for the treatment of certain types of
NHL and we have agreed that Amersham Health will market BEXXAR
therapy in Europe. We will be responsible for generation of
clinical trial data to support registration in Europe. Amersham
Health will be responsible for manufacture and sale of BEXXAR
therapy in Europe. BEXXAR therapy will be registered by Amersham
Health under a different trade name in Europe. We may be unable
to attain market approval in Europe. Following potential
European approval, we may be unable to maintain or establish
relationships with third parties to effectively commercialize
BEXXAR in Europe.

Employees

As of December 31, 2002, we had
366 employees, 52 of whom hold degrees at the
doctorate level. Of these employees, 200 are engaged in, or
directly support research and development activities,
61 are in production, and 105 are in administration
and business positions. Each of our employees has signed a
confidentiality agreement and none are covered by a collective
bargaining agreement. We have never experienced
employment-related work stoppages and consider our employee
relations to be good.




Item 2.     Properties

We conduct operations at three sites. Our
headquarters are in Seattle, Washington, where we lease
approximately 96,000 square feet of laboratory, discovery,
research and development, manufacturing and general
administration space. In South San Francisco, California, we
maintain an additional 151,000 square feet of laboratory,
research and development, and general administration space. In
addition, we own a 35-acre complex near Hamilton, Montana which
includes a 60,000 square foot building containing laboratory,
pilot plant, commercial manufacturing, marketing and
administrative facilities. The lease for the Seattle facility
expires in January 2005, with an option to renew for two
additional 5-year periods. The lease for the South San Francisco
facility expires in 2010, with an option to renew for two
additional 5-year periods. We believe our existing facilities
are adequate to meet our immediate needs and that suitable
additional space will be available in the future on commercially
reasonable terms as needed.

On October 15, 2002, we entered into a lease
agreement with Life Sciences Building, LLC to house our future
headquarters at the Ninth & Stewart Lifesciences Building in
Seattle, Washington. The lease provides us with approximately
138,000 square feet of office and laboratory space. The lease
will commence on November 1, 2004 if certain improvements
to the building are substantially completed and the term of the

26



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##### Table of Contents



lease is 15 years. In January 2003 we
guaranteed a portion of our obligations under the lease in the
form of a letter of credit in the amount of approximately
$4.5 million.





Item 3.     Legal
Proceedings

We are currently involved in litigation with
IDEC. IDEC filed a complaint in the United States District
Court, Southern District of California, against us and the
Regents of the University of Michigan seeking declaratory
judgment of non-infringement and invalidity of certain of our
patents related to IDECs ZevalinTM product for
the treatment of NHL. We, GSK and the Regents of the University
of Michigan filed a lawsuit in the United States District Court,
District of Delaware, alleging that IDECs activities since
ODACs recommendation for approval of Zevalin infringes our
United States Patent Nos. 5,595,721, 6,015,542, 6,090,365 and
6,287,537. Issued claims in the subject patents cover
composition of matter and methods-of-use in the treatment of
NHL. Pursuant to our lawsuit against IDEC, we, GSK and the
Regents of the University of Michigan are requesting that the
court declare that IDEC is willingly infringing our patents. In
addition, we are seeking available remedies under the patent
laws including monetary damages and permanent injunctive relief.
The United States District Court, Southern District of
California has consolidated the Delaware and Southern District
of California cases and the cases are proceeding before that
court. Litigation is ongoing and we are unable to predict an
outcome at this time. However, an unfavorable outcome of this
matter could have a materially adverse affect on our operating
results from the sale of BEXXAR therapy, if BEXXAR therapy is
approved.




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

No matters were submitted to a vote of securities
holders during the fourth quarter of 2002.




PART II




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

Price range
of common stock

Our common stock has been quoted on Nasdaq under
the symbol CRXA since our initial public offering in
October 1997. Prior to this date our common stock did not trade
publicly.

The following table shows our high and low sales
prices of our common stock as quoted on Nasdaq for each of the
quarters indicated.

|               |  |      |       |     |  |   |      | 
|-------------- |  | ---- | ----- | --- |  | - | ---- | 
|               |  | High |       | Low
|               |  |      |       |    
|2001           |  |      |       |     |  |   |      | 
|First Quarter  |  | $    | 30.13 |     |  | $ | 7.06 | 
|Second Quarter |  |      | 22.50 |     |  |   | 6.25 | 
|Third Quarter  |  |      | 17.91 |     |  |   | 6.87 | 
|Fourth Quarter |  |      | 16.90 |     |  |   | 9.50 | 
|2002           |  |      |       |     |  |   |      | 
|First Quarter  |  |      | 16.00 |     |  |   | 5.38 | 
|Second Quarter |  |      | 7.19  |     |  |   | 4.48 | 
|Third Quarter  |  |      | 6.98  |     |  |   | 5.25 | 
|Fourth Quarter |  |      | 9.23  |     |  |   | 6.03 | 

As of February 18, 2003 we had 1,649 holders
of record of our common stock.

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Dividend
Policy

We have never paid cash dividends on our common
stock and have no plans to do so in the foreseeable future.

Recent
Issuance of Unregistered Securities

As payment of our preferred stock dividend, on
April 8, 2002 we issued to Castle Gate LLC
73,529 shares of our common stock at $5.54 per share
for an aggregate value of approximately $407,000 and on
December 30, 2002 we issued to Castle Gate LLC
73,299 share of our common stock at $6.35 per share for an
aggregate value of approximately $465,000. We issued the shares
in a private placement exempt from registration under
Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933.

On June 24, 2002, we issued 4,599
unregistered shares of our common stock to McMaster University
in consideration for an assignment of a patent. The shares that
we sold to McMaster University were exempt from registration
under Rule 506 of the Securities Act of 1933, as amended,
because McMaster University is an accredited
investor as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.

On August 1, 2002, we issued 5,000
unregistered shares of our common stock to the University of
Washington in consideration for a license to a patent and
certain other proprietary technology owned by the University of
Washington. The shares that we sold to the University of
Washington were exempt from registration under Rule 506 of
the Securities Act of 1933, as amended, because the University
of Washington is an accredited investor as defined
in Rule 501(a) of Regulation D promulgated under the
Securities Act.

On August 14, 2002 we sold 7,322,562 shares
of our common stock for $6.13 per share and issued 5-year
warrants at a purchase price of $0.125 per share to purchase
1,244,836 shares of Corixa common stock at an exercise price of
$6.13 per share, in a private placement to certain institutional
and other accredited investors. We sold the shares and issued
the warrants pursuant to a securities purchase agreement with
the institutional and other accredited investors named on
Exhibit A to the securities purchase agreement. We sold the
shares and issued the warrants in a private placement exempt
from registration under rule 506 of Regulation D and
Section 4(2) of the Securities Act. The shares became
registered pursuant to a registration statement on Form S-3
that we filed on August 16, 2002 and that became effective
on August 27, 2002.

On December 4, 2002, we sold 636,173 shares
of our common stock to Amersham Health at a price per share of
$7.86 for a total purchase price of $5 million. We sold the
shares of common stock pursuant to our October 2001
collaboration agreement with Amersham Health. We issued the
shares in a private placement exempt from registration under
Rule 506 Regulation D and Section 4(2) of the
Securities Act.

On December 9, 2002, we delivered a draw
down notice to BNY Capital Markets, Inc., or CMI, in accordance
with the terms of the equity line financing agreement between us
and CMI and, as a result, a draw down period commenced on
December 10, 2002 and terminated on December 12, 2002.
Pursuant to the equity line financing agreement, CMI purchased
an aggregate of 338,609 shares of our common stock at an average
price per share of $7.75 for a total purchase price of
$2,625,000. The price at which CMI purchased these shares from
us was established under the equity line financing agreement by
reference to prices of our common stock on the Nasdaq National
Market for the period beginning December 10, 2002 and
ending on December 12, 2002, net of a discount of 2%.

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Securities
Authorized for Issuance Under Equity Compensation
Plans

Equity Compensation Plan Information

|                                                               |       |                            |           |                               |  |                                |       |       |  |  |           |           | 
|-------------------------------------------------------------- | ----- | -------------------------- | --------- | ----------------------------- |  | ------------------------------ | ----- | ----- |  |  | --------- | --------- | 
|                                                               |       |                            |           |                               |  | Number of securities remaining
|                                                               |       | Number of securities to be |           |                               |  | available for future issuance 
|                                                               |       | issued upon exercise of    |           | Weighted-average exercise     |  | under equity compensation     
|                                                               |       | outstanding options,       |           | price of outstanding options, |  | plans (excluding securities   
|                                                               |       | warrants and rights        |           | warrants and rights           |  | reflected in column(a))       
|                                                               |       |                            |           |                               |  |                               
|Plan category                                                  |       | (a)                        |           | (b)                           |  | (c)                           
|                                                               |       |                            |           |                               |  |                               
|Equity compensation plans approved by security
    holders     |       |                            | 9,656,221 |                               |  | $                              | 12.06 |       |  |  | 2,645,681 |          
|Equity compensation plans not approved by
    security holders |       |                            |          |                               |  |                                |      |       |  |  |          |          
|                                                               |       |                            |           |                               |  |                                |       |       |  |  |           |          
|                                                               | Total |                            |           | 9,656,221                     |  |                                | $     | 12.06 |  |  |           | 2,645,681 | 
|                                                               |       |                            |           |                               |  |                                |       |       |  |  |           |          

Item 6.     Selected
Consolidated Financial Data

The following selected consolidated financial
data should be read in conjunction with the consolidated
financial statements and related notes included in this Annual
Report, as well as the section of this report entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Historical results
are not necessarily indicative of future results.

|                                                                    |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |        |        | 
|------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------- | -------- | ------- | ------- | ---- | -------- | ------- | ------- | ---- | -------- | ------- | ------- |  | ------- | ------ | ------ |  | ------- | ------ | ------ | 
|                                                                    |                                              |                                         
|                                                                    |                                              | Year Ended December 31,                 
|                                                                    |                                              |                                         
|                                                                    |                                              | 2002                                     |          | 2001    |         | 2000 |          | 1999    |         | 1998
|                                                                    |                                              |                                          |          |         |         |      |          |         |         |     
|                                                                    |                                              |                                         
|                                                                    |                                              | (In thousands, except per share amounts)
|Consolidated Statement of Operations
    Data:                      |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|Revenue:                                                            |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|                                                                    | Collaborative agreements                     |                                          | $        | 46,134  |         |      | $        | 55,128  |         |      | $        | 34,643  |         |  | $       | 25,035 |        |  | $       | 17,003 |       
|                                                                    | Government grants                            |                                          |          | 2,604   |         |      |          | 2,937   |         |      |          | 2,331   |         |  |         | 1,463  |        |  |         | 1,267  |       
|                                                                    |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|                                                                    |                                              | Total revenue                            |          |         | 48,738  |      |          |         | 58,065  |      |          |         | 36,974  |  |         |        | 26,498 |  |         |        | 18,270 | 
|Operating expenses:                                                 |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|                                                                    | Research and development                     |                                          |          | 98,359  |         |      |          | 139,873 |         |      |          | 61,945  |         |  |         | 41,962 |        |  |         | 27,436 |       
|                                                                    | Sales, general and administrative            |                                          |          | 22,249  |         |      |          | 22,650  |         |      |          | 6,702   |         |  |         | 3,743  |        |  |         | 2,672  |       
|                                                                    | Intangible amortization                      |                                          |          | 439     |         |      |          | 56,084  |         |      |          | 4,457   |         |  |         | 587    |        |  |         |       |       
|                                                                    | Acquired in-process research and development |                                          |          |        |         |      |          |        |         |      |          | 629,700 |         |  |         | 37,637 |        |  |         | 12,021 |       
|                                                                    | Goodwill impairment                          |                                          |          | 161,060 |         |      |          |        |         |      |          |        |         |  |         |       |        |  |         |       |       
|                                                                    |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|                                                                    |                                              | Total operating expenses                 |          |         | 282,107 |      |          |         | 218,607 |      |          |         | 702,804 |  |         |        | 83,929 |  |         |        | 42,129 | 
|                                                                    |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|Loss from operations                                                |                                              |                                          | (233,369 | )       |         |      | (160,542 | )       |         |      | (665,830 | )       |         |  | (57,431 | )      |        |  | (23,859 | )     
|Interest and other income, net                                      |                                              |                                          | 25,970   |         |         |      | 12,505   |         |         |      | 4,999    |         |         |  | 2,673   |        |        |  | 2,543   |       
|                                                                    |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|Loss before cumulative effect of change in
    accounting principle |                                              |                                          | (207,399 | )       |         |      | (148,037 | )       |         |      | (660,831 | )       |         |  | (54,758 | )      |        |  | (21,316 | )     
|Cumulative effect of change in accounting
    principle             |                                              |                                          |         |         |         |      |         |         |         |      | (6,338   | )       |         |  |        |        |        |  |        |       
|                                                                    |                                              |                                          |          |         |         |      |          |         |         |      |          |         |         |  |         |        |        |  |         |       
|Net loss                                                            |                                              |                                          | (207,399 | )       |         |      | (148,037 | )       |         |      | (667,169 | )       |         |  | (54,758 | )      |        |  | (21,316 | )     

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|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ---------------------------------------- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                                                  |                           |                                         
|                                                                                                                                                  |                           | Year Ended December 31,                 
|                                                                                                                                                  |                           |                                         
|                                                                                                                                                  |                           | 2002                                     |          | 2001 |  | 2000 |          | 1999 |  | 1998
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |     
|                                                                                                                                                  |                           |                                         
|                                                                                                                                                  |                           | (In thousands, except per share amounts)
|Preferred stock dividend                                                                                                                          |                           |                                          | (767     | )    |  |      | (1,730   | )    |  |      | (9,887   | ) |  |   | (6,008  | )       |   |   |        |        
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|Net loss applicable to common stockholders                                                                                                        |                           | $                                        | (208,166 | )    |  | $    | (149,767 | )    |  | $    | (677,056 | ) |  | $ | (60,766 | )       |   | $ | (21,316 | )      
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|Basic and diluted loss per share before
    cumulative effect of change in accounting principle(1)                                                |                           | $                                        | (4.67    | )    |  | $    | (3.66    | )    |  | $    | (32.00   | ) |  | $ | (3.91   | )       |   | $ | (1.75   | )      
|Cumulative effect of change in accounting
    principle per share                                                                                 |                           |                                          |         |      |  |      |         |      |  |      | (0.30    | ) |  |   |        |         |   |   |        |        
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|Basic and diluted net loss per common share(2)                                                                                                    |                           | $                                        | (4.67    | )    |  | $    | (3.66    | )    |  | $    | (32.30   | ) |  | $ | (3.91   | )       |   | $ | (1.75   | )      
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|Shares used in computation of basic and diluted
    net loss per common share                                                                     |                           |                                          | 44,611   |      |  |      | 40,961   |      |  |      | 20,961   |   |  |   | 15,528  |         |   |   | 12,172  |        
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|Pro forma amounts assuming the accounting change
    is applied retroactively(1):                                                                 |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|                                                                                                                                                  | Net loss                  |                                          |          |      |  |      |          |      |  |      |          |   |  |   | $       | (54,042 | ) |   | $       | (28,370 | )
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|                                                                                                                                                  | Net loss per common share |                                          |          |      |  |      |          |      |  |      |          |   |  |   | $       | (3.87   | ) |   | $       | (2.33   | )
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|Net loss applicable to common stockholders, as if
    FAS 141 and 142 had been adopted at the beginning of
    January 1, 2000 (See Note 3 below) |                           |                                          |          |      |  | $    | (94,122  | )    |  | $    | (673,039 | ) |  |   |         |         |   |   |         |        
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        
|Basic and diluted net loss per share as adjusted                                                                                                  |                           |                                          |          |      |  | $    | (2.30    | )    |  | $    | (32.11   | ) |  |   |         |         |   |   |         |        
|                                                                                                                                                  |                           |                                          |          |      |  |      |          |      |  |      |          |   |  |   |         |         |   |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective January 1, 2000, we changed our
    method of accounting for nonrefundable up-front license fees
    based on the guidance provided in SEC Staff Accounting Bulletin
    No. 101 Revenue Recognition in Financial
    Statements. See Note 1 of Notes to Consolidated
    Financial Statements.
|   
|(2) | See Note 1 of Notes to Consolidated
    Financial Statements for an explanation of the computation of
    the number of shares and the method used to calculate basic and
    diluted net loss per share.                                                                                                  
|   
|(3) | Effective January 1, 2002, we adopted
    Statement of Financial Accounting Standards, or SFAS 141
    Business Combinations and SFAS 142
    Goodwill and Other Intangible Assets. See
    Note 1 of Notes to Consolidated Financial Statements.                                                      

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|                                                             |  |                |            |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------ |  | -------------- | ---------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | - |  | - | ------- | -
|                                                             |  |               
|                                                             |  | December 31,  
|                                                             |  |               
|                                                             |  | 2002           |            | 2001 |  | 2000 |          | 1999 |  | 1998
|                                                             |  |                |            |      |  |      |          |      |  |     
|                                                             |  |               
|                                                             |  | (In thousands)
|Consolidated Balance Sheet Data:                             |  |                |            |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|Cash, cash equivalents and securities
    available-for-sale |  | $              | 116,757    |      |  | $    | 118,723  |      |  | $    | 194,738  |   |  | $ | 45,553  |   |  | $ | 45,141  |  
|Working capital                                              |  |                | 55,792     |      |  |      | 41,824   |      |  |      | 144,504  |   |  |   | 20,919  |   |  |   | 36,979  |  
|Total assets                                                 |  |                | 196,106    |      |  |      | 367,382  |      |  |      | 504,334  |   |  |   | 92,480  |   |  |   | 61,184  |  
|Long-term obligations, less current portion                  |  |                | 6,920      |      |  |      | 27,657   |      |  |      | 33,422   |   |  |   | 11,426  |   |  |   | 11,835  |  
|Redeemable common stock                                      |  |                |           |      |  |      | 2,000    |      |  |      | 2,000    |   |  |   | 2,000   |   |  |   |        |  
|Accumulated deficit                                          |  |                | (1,110,641 | )    |  |      | (903,242 | )    |  |      | (755,205 | ) |  |   | (88,036 | ) |  |   | (33,278 | )
|Total stockholders equity                                   |  |                | 128,392    |      |  |      | 281,765  |      |  |      | 404,575  |   |  |   | 58,781  |   |  |   | 42,184  |  




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

The following discussion should be read together
with our consolidated financial statements and the accompanying
notes included elsewhere in this Annual Report.

Summary of Critical Accounting
Policies

In December 2001, the SEC requested that all
registrants discuss their most critical accounting
policies in managements discussion and analysis of
financial condition and results of operations. The SEC indicated
that a critical accounting policy is one which is
both important to the portrayal of the companys financial
condition and results and requires managements most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. We believe the following accounting
policies for the year ended December 31, 2002, to be
critical:



| |        
| | -------
| | Revenue

Revenue associated with up-front license,
technology access and research and development funding payments
under collaborative agreements is recognized ratably over the
relevant periods specified in the agreement, generally the
research and development period. Generally our collaborative
agreements have included a research and development phase that
span a specified time period. However, in certain cases the
collaborative agreement specifies a research and development
phase which culminates with the completion of a development
work-plan but does not have a fixed date and requires us to
estimate the time period over which to recognize revenue. Our
estimated time periods are based on managements estimate
of the time required to achieve a particular development
milestone considering experience with similar projects, level of
effort and stage of development. If our estimate of the research
and development time period increases the amount of revenue we
recognize related to up front license and technology access fees
for a given period would decrease.



| |                 
| | ----------------
| | Asset Impairment

On January 1, 2002, we adopted SFAS 142,
Goodwill and Other Intangible Assets.Upon
adoption, we performed a transitional impairment test on our
recorded intangible assets that consisted primarily of
acquisition related goodwill and lease intangibles. We also
performed a subsequent interim impairment test on March 13,
2002, due to the presence of impairment indicators as described
in Note 1 to the Consolidated Financial Statements. This
impairment test involved a two-step approach. Step one required
estimating the fair value of the company and comparing it to the
carrying value of recorded and unrecorded assets. Since the
carrying value of the recorded and unrecorded assets exceeded
the estimated fair value, we performed the second step that
required allocating the fair value to all of our assets and
liabilities, including unrecorded intangibles, to determine the
deemed fair value, if any, of goodwill. Both steps required us
to make significant assumptions and estimates, including
determining our fair value and the fair value of our assets and
liabilities. In addition, this process required us to estimate
future cash flows from our research and development projects

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##### Table of Contents



in process and the applicable discount rates. We
engaged an independent third-party valuation specialist to
assist us in our impairment analysis. The analysis resulted in a
$161.1 million goodwill impairment charge in the first
quarter of 2002, which represented the write-off of all goodwill
existing as of the date of the test. In the event of future
acquisitions that result in goodwill being recorded, we will be
required to perform this test on at least an annual basis.


Our intangible assets at December 31, 2002
consist primarily of facility leases assumed in the Coulter
acquisition, which were recorded at fair value on the
acquisition date. We expect to record losses related to these
leases as we enter into sublease arrangements in the future.



| |                              
| | -----------------------------
| | Commitments and Contingencies

We are involved in certain legal proceedings as
discussed in Note 14 to the Consolidated Financial Statements.
We do not believe these legal proceedings will have a material
adverse effect on our consolidated financial position, results
of operations or cash flows. We have not accrued for any legal
contingencies, as the probable outcomes of the cases are not
known. However, an unfavorable outcome of the litigation with
IDEC could have a materially adverse effect on our operating
results from the sale of BEXXAR therapy, if BEXXAR therapy is
approved.

Overview

For over 8 years, we have been engaged in
discovery and development of innovative immunotherapeutic
products to address debilitating and life-threatening conditions
caused by cancer, infectious disease and autoimmune disease.
Creating successful immunotherapeutic products requires
understanding and directing the bodys immune system to
prevent and fight disease. Variations in disease-causing
organisms and human genetics make immunotherapeutic product
development a challenging, complex undertaking, but one that we
believe will have a significant impact on human health in the
coming years. For the years ended December 31, 2002, 2001
and 2000, approximately 95%, 95% and 94%, respectively, of our
revenue resulted from collaborative agreements, and
approximately 5%, 5% and 6%, of our revenue resulted from funds
awarded through government grants. As of December 31, 2002,
we had total stockholders equity of $128.4 million.

We have entered into, and intend to continue to
enter into, collaborative agreements at various stages in the
research and development process. We believe that this active
corporate partnering strategy provides four distinct advantages:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | it focuses on our fundamental strength in
    immunotherapeutic product discovery and selected product
    development; 
|
| |  | it capitalizes on our corporate partners
    strengths in product development, manufacturing and
    commercialization;
|
| |  | it may enable us to retain significant downstream
    participation in product sales; and                               
|
| |  | it reduces our financing requirements.                                                                                  

When entering into corporate partnering
relationships, we seek to cover our research and development
expenses through research funding, milestone payments,
collaborative agreement credit lines, and technology and license
fees. We also endeavor to retain significant downstream
participation in product sales through either profit-sharing or
product royalties paid on annual net sales.

Our material collaborative agreements that
continue to provide us with funding include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Kirin. In December
    2002, we entered into a multiyear development and
    commercialization agreement with Kirin for potential cancer
    vaccine for the treatment of multiple forms of cancer, including
    leukemia, myelodysplasia and melanoma. Under the agreement we
    granted Kirin exclusive rights to develop and market vaccine
    products resulting from our WT1 antigen vaccine program in Asia/
    Australasia. We and Kirin have agreed to share WT1 vaccine
    commercialization rights and Kirin has agreed to fund one-half
    of the research and development costs in North America. We will
    retain

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | marketing rights for the potential vaccine in
    Europe. Upon effectiveness of the agreement, Kirin paid us
    $3 million in up front license fees, which is being
    recorded as revenue over the estimated research and development
    term. Under the terms of the agreement, Kirin has agreed to
    co-fund development of WT1 vaccine products and pay us
    success-based milestone payments and royalties on future product
    sales in Asia/ Australasia.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Kirin has the right to terminate our agreement in
    the event of our material breach. If Kirin terminates our
    agreement because of our material breach within 18 months
    after the effective date of the agreement, Kirin may choose to
    have us pay a termination fee rather than pursue any other
    rights and remedies. Kirin may also choose not to terminate the
    agreement for our material breach, no matter when the breach
    occurs, but instead may keep its licenses intact rather than
    pursue any other rights and remedies, in which case all of
    Kirins payment obligations to us will be reduced. Kirin
    also has the right to terminate our agreement at any time in
    North America, Asia or both territories, and in any of these
    cases Kirin must pay us a termination fee. Both we and Kirin
    have the right to terminate the agreement before commercial
    launch of the first product if together we determine there are
    no products worthy of further development or if any product
    causes a serious adverse event. However, if Kirin chooses to
    terminate the agreement for development or adverse event
    reasons, we have the right to continue product development
    ourselves and depending on further development Kirin may be
    obligated to pay us a termination fee. If we choose to terminate
    the agreement for development or adverse event reasons, Kirin
    will have the right to continue product development and pay us
    royalties in the event of product sales. Kirin also has the
    right to terminate our agreement in the event product
    development and commercialization is prevented due to certain
    third party intellectual property positions. Kirin also has the
    right to terminate our agreement if no product has successfully
    completed clinical trials by ten years after the effective date,
    if no product has achieved regulatory approval in the United
    States or Japan by 12 years after the effective date, our
    performance is delayed by at least 18 months as a result of
    force majeure or we terminate or breach a third party license
    under which Kirin is a sublicensee and as a result Kirin is sued
    or Kirins rights under our agreement are materially
    diminished. In addition, Kirin also has the right to terminate
    the agreement for our bankruptcy or insolvency.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Amersham Health. In
    October 2001, we entered into an agreement whereby Amersham
    Health has agreed to market BEXXAR therapy in Europe. We and
    Amersham Health will cooperate to register BEXXAR in Europe.
    Amersham Health will be the holder of the MAA for BEXXAR therapy
    in Europe. We will be responsible for the generation of clinical
    trial data to support registration in Europe. Amersham Health
    will be responsible for the manufacture and sale of BEXXAR in
    Europe. Upon execution of the agreement Amersham Health
    purchased 271,343 shares of our common stock at a price of
    $18.43 per share, which represented a forty percent premium of
    approximately $1.4 million to the then current market value
    of our common stock. The premium has been accounted for as a
    nonrefundable license payment and was deferred and is being
    recognized as revenue ratably over the term of the agreement,
    consistent with our revenue recognition policy. On
    December 4, 2002, in accordance with the terms of the
    agreement, we sold 636,173 shares of our common stock to
    Amersham Health for a total purchase price of $5 million in
    cash. At our option, Amersham Health has agreed to purchase from
    us an additional $5 million of our common stock at market value
    on or before April 26, 2003. In addition, Amersham Health
    has agreed to pay us milestone payments upon regulatory approval
    in Europe as well as milestone payments based on achievement of
    certain sales volume targets. Amersham Health has agreed to pay
    us royalties on all future product sales in Europe. Amersham
    Health has the right to terminate our agreement for our material
    breach, insolvency, after October 2004 or if commercialization
    of BEXXAR in Europe is blocked because another product is given
    orphan drug status or if the EMEA does not validate our MAA
    because the EMEA determines that the MAA is not sufficient.
|
| |  | Medicis and Zenyaku
    Kogyo. In August 2000, we entered into
    a multiyear development, commercialization and license agreement
    covering our psoriasis immunotherapeutic product, PVAC
    treatment, with Medicis. Under the agreement we provide Medicis
    exclusive rights to PVAC treatment in the United States and
    Canada. We are predominately responsible for development and
    manufacturing, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Medicis will be responsible for commercialization
    and distribution. Under the terms of the agreement, Medicis may
    be required to pay us license fees, research funding and earned
    milestone payments, including commercialization and cumulative
    net sales threshold milestone payments. Medicis made a
    nonrefundable payment of $17 million upon effectiveness of
    the agreement. Additionally, upon commercial sale of the
    product, Medicis has agreed to purchase inventory from us and
    pay a royalty on net sales of the product.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In August 1999, we entered into a corporate
    partnership with Zenyaku Kogyo for researching and developing
    PVAC treatment. Under the agreement we granted Zenyaku Kogyo
    exclusive rights to PVAC treatment in Japan. In May 2002 the
    3-year research term of the agreement expired and Zenyaku
    Kogyos research funding obligation ceased. Under the terms
    of the agreement, Zenyaku Kogyos rights to PVAC treatment
    in Japan continue and they are required to make future milestone
    payments based on successful clinical and commercial progress,
    and a royalty stream on future product sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Each of Medicis and Zenyaku Kogyo has the right
    to terminate its respective agreement upon our material default
    or insolvency. In addition, Medicis has the right to terminate
    our agreement if we fail to meet development milestones as a
    result of force majuere. Medicis also has the right to terminate
    our supply agreement if we fail to supply commercial product two
    or more times in any 5-year period or three times during the
    term of the agreement or if, after a failure to supply, we
    cannot resume supply within 18 months. If Medicis
    terminates our supply agreement for any of these reasons, our
    royalty from Medicis would materially decrease. Zenyaku Kogyo
    has the right to terminate our agreement after receipt of the
    final report from our next PVAC treatment Phase II clinical
    trial, which we expect during 2003, if we and Zenyaku Kogyo
    decide not to proceed with PVAC treatment Phase III
    clinical trials or after commercial launch of PVAC treatment, if
    PVAC treatment is not sufficiently profitable or the sale of
    PVAC is barred by the Japanese government.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Zambon Group and the Pharmaceutical Division
    of Japan Tobacco.During May and June
    1999, we entered into corporate partnerships with Zambon and JT,
    respectively, for the research, development and
    commercialization of vaccine products aimed at preventing and/or
    treating lung cancer. Zambon has exclusive rights to develop and
    sell vaccine products in Europe, the countries of the former
    Soviet Union, Argentina, Brazil and Columbia and co-exclusive
    rights in China. Under the June 1999 agreement we granted JT
    exclusive rights to develop and sell vaccine products outside of
    the territory licensed to Zambon, including the United States
    and Japan, and co-exclusive rights to develop and sell vaccine
    products in China. We also granted Zambon a nonexclusive license
    and JT an option to formulate vaccines that may result from the
    collaboration using our microsphere delivery system with our
    proprietary adjuvants. During 2002, the 3-year research terms of
    the agreements expired and the respective research funding
    obligations ceased. In November 2002, we and Zambon amended our
    agreement so that we jointly fund clinical testing of a
    non-small cell lung cancer vaccine. In addition, Zambons
    option to sell $2.0 million of our common stock back to us
    expired upon termination of the research phase. In December
    2002, we recorded a milestone payment of $1.0 million from
    Zambon in connection with the filing of our IND for a lung
    cancer vaccine candidate in the United States. In January 2003,
    we amended and restated our agreement with JT so that we hold
    exclusive rights to all antigens discovered in our lung cancer
    vaccine program, in all countries previously licensed to JT,
    with the exception of rights associated with commercialization
    of a non small cell, lung carcinoma vaccine candidate in Japan.
    Under the terms of our amended agreement with JT, JT will
    continue to hold an exclusive license to this vaccine candidate
    for development and commercialization in Japan, and we will hold
    all rights in North America and in those territories not
    previously licensed to Zambon. In connection with the
    restructuring of the JT agreement, we and JT have agreed to pay
    each other fees, milestones and royalties in the event that
    development milestones and product sales are achieved.
|
| |  | GSK.Effective
    September 1998, we entered into a comprehensive corporate
    partnership with GSK. Under the agreement we granted GSK an
    exclusive worldwide license to develop, manufacture and sell
    vaccine products and certain dendritic cell therapy products
    that incorporate antigens discovered or in-licensed under this
    corporate partnership. We also granted GSK license rights to
    develop, manufacture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |  |                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | and sell passive immunotherapy products, such as
    T cell or antibody therapeutics, and therapeutic drug
    monitoring products, in each case that incorporate these
    antigens. GSKs rights under the agreement are co-exclusive
    with us in Japan with respect to tuberculosis.



| |  |                                                                                             
| |  | --------------------------------------------------------------------------------------------
| |  | The rights that we granted to GSK under the
    collaboration and license agreement covered:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | our cancer antigen discovery programs in breast,
    colon, ovarian and prostate cancer;                                  
|
| |  | our HER-2/neu breast and ovarian cancer vaccine
    program;                                                              
|
| |  | our mammaglobin breast cancer vaccine program; and                                                                        
|
| |  | our infectious disease antigen discovery programs
    in C. pneumoniae, C. trachomatis and Mycobacterium
    tuberculosis.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To the extent that clinical and commercial
    milestones in the programs are achieved, GSK is required to make
    payments to us. The individual amounts of such payments vary,
    depending on the milestones achieved and the types of product
    sold. GSK is also required to pay us future royalty payments on
    all products sales, which royalties vary depending on the types
    of products sold. On August 31, 2002 the funded research
    and development period of our collaboration and license
    agreement with GSK terminated in all of the cancer fields
    covered by the agreement. GSK extended the funded research and
    development period for an additional 2 years through August 2004
    for the research and development programs for tuberculosis and
    chlamydia vaccines. Under the terms of the extension, GSK is
    required to fund one-half of the actual cost of the tuberculosis
    program and the cost of the chlamydia program for a 2-year
    period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | In January 2003, we and GSK entered into new
    agreements to further advance the development of multiple solid
    tumor vaccines. One of the new agreements extends our and
    GSKs collaborative efforts into vaccine development and
    potential proof-of-principle clinical trials. Under the terms of
    this new agreement, GSK granted us a worldwide, exclusive
    license to develop a vaccine candidate for prostate cancer and a
    vaccine candidate for breast cancer. As a part of this
    agreement, GSK retains the option to buy-back exclusive
    worldwide rights for either or both vaccine candidates following
    the completion of proof-of-principle clinical trials. If GSK
    exercises its buy-back rights, we have the option of
    participating in further development, up to and including a
    sharing of promotion rights in the United States. The buy-back
    price will be based on our research costs incurred under this
    new agreement, plus a premium of 25% and up to an additional
    $3.0 million depending on the stage of development at the
    time GSK exercises its buy-back option. In the event GSK does
    not exercise its buy-back option, we will be free to develop the
    vaccines alone or with other partners and have agreed to pay GSK
    success-based milestones and royalties in the event of product
    sales. Under our new agreement, we will be responsible for
    providing resources and development funding of up to
    $32 million to complete proof-of-principle clinical studies
    over a period of time in excess of 5 years. This funding
    will be used to pay for GMP grade material, production and
    clinical trials for prostate and breast vaccine development
    efforts.
|
| | Under the original agreement, GSK will continue
    development of an alternative version of the prostate cancer
    vaccine at its own expense and has agreed to pay us milestones
    and royalties on potential product sales. Under the original
    agreement, GSK is also continuing the development of our
    HER-2/neu vaccine. A proprietary formulation of this vaccine has
    been manufactured by GSK and an IND application has been
    approved for the products clinical testing in the United
    States. GSK has also agreed to pay us milestones and royalties
    on potential product sales of our HER-2/neu vaccine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | In a related new agreement, we acquired vaccine
    and antibody development rights from GSK to all ovarian cancer
    antigens whose discovery resulted from the original agreement.
    In this related agreement we also acquired from GSK all cancer
    diagnostic rights and T cell adoptive cancer immunotherapy
    rights for all cancer antigens discovered by us in the breast,
    prostate, colon and ovarian cancer fields as well as for the
    HER-2/neu and mammaglobin antigens.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | GSK has the right to terminate any of these
    agreements in the event of our material default of such
    agreement, or our bankruptcy or insolvency. If we materially
    breach our original agreement with GSK,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | GSK may as an alternative to terminating the
    agreement, continue its licenses with a reduction in the amounts
    owed to us as potential milestones and royalties. Under our
    original agreement, GSK also has the right for any reason with
    6 months prior notice to terminate its licenses in the
    breast, prostate and colon fields and for the HER-2/neu and
    mammaglobin antigens, although this termination right does not
    apply to the breast cancer vaccine candidate and prostate cancer
    vaccine candidate that GSK has licensed to us under one of the
    new agreements. Also under the original agreement, GSK has the
    right for any reason with 6 months prior notice to
    terminate its licenses in the tuberculosis and chlamydia fields
    after August 2004. In addition, under our original agreement, if
    an acquisition of us results in a material breach of that
    agreement, GSK would have the right to terminate that agreement
    and we and any of our employees that remain employees of us or
    our acquiror would be precluded from working in any of the
    disease fields covered by our original agreement with GSK for
    2 years after such termination.                                                                                                                                                                                                                                                                                                                                                   
|
| | If we materially breach our new agreement for the
    development of a breast cancer vaccine candidate and prostate
    cancer vaccine candidate because of our failure to perform the
    development program, the rights to those vaccine candidates will
    revert to GSK and we will also be deemed to be in material
    breach of our new agreement under which we acquired from GSK the
    ovarian cancer rights and diagnostic and T cell product rights
    related to our cancer antigens that were included in our
    original agreement. If GSK terminates our new agreement that
    covers ovarian cancer, diagnostics and T cell products, because
    of our material breach, all of the rights under that agreement
    will revert to GSK with the exception of any rights we may have
    granted to any third parties before the termination, and we will
    be required to pay GSK twice the amount of revenues we receive
    from those third parties as would have paid had the agreement
    not been terminated for our material breach.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | As a result of our acquisition of Coulter in
    2000, we acquired the 1998 collaboration agreement between
    Coulter and GSK for the development and commercialization of
    BEXXAR therapy, for which we have completed Phase III clinical
    trials in the United States and which is the subject of a BLA
    currently under review by the FDA for the treatment of NHL.
    Under the agreement, as amended in April 2000, GSKs
    territory was reduced to the United States and, following
    regulatory approval of BEXXAR therapy, GSK would be required to
    pay us a milestone payment. Under the agreement, GSK also
    provided to us a $15 million credit line, which was fully
    drawn in December 2000 (terms and conditions of the credit line
    are discussed further in Footnote 2 in the Notes to the
    Consolidated Financial Statements). On December 17, 2002 we
    presented data on BEXXAR therapy at an ODAC meeting. ODAC agreed
    that the data from clinical trials of BEXXAR therapy provided
    substantial evidence of clinical benefit in rituximab-refractory
    patients and clinical utility in chemotherapy-refractory,
    low-grade and follicular NHL, with or without transformation.
    Under the terms of the agreement, GSK has agreed to reimburse us
    for certain development costs and pay us for the achievement of
    certain defined clinical development, regulatory and sales
    milestones. In 2002, we recognized $7 million for the
    reimbursement of clinical and other development costs from GSK.
|
| | We and GSK have agreed to co-market BEXXAR in the
    United States and share revenue, cost of goods sold, sales and
    marketing costs and other costs associated with BEXXAR related
    activities. Currently, we share the pre-launch cost of marketing
    associated with preparation of the potential commercialization
    of BEXXAR. For 2002, our share of these expenses was
    $4.9 million and has been classified as sales, general and
    administrative expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | We have several license and supply agreements
    with GSK, granting GSK licenses to certain adjuvants for use in
    vaccines for infectious diseases, cancers and allergies that GSK
    is developing. These agreements grant GSK exclusive and
    co-exclusive license rights depending on the disease field and
    territory. Under the terms of the agreements, GSK pays annual
    license fees, milestones, transfer payments and future royalty
    payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | We have an outstanding loan from GSK in the
    amount of $5 million, which amount, together with all
    accrued unpaid interest is due on September 1, 2003. At
    GSKs option, GSK may choose to receive                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| |                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the outstanding principal and accrued unpaid
    interest in cash or shares of our common stock at an undisclosed
    premium to the then-current fair market value of our common
    stock.                                                                                    
|
| | Amounts receivable from GSK at December 31,
    2002 and 2001 were $6.2 million and $2.9 million,
    respectively. For the years ended December 31, 2002, 2001
    and 2000, approximately 47%, 49% and 41% of our revenue resulted
    from collaborative agreements with GSK.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Wyeth.We have
    license and supply agreements with Wyeth, granting Wyeth
    licenses to certain adjuvants for use in vaccines for certain
    infectious disease fields that Wyeth is developing. These
    agreements grant Wyeth exclusive and co-exclusive license rights
    depending on the disease field and territory. Under the terms of
    the agreements, Wyeth pays annual license fees, milestones,
    transfer payments and future royalty payments. We recognized
    revenue of $2.0 million, $906,000 and $962,000 in 2002,
    2001 and 2000, respectively.

As of December 31, 2002, our accumulated
deficit was approximately $1.1 billion, of which
$679.4 million is attributable to the write-off of acquired
in-process research and development, or IPR&D, costs
associated with our acquisitions and $221.2 million is
attributable to goodwill related charges. We may incur
substantial additional operating losses over the next several
years. Such losses have been and may continue to be principally
the result of various costs associated with our discovery,
research and development programs and the purchase of
technology. As noted above, the funded research phase of certain
of our collaborative agreements has expired and we may bear a
larger portion of the related research program costs in the
future. Additionally, as research programs progress from early
stages into clinical development the costs continue to increase.
Substantially all of our revenue to date has resulted from
corporate partnerships, other research, development and
licensing arrangements, research grants and interest income. Our
ability to achieve a consistent, profitable level of operations
depends in large part on entering into corporate partnerships
for product discovery, research, development and
commercialization, obtaining regulatory approvals for our
products and successfully manufacturing and marketing our
products once they are approved. Even if we are successful in
the aforementioned activities our operations may not be
profitable. In addition, payments under corporate partnerships
and licensing arrangements are subject to significant
fluctuations in both timing and amount. Therefore, our operating
results for any period may fluctuate significantly and may not
be comparable to the operating results for any other period.

Results of Operations

Fiscal Years
Ended December 31, 2002, 2001 and 2000

Revenue

Our revenue was $48.7 million for 2002,
$58.1 million in 2001 and $37.0 million in 2000. The
2002 decrease compared with 2001 is primarily due to payments
received in 2001, including a $6.0 million milestone
payment for the achievement of certain clinical trial related
milestones in connection with BEXXAR therapy from our
collaborative agreement with GSK, $2.3 million from our
ex-vivo agreement with IDRI and $2.0 million related to the
expiration of the research phase of our vaccine development
collaborative agreement with GSK. These decreases were partially
offset by increased revenue of approximately $2.7 million
from our collaborative agreement with Beaufour Ipsen related to
our proprietary ANERGIX vaccine platform. 2002 revenue includes
a milestone payment of $1 million from Zambon for the
filing of our IND for a lung cancer vaccine in the United
States. The 2001 increase compared to 2000 was primarily due to
$6.9 million of reimbursement revenue from our
collaborative agreement for BEXXAR therapy with GSK, a
$6.0 million milestone payment for the achievement of
certain clinical trial related milestones in connection with
BEXXAR therapy from our collaborative agreement with GSK and
$3.5 million related to our agreement covering our
psoriasis immunotherapeutic product, PVAC treatment with
Medicis. 2000 revenue includes $1.5 million in milestone
payments for the completion of our initial Phase I/ II clinical
trial related to ANERGIX.RA and acceptance of the IND
application related to PVAC treatment for psoriasis.

Revenue under government grants and contracts in
2002 was $2.6 million, $2.9 million in 2001 and
$2.3 million in 2000. We expect revenue to fluctuate in the
future depending on our ability to enter into new

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collaboration agreements, timing and amounts of
payments under our existing collaboration agreements and our
ability to commercialize our potential products.


Effective January 1, 2000, we changed our
method of accounting for nonrefundable up-front license fees
based on the guidance provided in SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements.

Expenses

Research and
Development Expenses

Our research and development expenses were
$98.4 million for 2002, $139.9 million in 2001 and
$61.9 million in 2000. The 2002 decrease compared with 2001
is due primarily to a reduction in deferred compensation expense
of $11.9 million related to options assumed in the Coulter
acquisition, a reduction in the purchase of third-party
manufactured materials of $8 million, payroll and personnel
expenses of $8.2 million related to our workforce reduction
in South San Francisco, and a decrease in clinical
development activity of $5.8 million, offset by an increase
of $3.9 million in facility expenses due in part to
additional leased space in South San Francisco. We intend
to offset South San Francisco facilities cost through
subleases in the future. The 2001 increase compared with 2000 is
due primarily to an increase of $44.3 million related to
the cost associated with our research and development activities
in our South San Francisco facility subsequent to the
acquisition of Coulter in December 2000, $12.5 million of
deferred compensation expense related to options assumed in the
Coulter acquisition and the expense of raw material purchased in
anticipation of regulatory approval in 2001 of
$9.7 million. In accordance with our accounting policy
regarding research and development expenses, we do not
capitalize these costs prior to product approval. We expect
research and development expenses to increase or remain stable
in the future as we continue to pursue our clinical and
preclinical activities.

Our research and development activities can be
divided into research and preclinical programs and clinical
development programs to treat cancer, infectious disease and
autoimmune disease. We estimate the costs associated with
research and preclinical programs and clinical development
programs approximate the following (in millions):

|                                  |  |      |      |      |  |      |       |  |  |   |      | 
|--------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- |  |  | - | ---- | 
|                                  |  | 2002 |      | 2001 |  | 2000
|                                  |  |      |      |      |  |     
|Research and preclinical programs |  | $    | 45.0 |      |  | $    | 74.3  |  |  | $ | 41.9 | 
|Clinical development programs     |  |      | 53.4 |      |  |      | 65.6  |  |  |   | 20.0 | 
|                                  |  |      |      |      |  |      |       |  |  |   |      | 
|Total research and development    |  | $    | 98.4 |      |  | $    | 139.9 |  |  | $ | 61.9 | 
|                                  |  |      |      |      |  |      |       |  |  |   |      | 

Because of the large number of research projects
we have ongoing at any one time, and the ability to utilize
resources across several projects, the majority of our research
and development costs are not directly tied to any individual
project and are allocated among multiple projects. We manage our
projects by reviewing scientific data and by supplementing this
data with our cost allocations. Our cost allocations are based
primarily on human resource time incurred on each project. The
costs allocated to a project as a result do not necessarily
reflect the actual costs of the project. Accordingly, we do not
maintain actual cost incurred information for our projects on a
project-by-project basis. Costs attributed to research and
preclinical projects largely represent our pipeline generating
activities. Costs associated with clinical development programs
represent the advancement of these activities into product
candidates.

Most of our product development programs are at
an early stage and may not result in any approved products.
Product candidates that may appear promising at early stages of
development may not reach the market for a number of reasons.
Product candidates may be found ineffective or cause harmful
side effects during clinical trials, may take longer to pass
through clinical trials than had been anticipated, may fail to
receive necessary regulatory approvals and may prove
impracticable to manufacture in commercial quantities at
reasonable cost and with acceptable quality. Furthermore, as
part of our business strategy, we may enter into collaborative
arrangements with third parties to complete the development and
commercialization of our product candidates and it is uncertain
which of our product candidates would be subject to future
collaborative

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arrangements. The participation of a
collaborative partner may accelerate the time to completion and
reduce the cost to us of a product candidate or it may delay the
time and increase the cost to us due to the alteration of our
existing strategy. The risks and uncertainties associated with
our research and development projects are discussed more fully
in the section of this report titled  Important
Factors That May Affect Our Business, Our Results of Operations
and Our Stock Price. Because of these risks and
uncertainties, we cannot predict when or whether we will
successfully complete the development of our product candidates
or the ultimate product development cost.


We recorded deferred compensation of
$29.2 million associated with the Coulter acquisition in
2000, which represents the intrinsic value of the unearned
options of Coulter employees existing at the date of
acquisition. Deferred compensation is being amortized on a
graded vesting method over the remaining vesting period of the
options. We amortized $1.3 million and $13.2 million
of deferred compensation to research and development expense in
2002 and 2001, respectively. We expect deferred compensation
expense to decrease in 2003 and future years due to employee
attrition, employee stock options vesting and the declining
impact from using the graded vesting approach for calculating
deferred compensation expense.

Sales,
General and Administrative Expenses

Our sales, general and administrative expenses
were $22.2 million for 2002, $22.7 million in 2001 and
$6.7 million in 2000. The 2002 decrease compared with 2001
was due primarily to reduced marketing and sales expenses of
$1.7 million related to our workforce reduction in South
San Francisco and a reduction in deferred compensation
expense of $1.3 million related to options assumed in the
Coulter merger. These decreases were partially offset by an
increase in facility expenses of $730,000 due in part to
additional leased space in South San Francisco. The 2001
increase compared with 2000 was primarily due to
$14.2 million related to the cost associated with our South
San Francisco facility subsequent to the acquisition of
Coulter in December 2000. We also recognized expense of
$4.9 million and $3.5 million in 2002 and 2001,
respectively for our portion of pre-launch marketing costs
associated with BEXXAR therapy. We expect sales, general and
administrative expenses to increase in the future to support the
expansion of our business activities as we expand our sales and
marketing capabilities.

Intangible
Amortization and Goodwill Impairment

Our intangible amortization expense was $439,000
for 2002 compared to $56.1 million for 2001 and
$4.5 million for 2000. Effective January 1, 2002, we
adopted SFAS 141, Business Combinationsand SFAS 142, Goodwill and Other Intangible
Assets.Under SFAS 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be
amortized but will be subject to an annual impairment test, or
more frequently if impairment indicators arise. We will continue
to amortize separable intangible assets that are not deemed to
have indefinite useful lives. As such, we will continue to
amortize the acquired lease and adjuvant know-how over their
useful lives. In accordance with the transition provision of
SFAS 142 an evaluation of goodwill and other intangibles
was done on January 1, 2002 and no indication of impairment
existed at that time.

On March 12, 2002, we received a second
complete review letter from the FDA regarding our BLA for BEXXAR
therapy. In the complete review letter, the FDA stated that
additional clinical studies will be required to provide
sufficient evidence of the safety and net clinical benefit of
BEXXAR therapy.

Upon announcement on March 13, 2002 of the
receipt of the complete review letter from the FDA, the value of
our common stock declined. In managements opinion, the
decline in our stock price represented an indication of
impairment of recorded goodwill. In accordance with
SFAS 142, an interim test of goodwill impairment was
performed as of March 13, 2002. The impairment test
involves a two step approach. Under step one of the test we
compared our estimated fair value based upon the market price of
our common stock to the carrying value of our equity. Because
the carrying value of our equity exceeded our fair value, we
performed step-two of the test which involved allocating our
fair value (the reporting unit) to all of our assets and
liabilities to determine how much, if any, of the excess value
should be allocated to goodwill. The results

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of the impairment test indicated that no goodwill
was present and accordingly, we recognized a $161.1 million
goodwill impairment charge in the first quarter of 2002.


Acquired
In-Process Research and Development

We recorded IPR&D expense of
$629.7 million in 2000 as a result of our December 22,
2000 acquisition of Coulter. We purchased Coulter for
approximately $917.1 million, which consideration consisted
of 19,114,649 shares of our common stock valued at
$806.8 million, assumed Coulter stock options valued at
$132.4 million, less $29.2 million associated with the
intrinsic value of unvested options, and transaction costs of
approximately $7.1 million. The $29.2 million was
recorded as deferred compensation and is being amortized as
compensation expense over the remaining vesting periods of up to
four years. As a result of the acquisition, we recorded an
acquired IPR&D charge of $629.7 million and
acquisition-related intangibles of $223.9 million, which
included goodwill of $204.6 million, an assumed lease
arrangement of $15.4 million and an assembled workforce of
$3.9 million, which was subsequently reclassified to
goodwill as a result of the adoption of SFAS 142.

Acquired IPR&D for the above acquisition
represents the present value of the estimated after-tax cash
flows expected to be generated by the purchased technology,
which, at the acquisition date, had not yet reached
technological feasibility. The cash flow projections for
revenues were based on estimates of growth rates and the
aggregate size of the respective markets for each product;
probability of technical success given the stage of development
at the time of acquisition; royalty rates based on prior
licensing agreements; product sales cycles; and the estimated
life of a products underlying technology. Estimated
operating expenses and income taxes were deducted from estimated
revenue projections to arrive at estimated after-tax cash flows.
Projected operating expenses include general and administrative
expenses, and research and development costs. The rate utilized
to discount projected cash flows ranged from 30% to 55% for
in-process technologies and was based primarily on venture
capital rates of return and the weighted average cost of capital
for us at the time of acquisition.

At the acquisition date, Coulters IPR&D
projects consisted of BEXXAR therapy, a radioisotope,
(131)Iodine, or (131)I, combined with a monoclonal antibody that
recognizes and binds to the CD20 antigen, an antigen commonly
expressed on the surface of B cells primarily during that stage
of their life cycle when NHL arises; 64G12, a monoclonal
antibody that binds to sub-unit one of the type I interferon
receptor and neutralizes the activity of all type I interferons
and may provide therapeutic benefit in a number of autoimmune
diseases, including RA, systemic lupus erythematosus,
Crohns disease, graft-versus-host disease and solid organ
transplantation rejection and CPI-0004, a tumor activated
peptide, or TAP, a proprietary molecule based on a peptide of
four amino acids that is linked to doxorubicin. CPI-0004 is
designed to deliver significantly higher levels of doxorubicin
to a tumor site relative to normal tissues. Doxorubicin, is an
off-patent chemotherapeutic drug that currently is used in
treating a number of solid tumor cancers. In the second quarter
of 2002 we sold specific preclinical assets to Medarex, Inc.,
including 64G12 and CPI-0004.

On December 17, 2002 we presented data on
BEXXAR therapy, our most advanced product candidate, at an ODAC,
meeting. ODAC agreed that the data from clinical trials of
BEXXAR therapy provided substantial evidence of clinical benefit
in rituximab-refractory patients and clinical utility in
chemotherapy-refractory, low-grade and follicular NHL, with or
without transformation. The FDA is not bound by ODACs
action, but often takes ODACs recommendations into
consideration when determining marketing approval of a new
product. The new Prescription Drug User Fee Act goal date for
the FDA to complete its review of all materials regarding BEXXAR
therapy is May 2, 2003.

We based all of the estimates and projections
related to the IPR&D projects for Coulter on assumptions we
believed to be reasonable at the time of each acquisition but
that are inherently uncertain and unpredictable. If we do not
successfully develop these projects, our business, operating
results, and financial condition may be adversely affected. As
of the date of each acquisition, we concluded that once
completed, the technologies under development can only be
economically used for their specific and intended purposes and
that such in-process technologies have no alternative future use
after taking into consideration the overall objectives of the
project, progress toward the objectives, and uniqueness of
developments to these objectives. If

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the projects fail, the economic contribution
expected to be made by the in-process research and development
will not materialize. The risk of untimely completion includes
the risk that competitors will develop alternative products.


Interest Income

Our interest income decreased to
$4.3 million for 2002, from $9.3 million in 2001 and
from $5.4 million in 2000. The decrease in interest income
is based on lower average investment balances and lower yields
compared with prior years.

Interest Expense

Our interest expense was $2.3 million for
the years ended December 31, 2002 and 2001, compared with
$810,000 in 2000. The 2001 increase compared with 2000 was
primarily attributable to higher loan and capital lease
financing balances. Outstanding debt at December 31, 2002,
2001 and 2000 was $32.1 million, $33.4 million and
$39.7 million, respectively.

Other Income

Our other income was $24.0 million for 2002
compared with $5.5 million in 2001 and $431,000 in 2000.
The increase in other income for 2002 is primarily attributable
to the sale of specific preclinical assets to Medarex in the
second quarter of 2002 resulting in other income of
$21.0 million. Under the terms of the sale, we received
$3.5 million in the form of 356,706 shares of Medarex
common stock at the closing of the transaction and received the
remaining $17.5 million in five consecutive monthly
payments. In addition, we recorded a gain on the sale of fixed
assets to Medarex of approximately $1.0 million in the
second quarter of 2002. Other income for 2001 includes a gain of
$4.5 million on the sale of our investment in Abgenix.
Other income for 2000 includes a gain of $216,000 on the partial
sale of our investment in Abgenix and $208,000 in sublease
rental receipts.

Cumulative Effect of Change in Accounting
Principle

Effective January 1, 2000, we changed our
method of accounting for nonrefundable up-front license fees
based on the guidance provided in SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statementsto recognize such fees over the term of the
related research and development collaboration arrangement on a
straight-line basis, as this method best matches the effort
provided. The $6.3 million cumulative effect of the change
in accounting principle, calculated as of January 1, 2000,
was reported as a charge in the year ended December 31,
2000. The cumulative effect was initially recorded as deferred
revenue and will be recognized as revenue over the remaining
term of the research and development collaboration agreements.
For the year ended December 31, 2000, the impact of the
change in accounting was to increase net loss by
$3.9 million, or $0.19 per share, comprised of the
$6.3 million cumulative effect of the change as described
above ($0.30 per share) less $2.4 million of the deferred
revenue related to the cumulative effect adjustment that was
recognized as revenue during the year ($0.11 per share). Revenue
includes $1.5 million for 2002 and $2.4 million for
2001 and 2000 that was previously recognized and included in the
cumulative effect adjustment.

Liquidity and Capital Resources

We have financed our operations primarily through
funding from collaborative agreements and the issuance of equity
securities and debt instruments. For the previous three years,
we have received cash of approximately $148.5 million from
collaborative research agreements and grants, $37.5 million
from the issuance of Series B preferred stock under an
equity line of credit, approximately $42.8 million from the
sale of 7.3 million newly issued shares of our common stock
and 1.2 million five-year warrants to purchase our common
stock in a private placement to select institutional and other
accredited investors, $21 million from the sale of
preclinical assets to Medarex, $11.5 million from a bank
loan and $2.6 million from the issuance of

41



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common stock under our equity line facility with
CMI. During 2002, 2001 and 2000 we received total research and
development funding of $25.2 million under our vaccine
discovery collaboration with GSK.


As of December 31, 2002, future funding
available under terms of our existing agreements is
approximately $43.4 million excluding milestone payments,
which are contingent upon the success of the research. At our
option, Amersham Health has agreed to purchase from us an
additional $5 million of our common stock at market value
on or before April 26, 2003. As of December 31, 2002,
we had approximately $116.8 million in cash, cash
equivalents and securities available-for-sale, which includes a
certificate of deposit of $6.9 million that secures a
financing agreement. We have available to us approximately
$72 million under the equity line facility with CMI,
subject to certain conditions related to minimum stock price and
trading volume.

The following are contractual commitments at
December 31, 2002 associated with debt obligations, lease
obligations and credit lines (in thousands):

|                              |  |                        |        |        |  |           |        |           |  |            |        |  |  |   |       |  |  |   |        | 
|----------------------------- |  | ---------------------- | ------ | ------ |  | --------- | ------ | --------- |  | ---------- | ------ |  |  | - | ----- |  |  | - | ------ | 
|                              |  |                       
|                              |  | Payments Due by Period
|                              |  |                       
|Contractual Commitment        |  | Total                  |        | 1 year |  | 2-3 years |        | 4-5 years |  | Thereafter
|                              |  |                        |        |        |  |           |        |           |  |           
|Long-term obligations         |  | $                      | 28,094 |        |  | $         | 23,813 |           |  | $          | 4,281  |  |  | $ |      |  |  | $ |       | 
|Capital lease obligations     |  |                        | 3,977  |        |  |           | 1,339  |           |  |            | 2,387  |  |  |   | 251   |  |  |   |       | 
|Operating leases              |  |                        | 41,771 |        |  |           | 9,152  |           |  |            | 14,461 |  |  |   | 7,614 |  |  |   | 10,544 | 
|BI Pharma                     |  |                        | 5,293  |        |  |           | 5,293  |           |  |            |       |  |  |   |      |  |  |   |       | 
|                              |  |                        |        |        |  |           |        |           |  |            |        |  |  |   |       |  |  |   |        | 
|Total contractual commitments |  | $                      | 79,135 |        |  | $         | 39,597 |           |  | $          | 21,129 |  |  | $ | 7,865 |  |  | $ | 10,544 | 
|                              |  |                        |        |        |  |           |        |           |  |            |        |  |  |   |       |  |  |   |        | 

Included in long-term obligations is a
$15 million line of credit that has been fully drawn and at
our option may be paid in cash or in shares of our common stock
on or prior to the October 2003 maturity date.

We are also required to pay dividends on our
preferred stock. The dividend can be paid in cash or common
stock, at our option. The maximum amount of cash that would be
paid in a year would be $2.5 million and the maximum number
of shares of common stock that would be issued is 146,828.

During 2002, we used $45.0 million of cash
in our operations, compared with $65.8 million in 2001 and
$23.7 million in 2000. The decrease in cash used in
operations from 2001 to 2002 is due primarily to the reduced
workforce in our South San Francisco operations. Our
investing activities provided cash of $9.5 million in 2002,
compared with cash provided of $50.1 million in 2001 and
cash used of $30.7 million in 2000. The decrease in cash
provided by investing activities in 2002 was primarily due to
reduced sales of available-for-sale-securities. Our financing
activities provided cash of $49.5 million in 2002 compared with
$1.9 million in 2001 and $100.7 million in 2000. The
increase in 2002 of cash received from financing activities was
due primarily to proceeds of $42.8 million from the sale of
our common stock in a private placement to select institutional
and other accredited investors.

For 2002, 2001 and 2000, we invested
$6.3 million, $18.1 million and $3.0 million,
respectively, in property and equipment.

We believe that our existing capital resources,
committed payments under our existing corporate partnerships,
bank credit agreements, the CMI equity line facility, equipment
financing and interest income will be sufficient to fund our
current and planned operations over at least the next
18 months. Our future capital requirements will depend on
many factors, including, among others:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | continued scientific progress in our discovery,
    research and product development programs;                    
|
| |  | progress with preclinical studies and clinical
    trials;                                                        
|
| |  | the magnitude and scope of our discovery,
    research and development programs;                                  
|
| |  | our ability to maintain existing, and establish
    additional, corporate partnerships and licensing arrangements;
|
| |  | the time and costs involved in obtaining
    regulatory approvals;                                                

42



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##### Table of Contents





| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | the time and costs involved in expanding and
    maintaining our manufacturing facilities;                   
|
| |  | the costs involved in preparing, filing,
    prosecuting, maintaining, defending and enforcing patent claims;
|
| |  | the potential need to develop, acquire or license
    new technologies and products; and                     
|
| |  | other factors not within our control.                                                                        

In addition, we intend to seek additional funding
through corporate partnerships, and also may seek additional
funding through:



| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | public or private equity financings, which could
    result in significant dilution to our stockholders;
|
| |  | public or private debt financings; and                                                                  
|
| |  | additional capital lease transactions.                                                                  

However, additional financing may be unavailable
on acceptable terms, if at all. If sufficient capital is not
available, we may be forced to limit some or all of our research
and development programs and related operations, curtail
commercialization of our product candidates and, ultimately,
cease operations.

New
Accounting Pronouncements

In June 2002, the Financial Accounting Standards
Board, or, FASB, issued Statement No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. The standard addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force, or
EITF, Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). Statement No. 146 states that a
liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair
value in the period in which the liability is incurred, except
for a liability for one-time termination benefits that are
incurred over a period of time. The standard will be effective
for exit or disposal activities initiated after
December 31, 2002. We do not expect the adoption of
SFAS 146 to have a significant impact on our financial
position or results of operations.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No. 5, 57 and 107 and
Rescission of FASB Interpretation No. 34. FIN 45
clarifies the requirements of SFAS No. 5,
Accounting for Contingencies, relating to the
guarantors accounting for, and disclosure of, the issuance
of certain types of guarantees. The disclosure provisions of
FIN 45 are effective for financial statements of periods
that end after December 15, 2002. However, the provisions
for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified
after December 31, 2002. This Interpretation does not
currently have any impact on our consolidated results of
operations, financial position or disclosure.

On December 31, 2002, FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure.
SFAS No. 148 amends SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS No. 148 requires
accounting policy note disclosures to provide the method of
stock option accounting for each year presented in the financial
statements and, for each year until all years presented in the
financial statements recognize the fair value of stock-based
compensation. Also, SFAS No. 148 provides two
additional transition methods that eliminate the ramp-up effect
resulting from applying the expense recognition provisions of
SFAS No. 123. The transition provisions and annual
statement disclosure requirements of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002.
The interim statement disclosure requirements are effective for
the first interim statement that includes financial information
after December 15, 2002. We do not believe there will be a
material financial effect from the adoption of this new standard
unless we were to make a change in our accounting policy and
account for stock option grants as compensation expense.

In January 2003, the FASB issued FASB
Interpretation No. 46, or FIN 46,
Consolidation of Variable Interest Entities.FIN 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated

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##### Table of Contents



Financial
Statements, to certain entities
in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN 46 applies immediately to variable interest entities
created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. FIN 46 applies to
public enterprises as of the beginning of the applicable interim
or annual period. The Company does not believe there will be a
material effect upon its financial condition or results of
operations from the adoption of the provisions of FIN 46.





Item 7A.     Quantitative
and Qualitative Disclosure About Market Risk

Interest Rate
Risk

Our exposure to market risk for changes in
interest rates relates primarily to our investment portfolio and
our long-term debt. All of our cash equivalent and marketable
fixed income securities are designated as available-for-sale
and, accordingly, are presented at fair value on our balance
sheets. We generally invest our excess cash in A-rated or higher
short- to intermediate-term fixed income securities and money
market mutual funds. Fixed rate securities may have their fair
market value adversely affected due to a rise in interest rates,
and we may suffer losses in principal if forced to sell
securities that have declined in market value due to changes in
interest rates.

At December 31, 2002, we had long-term
obligations outstanding of approximately $6.9 million. Our
payment commitments associated with these debt instruments are
fixed during the corresponding terms and are comprised of
interest payments, principal payments, or a combination thereof.
The market value of our long-term debt will fluctuate with
movements of interest rates, increasing in periods of declining
rates of interest, and declining in periods of increasing rates
of interest.

The table below summarizes the estimated effects
on certain assets and liabilities based on hypothetical
increases and decreases in interest rates. It is assumed the
changes occur immediately and uniformly to each category of
instrument containing interest rate risks. Significant
variations in market interest rates could produce changes in the
timing of repayments due to available prepayment options. The
fair value of such instruments could be affected and, therefore,
actual results might differ from those reflected in the
following table:

|             |                                                    |                   |   |                     |  |               |                 |                 |  |  |        |        |  |  |     |   | 
|------------ | -------------------------------------------------- | ----------------- | - | ------------------- |  | ------------- | --------------- | --------------- |  |  | ------ | ------ |  |  | --- | - | 
|             |                                                    |                   |   | Estimated           |  | Fair Value    |                 | Hypothetical   
|             |                                                    |                   |   | Hypothetical        |  | After         |                 | Percentage     
|             |                                                    |                   |   | Change in           |  | Hypothetical  |                 | Decrease in    
|             |                                                    | Fair Value at     |   | Interest Rate       |  | Change in     |                 | Stockholders  
|             |                                                    | December 31, 2002 |   | (bp = basis points) |  | Interest Rate |                 | Equity         
|             |                                                    |                   |   |                     |  |               |                 |                
|             |                                                    |                  
|             |                                                    | (In thousands)   
|Assets:      |                                                    |                   |   |                     |  |               |                 |                 |  |  |        |        |  |  |     |  
|             | U.S. government agencies and corporate obligations |                   | $ | 69,394              |  |               |                 | 100 bp decrease |  |  | $      | 70,656 |  |  |     | * | 
|             |                                                    |                   |   |                     |  |               | 100 bp increase |                 |  |  | 68,172 |        |  |  | *   |  
|             |                                                    |                   |   |                     |  |               | 200 bp increase |                 |  |  | 66,984 |        |  |  | 1.9 | %
|             |                                                    |                   |   |                     |  |               | 300 bp increase |                 |  |  | 65,835 |        |  |  | 2.8 | %
|Liabilities: |                                                    |                   |   |                     |  |               |                 |                 |  |  |        |        |  |  |     |  
|             | Long-term obligations                              |                   | $ | 6,920               |  |               |                 | 100 bp decrease |  |  | $      | 7,012  |  |  |     | * | 
|             |                                                    |                   |   |                     |  |               | 100 bp increase |                 |  |  | 6,829  |        |  |  | *   |  
|             |                                                    |                   |   |                     |  |               | 200 bp increase |                 |  |  | 6,742  |        |  |  | *   |  
|             |                                                    |                   |   |                     |  |               | 300 bp increase |                 |  |  | 6,656  |        |  |  | *   |  



---



|  |             
|- | ------------
|* | Less than 1%

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Important Factors That May Affect Our
Businesses, Our Results of Operations and Our Stock
Price.



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | We are at an early stage of product
    development and may not be able to successfully commercialize
    our product candidates.

We are at an early stage in the development of
the majority of our therapeutic, prophylactic and diagnostic
product candidates. The development of safe and effective
therapies for treating people with cancer, infectious diseases
or autoimmune diseases is highly uncertain and subject to
numerous risks. Product candidates that may appear to be
promising at early stages of development may not reach the
market for a number of reasons. Product candidates may be found
ineffective or cause harmful side effects during clinical
trials, may take longer to progress through clinical trials than
had been anticipated, may fail to receive necessary regulatory
approvals, may prove impracticable to manufacture in commercial
quantities at reasonable cost and with acceptable quality or may
fail to achieve market acceptance.

We have not commercialized any products, other
than MELACINE vaccine, our melanoma vaccine, which is approved
for sale in Canada, and an immunotherapeutic product that has
been approved on a named-patient basis in Germany, Spain, Italy
and the U.K. which product incorporates our MPL adjuvant, our
proprietary adjuvant, added to the product to heighten the
immune response to the products antigens.

The FDA is currently reviewing our BLA for BEXXAR
therapy, our most advanced product candidate. On
December 17, 2002 we presented data on BEXXAR therapy at an
ODAC meeting. ODAC agreed that the data from clinical trials of
BEXXAR therapy provided substantial evidence of clinical benefit
in rituximab-refractory patients and clinical utility in
chemotherapy-refractory, low-grade and follicular NHL, with or
without transformation.

The FDA is not bound by ODACs action, but
often takes ODACs recommendations into consideration when
determining marketing approval of a new product. We may not be
successful in obtaining regulatory approval for BEXXAR therapy
or any of our other product candidates, or in commercializing
these product candidates if approval is obtained.



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our product candidates are subject to a
    government regulatory approval process that is uncertain,
    time-consuming and expensive and may not result in any approved
    products.

Any products that we develop are subject to
regulation by federal, state and local governmental authorities
in the United States, including the FDA, and by similar agencies
in other countries. Any product that we develop must receive all
relevant regulatory approvals or clearances before it may be
marketed in a particular country.

The regulatory process, which includes extensive
preclinical studies and clinical trials of each product
candidate in order to study its safety and efficacy, is
uncertain, can take many years and requires the expenditure of
substantial resources. Clinical trials of our product candidates
may not demonstrate safety and efficacy to the extent necessary
to obtain regulatory approvals for the indications being
studied, if at all. Companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in
advanced clinical trials, even after obtaining promising results
in earlier trials. The failure to demonstrate adequately the
safety and efficacy of any of the product candidates by us could
delay or prevent regulatory approval of the product candidate.

The timing and completion of current and planned
clinical trials of our product candidates depend on, among other
factors, the rate at which patients are enrolled, which is a
function of many factors, including:



| |   |                                                 
| | - | ------------------------------------------------
| |  | the size of the patient population;             
|
| |  | the proximity of patients to the clinical sites;
|
| |  | the number of clinical sites;                   
|
| |  | the eligibility criteria for the study;         

45



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##### Table of Contents





| |   |                                                 
| | - | ------------------------------------------------
| |  | the existence of competing clinical trials; and 
|
| |  | the existence of alternative available products.

Delays in patient enrollment in clinical trials
may occur, which may result in increased costs, program delays
or both.

Data obtained from preclinical and clinical
activities are susceptible to varying interpretations, which
could delay, limit or prevent regulatory approval. Data from a
Phase III clinical trial of MELACINE vaccine, with the
primary endpoint being the comparison of disease-free survival
between patients with Stage II melanoma who, following
surgical removal, received MELACINE vaccine versus observation
only, showed no statistically significant difference in
disease-free survival of the eligible patient population. Recent
discussions with the FDA regarding the outcome of this trial
have determined that approval of MELACINE vaccine in the United
States will require an additional clinical trial. In addition,
we may encounter delays, or the FDA may reject our product
candidates, based on changes in regulatory policy during the
period of product development, extension of the period of review
of any application for regulatory approval or other factors
beyond our control. Delays in obtaining regulatory approvals



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | would adversely affect the marketing of any
    products we develop;                          
|
| |  | could impose significant additional costs on us;                                              
|
| |  | would diminish any competitive advantages that we
    may attain; and                         
|
| |  | could adversely affect our ability to receive
    royalties and generate revenues and profits.

For example, we filed our BLA for BEXXAR therapy
in June 1999 and almost three years later, we have not obtained
regulatory approval for BEXXAR therapy. We may not be successful
in obtaining regulatory approval for BEXXAR therapy or any of
our other product candidates, or in commercializing these
product candidates if approval is obtained.

Regulatory approval, if granted, may entail
limitations on the indicated uses for which the approved product
may be marketed. These limitations could reduce the size of the
potential market for the product. Product approvals, once
granted, may be withdrawn if problems occur after initial
marketing. Further, manufacturers of approved products are
subject to ongoing regulation, including compliance with FDA
regulations governing GMP. Failure to comply with manufacturing
regulations can result in, among other things, warning letters,
fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, refusal of
the government to renew marketing applications and criminal
prosecution.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | We have limited experience in manufacturing
    and may encounter problems or delays that could result in lost
    revenue.

Our current manufacturing facilities may not be
sufficient to support our needs for clinical quantities of our
product candidates or commercial quantities of our current
products. We have no experience producing commercial quantities
of any product, with the exception of limited experience
producing MELACINE vaccine for sale in Canada, and we have
limited experience in producing clinical-grade amounts of our
proprietary immunotherapeutic products, including recombinant
proteins or antibodies. We currently manufacture only limited
quantities of some antigens and several adjuvants.

If we are unable to manufacture our product
candidates in accordance with clinical GMP regulations, the
consequent lack of supply of the product candidates could delay
our clinical programs or limit our sales of commercial products.
We intend to rely on third-party contract manufacturers to
produce larger quantities of recombinant protein or other cell
culture-based biologicals for clinical trials and product
commercialization. Either we or our contract manufacturers may
be unable to manufacture our proprietary antigen vaccines or
other immunotherapeutic products at a cost or in quantities
necessary to make them commercially viable. Third-party
manufacturers also may be unable to meet our needs with respect
to timing, quantity or quality. If we are unable to contract for
a sufficient supply of required products on acceptable terms, or
if we encounter delays or difficulties in our relationships with
these manufacturers, our preclinical and clinical testing would
be

46



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##### Table of Contents



delayed, thereby delaying submission of products
for regulatory approval, or the market introduction and
commercial sale of the products. Moreover, contract
manufacturers that we may use must continually adhere to current
GMP regulations enforced by the FDA through its facilities
inspection program. If the facilities of those manufacturers
cannot pass a pre-approval plant inspection, the FDA approval of
our product candidates may be delayed or denied.




| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Even if BEXXAR therapy receives FDA
    approval, we may be unable to manufacture commercial quantities
    for sale.

BEXXAR therapy contains a radiolabeled antibody,
which is an antibody linked to an isotope. We have no existing
internal capacity or experience with respect to manufacturing
radiolabeled antibodies for large-scale clinical trials or
commercial purposes. We have entered into an agreement with BI
Pharma KG to produce bulk tositumomab and fill the individual
product vials with tositumomab. We have contracted with BI
Pharma KG and a third-party supplier for labeling and packaging
services. These manufacturers have limited experience producing,
labeling and packaging tositumomab, and they may be unable to
produce our requirements in commercial quantities or with
acceptable quality.

We have entered into an agreement with Nordion,
for radiolabeling for United States supply the tositumomab
component of BEXXAR therapy at Nordions centralized
radiolabeling facility. This agreement expires on May 31,
2004. We are actively negotiating with Nordion to enter into a
new agreement to radiolabel tositumomab. If we are unable to
finalize a new agreement with Nordion on acceptable terms, we
will need to secure a new source of radiolabeling. Although we
are evaluating additional sources of radiolabeling, we may be
unable to secure additional sources on commercially reasonable
terms or on a timely basis, if at all. Under our agreement with
Amersham Health, Amersham Health is responsible for
radiolabeling the European supply of the tositumomab component
of BEXXAR therapy. Neither Nordion nor Amersham Health may be
able to produce sufficient radiolabeled antibodies to meet our
clinical requirements and, if BEXXAR therapy is approved and is
successful in the market, our commercial requirements for the
respective territories.

We are aware of only a limited number of
manufacturers capable of producing tositumomab in commercial
quantities or radiolabeling the antibody with the (131) I
radioisotope on a commercial scale. To establish and qualify a
new facility to centrally radiolabel antibodies could take three
years or longer. Accordingly, if we are unable to reach a
satisfactory agreement with Nordion or to establish a new source
of radiolabeling before the expiration of our existing agreement
with Nordion, our ability to market BEXXAR therapy in the United
States could be harmed, if BEXXAR therapy is approved for sale
in the United States at that time.

Even if we reach a satisfactory agreement with
Nordion or another partner, Nordion or that partner may be
unable to produce our requirements in commercial quantities or
with acceptable quality. Radiolabeled antibody cannot be
stockpiled against future shortages due to the 8-day half-life
of the (131) I radioisotope. Accordingly, any
interruption in supply from Nordion or another supplier could
harm our sales of BEXXAR therapy if and when it is approved for
sale.



| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Even if BEXXAR therapy receives FDA
    approval, if we are unable to establish or maintain distribution
    capabilities, we may not successfully commercialize the
    product.

The unique properties of BEXXAR therapy require
tightly controlled distribution of the product. We may be unable
to maintain or establish relationships with third parties or
build in-house distribution capabilities to meet requirements
for North America. If we are unable to establish or maintain
these capabilities, we may not be able to successfully
commercialize the product in North America. Due to its
radioactive component, BEXXAR therapy is shipped in shielded
containers and must arrive at its destination within 24-48 hours
of production. BEXXAR therapy must also be temperature
controlled during shipment. We will rely on many third party
suppliers to process orders and to package, store and ship
BEXXAR therapy. We are working with suppliers to minimize risk
and loss of inventory and provide efficient service to customers
in the event BEXXAR therapy is approved for commercial sale.
These third party suppliers may be unable to handle BEXXAR
therapy in a manner that will minimize loss of or damage to
inventory.

47



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##### Table of Contents





| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Acceptance of BEXXAR therapy in the
    marketplace is uncertain and failure to achieve market
    acceptance will limit our potential revenue from sales of BEXXAR
    therapy.

If BEXXAR therapy is approved, it would require
medical personnel to handle radioactive materials. Doctors may
prefer to continue to treat NHL patients with conventional
therapies, in this case chemotherapy and biologics. Further,
oncologists and hematologists are not typically licensed to
administer radioimmunotherapies such as BEXXAR therapy and will
need to engage a nuclear medicine physician or receive specialty
training to administer BEXXAR therapy. Nuclear Regulatory
Commission regulations permit BEXXAR therapy to be administered
on an outpatient basis in most cases that we currently
contemplate. Market acceptance could, however, be adversely
affected to the extent hospitals are required under applicable
state, local or individual hospital regulations to administer
BEXXAR therapy on an in-patient basis.



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we have limited sale and
    distribution capabilities, we may be unable to successfully
    commercialize BEXXAR therapy or our other product
    candidates.

As a result of our reduction in force in May
2002, we no longer have a direct sales force for the potential
launch of BEXXAR therapy. Our ability to market and sell BEXXAR
therapy, if approved, will be contingent upon recruiting,
training and deploying the necessary sales force, as well as
GSKs performance under our BEXXAR collaboration agreement.
Developing an effective sales force will require a significant
amount of our financial resources and time. We may be unable to
establish and manage an effective sales force in a timely or
cost-effective manner, if at all, and any sales force we do
establish may not be capable of generating sales of BEXXAR
therapy or other product candidates.

We intend to rely on our corporate partners to
market our products outside the United States and, in the case
of infectious and autoimmune disease products, worldwide. Our
corporate partners may not have effective sales forces and
distribution systems. If we are unable to maintain or establish
relationships and are required to market any of our products
directly, we will need to build a sales and marketing force with
technical expertise and with supporting distribution
capabilities. We may be unable to maintain or establish
relationships with third parties or build in-house sales and
distribution capabilities.



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If reimbursement is unavailable for our
    products, or if laws are adopted restricting the prices we may
    charge for our products, our revenues may be substantially
    reduced.

In both domestic and foreign markets, sales of
our products will depend in part on the availability of
reimbursement from third-party payors such as:



| |   |                                              
| | - | ---------------------------------------------
| |  | government health administration authorities;
|
| |  | private health insurers;                     
|
| |  | health maintenance organizations;            
|
| |  | pharmacy benefit management companies; and   
|
| |  | other healthcare-related organizations.      



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | If reimbursement is not available for our
    products, demand for these products may be
    limited.

Federal and state governments in the United
States and foreign governments continue to propose and pass new
legislation designed to contain or reduce the cost of
healthcare. Existing regulations affecting the pricing of
pharmaceuticals and other medical products may also change
before any of our products are approved for marketing. Cost
control initiatives could decrease the price that we receive for
any product we may develop in the future. In addition,
third-party payors are increasingly challenging the price and
cost-effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly
approved healthcare products, including pharmaceuticals. BEXXAR
therapy faces particular uncertainties because third-party
payors have very little experience upon which to model pricing
and reimbursement decisions. Further, if BEXXAR therapy is not
administered in most cases on an outpatient basis, as is
contemplated currently by us, the projected cost of the therapy
will be higher than we anticipate. Our products

48



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may not be considered cost effective, and
adequate third-party reimbursement may be unavailable to enable
us to maintain price levels sufficient to realize a return on
our investment.




| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Any claims relating to our improper
    handling, storage or disposal of hazardous materials could be
    time-consuming and costly.

The manufacture and administration of BEXXAR
therapy requires the handling, use and disposal of (131) I
isotope, a radioactive isotope of iodine. These activities must
comply with various state and federal regulations. Violations of
these regulations could significantly delay completion of
clinical trials and commercialization of BEXXAR therapy. For our
ongoing clinical trials and for commercial-scale production, we
currently rely on Nordion to radiolabel the tositumomab with
(131) I radioisotope at a single location in Canada.
Violations of safety regulations could occur with Nordion, and
there is a risk of accidental contamination or injury. In the
event of any regulatory noncompliance or accident, the supply of
radiolabeled tositumomab for use in clinical trials or
commercial sales could be interrupted.

Our research and development involves the
controlled use of hazardous and radioactive materials and
biological waste. We are subject to federal, state and local
laws and regulations governing the use, manufacture, storage,
handling and disposal of these materials and waste products.
Although we believe that our safety procedures for handling and
disposing of these materials comply with legally prescribed
standards, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of an
accident, we could be held liable for damages or penalized with
fines, and this liability could exceed our resources. We may
have to incur significant costs to comply with future
environmental laws and regulations.



| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be required to perform additional
    clinical trials or change the labeling of our products if we or
    others identify side effects after our products are on the
    market, which could harm sales of the affected
    products.

If we or others identify side effects after any
of our products are on the market, or if manufacturing problems
occur,



| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | regulatory approval may be withdrawn;                                                                                                                                                    
|
| |  | reformulation of our products, additional
    clinical trials, changes in labeling of our products or changes
    to or re-approvals of our manufacturing facilities may be
    required;
|
| |  | sales of the affected products may drop
    significantly;                                                                                                                               
|
| |  | our reputation in the marketplace may suffer; and                                                                                                                                        
|
| |  | lawsuits, including class action suits, may be
    brought against us.                                                                                                                   

Any of the above occurrences could harm or
prevent sales of the affected products or could increase the
costs and expenses of commercializing and marketing these
products.



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we have limited sources of revenue,
    our results of operations are uncertain and may fluctuate
    significantly, which could cause the market price of our common
    stock to decrease.

To date, almost all of our revenue has resulted
from payments made under agreements with our corporate partners,
and we expect that most of our revenue will continue to result
from corporate partnerships until approval and commercialization
of products. Payments under corporate partnerships and licensing
arrangements are subject to significant fluctuations in both
timing and amount. We may not receive anticipated revenue under
existing corporate partnerships, and we may be unable to enter
into any additional corporate partnerships.

Since our inception, we have generated only
minimal revenue from diagnostic product sales and no significant
revenue from therapeutic or prophylactic product sales. With the
exception of MPL adjuvant, which has been approved for sale as
part of an immunotherapeutic product on a named-patient basis in

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Germany, Spain, Italy and the U.K. and MELACINE
vaccine, which is available for sale in Canada, we cannot
predict when, if ever, our research and development programs
will result in commercially available immunotherapeutic
products. We do not know when, if ever, we will receive any
significant revenue from commercial sales of these products.


As a result of our limited sources of revenue,
our operating results have varied significantly from quarter to
quarter and year to year in the past and we expect them to
continue to fluctuate. Because of these fluctuations, we believe
that period-to-period comparisons of our operating results are
not meaningful. In addition, our operating results for a
particular quarter or year may fall below the expectations of
securities analysts and investors, which could result in a
decrease in our stock price.



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | We expect to incur future operating losses
    and may never achieve profitability.

We have experienced significant operating losses
in each year since our inception on September 8, 1994. As
of December 31, 2002, our accumulated deficit was
approximately $1.1 billion, of which $679.4 million is
attributable to the write-off of in-process research and
development costs associated with the acquisitions of four
companies and of which $221.2 million is attributable to
goodwill related charges. We may incur substantial additional
operating losses over at least the next several years. Operating
losses have been and may continue to be principally the result
of the various costs associated with our acquisition activities,
including the expenses associated with the write-off of
in-process research and development, research and development
programs, preclinical studies and clinical activities. We may
never achieve profitability, and our ability to achieve a
consistent, profitable level of operations depends in large part
on our ability to successfully



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | enter into agreements with corporate partners for
    product discovery, research, development and commercialization;
|
| |  | obtain regulatory approvals for our product
    candidates; and                                                      
|
| |  | manufacture and market our products once they are
    approved for sale.                                             

Even if we are successful in the above
activities, our operations may not be profitable.



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | We will need additional capital, and our
    ability to implement our existing financing plans and secure
    additional funding is uncertain.

We may be unable to raise on acceptable terms, if
at all, the substantial capital resources necessary to conduct
our operations. If we are unable to raise the required capital,
we may be forced to limit some or all of our research and
development programs and related operations, curtail
commercialization of our product candidates and, ultimately,
cease operations. Our future capital requirements will depend on
many factors, including:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | continued scientific progress in our discovery
    and research programs;                                         
|
| |  | progress with preclinical studies and clinical
    trials;                                                        
|
| |  | the magnitude and scope of our discovery,
    research and development programs;                                  
|
| |  | our ability to maintain existing, and establish
    additional, corporate partnerships and licensing arrangements;
|
| |  | the time and costs involved in obtaining
    regulatory approvals;                                                
|
| |  | the time and costs involved in expanding and
    maintaining our manufacturing facilities;                        
|
| |  | the costs involved in preparing, filing,
    prosecuting, maintaining, defending and enforcing patent claims;     
|
| |  | the potential need to develop, acquire or license
    new technologies and products;                              
|
| |  | the potential costs of building and maintaining a
    marketing and sales force;                                  

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| |   |                                                
| | - | -----------------------------------------------
| |  | the potential costs of marketing a product; and
|
| |  | other factors beyond our control.              

We have in place a $75 million equity line
facility with CMI, of which we have drawn down
$2.6 million. However, CMI is not obligated to purchase
shares of our common stock unless a number of conditions have
been satisfied. First, CMI generally has no obligation to
purchase shares to the extent that the volume weighted average
price of our common stock during the specified valuation period
following the exercise of our right to sell shares to CMI under
the equity line facility is below $5.00 per share. In the
future the price of our common stock may not meet this minimum
trading price condition to enable us to draw down funds under
the equity line facility. Second, CMI is only obligated at any
given request to purchase shares in a minimum aggregate amount
of $500,000 and in a maximum aggregate amount of
$3.5 million. Furthermore, CMI has no obligation to
purchase shares on a given day if our daily trading volume falls
below a specified minimum. Finally, on trading days where the
common stock is not listed and approved for trading on the
principal trading exchange of our common stock or where trading
is restricted, we might not have the right to sell any shares to
CMI.

In addition to any funds available under the CMI
equity line facility, we intend to seek additional funding
through corporate partnerships, and also may seek additional
funding through:



| |   |                                       
| | - | --------------------------------------
| |  | public or private equity financings;  
|
| |  | public or private debt financings; and
|
| |  | capital lease transactions.           

We believe that our existing capital resources,
committed payments under existing corporate partnerships and
licensing arrangements, bank credit arrangements, the CMI equity
line facility, proceeds of our recent private placement of
equity securities with certain institutional and other
accredited investors equipment financing and interest income
will be sufficient to fund our current and planned operations
over at least the next 18 months. However, a substantial
number of the payments to be made by our corporate partners and
other licensors depend on us achieving development and
regulatory milestones. Failure to achieve these milestones may
reduce the period during which we will be able to fund
operations without additional capital resources.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Our equity line facility and other
    transactions may result in dilution and a decline in the price
    of our common stock.

Under the equity line facility with CMI, we may,
subject to certain conditions, sell to CMI up to an additional
$72.4 million of our common stock from time to time before
December 3, 2003. The number of shares and price per share
will depend on the market price and trading volume of the shares
during the applicable one- to twenty-day draw down period for
any sale. The sale of shares pursuant to the equity line
facility will have a dilutive effect on the ownership percentage
of our existing stockholders. Subsequent sales of these shares
in the open market by CMI may also have the effect of lowering
our stock price, thereby increasing the number of shares
issuable under the equity line facility (should we choose to
sell additional shares to CMI) and consequently further diluting
our outstanding shares. These sales could have an immediate
adverse effect on the market price of the shares and could
result in dilution to the holders of our shares.

In the event that we draw down the remaining
maximum amount of approximately 7,760,000 shares under the
facility, and issue the additional 100,000 shares subject to
warrants issued to the placement agent in connection with the
facility, these shares would represent approximately 15.6% of
our currently outstanding shares. The perceived risk associated
with the possible sale of a large number of shares issued under
the equity line facility at prices as low as $4.90 per
share, which is 98% of the $5.00 floor share price at which CMI
has agreed to purchase our shares, could cause some of our
stockholders to sell their stock, thus causing the price of our
stock to decline. In addition, actual or anticipated downward
pressure on our stock price due to actual or

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anticipated sales of stock under the equity line
facility could cause some institutions or individuals to engage
in short sales of our common stock, which may itself cause the
price of our stock to decline.


In August 2002, as part of a private placement of
approximately 7.3 million shares of our common stock, we
also issued warrants to purchase approximately 1.2 million
shares of our common stock at an exercise price of
$6.13 per share to selected institutional and other
accredited investors. If these warrants are exercised, the
issuance of shares of common stock will have a dilutive effect
on the ownership percentage of our existing stockholders.

In addition to any dilution resulting from
issuances under the equity line facility or upon exercise of
warrants, we are also obligated, or in some cases have the
option, to issue additional shares of our common stock under
collaboration and other strategic agreements.

Under a loan agreement with GSK, at our option,
we may choose to pay the outstanding principal amount of
$15 million which is due in October 2003, together with all
accrued unpaid interest thereon, in cash or shares of our common
stock valued at the closing price of our common stock on the
last trading day preceding the payment date to GSK. In addition,
under a collaborative agreement with GSK, we have an outstanding
loan in the amount of $5 million, which is due in September
2003. At GSKs option, GSK may choose to receive the
outstanding principal and accrued unpaid interest in cash or
shares of our common stock at an undisclosed premium to the then
current fair market value of our common stock.

On December 4, 2002, we sold 636,173 shares
of our common stock to Amersham Health for a total purchase
price of $5 million in cash. This sale was made pursuant to
a previously disclosed October 2001 agreement with Amersham
Health. Under the terms of the agreement, at our option, we have
the ability to sell an additional $5 million of shares to
Amersham Health at fair market value, which is determined
according to the average of the closing price of our common
stock over a specified period surrounding the date of issuance.
This option expires on April 26, 2003.

Under a license assignment agreement between
Coulter, Beckman Coulter, Inc., InterWest Partners V, L.P.
and InterWest Investors V, relating to portions of the
technology underlying BEXXAR therapy, Beckman Coulter, Inc. is
entitled to receive royalties upon commercial sale of BEXXAR
therapy, if any, derived from the licenses that were assigned to
Coulter. For the first $4.5 million of royalties, Beckman
Coulter, Inc. has the option, in lieu of receiving cash, to
receive shares of our common stock valued at the then current
fair market value of our common stock.

We are also required to pay dividends on our
outstanding preferred stock. The dividend can be paid in cash or
common stock, at our option. The maximum amount of cash that
would be paid in a year would be $2.5 million and the
maximum number of shares of common stock that would be issued is
146,828.

If we issue additional stock under these
agreements, as dividends on our preferred stock or pursuant to
other transactions, it will have a dilutive effect on the
ownership percentage of our existing stockholders.

Although from time to time, we expect to enter
into new partnerships, acquisitions and other strategic
transactions in which we may agree to issue additional common
stock, we have no present understandings, commitments or
agreements with respect to such additional transactions.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Transactions by CMI may adversely affect
    the price of our common stock.

From time to time, within limitations specified
in the CMI equity line facility and subject to applicable laws,
CMI may engage in short sales, short sales against the box, puts
and calls and other transactions in our common stock, and may
sell and deliver shares of our common stock issued under the
equity line facility in connection with these transactions. If
CMI engages in such transactions, the result will be advance
sales of additional shares into the market for our common stock,
which could create downward pressure on our stock price.

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| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our corporate partnerships are
    unsuccessful or if we are unable to establish corporate
    partnerships in the future, our revenue growth and product
    development may be limited.

The success of our business strategy depends in
part on our ability to enter into multiple corporate
partnerships and to manage effectively the numerous
relationships that may result from this strategy. We recognized
95% of our revenue from research and development and other
funding under our existing corporate partnerships for the years
ended December 31, 2002, and December 31, 2001. If our
corporate partnerships are unsuccessful or if we are unable to
establish corporate partnerships, we may be prevented from
commercializing our product candidates or effectively partnering
our product candidates.

Our licenses, in combination with our proprietary
discoveries, enable us to enter into partnerships to progress
some of our product candidates. Our corporate partnerships
generally provide our partners with the right to use
technologies owned or licensed by us in research, development
and commercialization activities. Our material corporate
partnerships include the following:



| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a corporate partnership with GSK to develop and
    commercialize BEXXAR therapy in the United States;                                                                                                                                             
|
| |  | a corporate partnership with Amersham Health to
    develop and commercialize BEXXAR therapy in Europe;                                                                                                                                            
|
| |  | a development, commercialization and license
    agreement with Medicis related to our candidate psoriasis
    immunotherapeutic product, PVAC treatment;                                                                                          
|
| |  | a development and license agreement with Zenyaku
    Kogyo Co. Ltd. related to PVAC treatment;                                                                                                                                                     
|
| |  | a corporate partnership with Kirin for the
    research, development and commercialization of vaccine products
    aimed at treating multiple forms of cancer, including leukemia,
    myelodysplasia and melanoma;                                
|
| |  | a corporate partnership with Zambon for the
    research, development and commercialization of vaccine products
    aimed at preventing and/or treating lung cancer; and                                                                           
|
| |  | a corporate partnership with GSK that provides
    for vaccine development of breast, prostate and colon cancer
    vaccines, and vaccine discovery and development programs, for
    two chronic infectious pathogens, chlamydia and tuberculosis.

Management of our relationships with our
corporate partners requires:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | significant time and effort from our management
    team;                               
|
| |  | coordination of our research with the research
    priorities of our corporate partners;
|
| |  | effective allocation of our resources to multiple
    projects; and                     
|
| |  | an ability to attract and retain key management,
    scientific and other personnel.    

Our corporate partners may terminate our current
partnerships. Our agreements with GSK for commercialization of
BEXXAR therapy in the United States, Amersham Health for
marketing BEXXAR therapy in Europe and Medicis for
commercialization of PVAC treatment contain milestone-based
termination provisions, which provide that if we fail to meet
specified development or regulatory milestones, the licensor may
terminate the agreement. For example, GSK may terminate the
agreement for commercialization of BEXXAR therapy at any time
because BEXXAR therapy did not receive FDA approval before
June 30, 2002. In addition, all of these license agreements
may be terminated by the licensor for our material breach or
insolvency, or after a specified termination date. Some of our
corporate partners have options to license aspects of our
technology. Any of these corporate partners may not exercise its
option to license this technology.

The process of establishing new corporate
partnerships is difficult and time-consuming. Our discussions
with potential partners may not lead to the establishment of new
corporate partnerships on favorable terms, if

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at all. If we successfully establish new
corporate partnerships, such partnerships may never result in
the successful development of our product candidates or the
generation of significant revenue.


Because we generally enter into research and
development collaborations with corporate partners at an early
stage of product development, our success largely depends on the
performance of our corporate partners. We do not directly
control the amount or timing of resources devoted by our
corporate partners to collaborative activities. Our corporate
partners may not commit sufficient resources to our research and
development programs or the commercialization of our products
and product candidates. If any corporate partner fails to commit
sufficient resources, our preclinical or clinical development
related to the corporate partnership could be delayed or
terminated. Also, our current corporate partners or future
corporate partners, if any, may pursue existing or other
development-stage products or alternative technologies in
preference to those being developed in collaboration with us.



| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our inability to license technology from
    third parties or our inability to maintain exclusive licenses
    may impair our ability to develop and commercialize our product
    candidates.

Our success also depends on our ability to enter
into and maintain licensing arrangements with commercial or
academic entities to obtain technology that is advantageous or
necessary to developing and commercializing our product
candidates. If we cannot obtain or maintain these licenses on
acceptable terms, we may be required to expend significant time
and resources to develop or in-license similar technology. If we
are unable to do so, we may be prevented from developing and
commercializing our product candidates.

We currently have various license agreements that
provide us rights to use technologies owned or licensed by third
parties in research, development and commercialization
activities. Our material third-party licensing arrangements
include the following:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | a license with the Dana-Farber Cancer Institute
    for the use of the anti-B1 antibody used in BEXXAR therapy; and
|
| |  | a license with the University of Michigan for the
    use of BEXXAR therapy.                                       

Many of our third-party license agreements
contain milestone-based termination provisions, in which case
our failure to meet any agreed milestones may allow the licensor
to terminate the agreement. Further, we may be unable to
negotiate additional license agreements in the future on
acceptable terms, if at all. Many of our license agreements
grant us exclusive licenses to the underlying technologies. If
we are unable to maintain the exclusivity of our exclusive
licenses we may be unable to commercialize our product
candidates.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to obtain, protect and
    enforce our patent rights, we may be unable to effectively
    protect or exploit our proprietary technology, inventions and
    improvements.

Our success depends in part on our ability to
obtain, protect and enforce commercially valuable patents. If we
fail to obtain and maintain patent protection for our
proprietary technology, inventions and improvements, our
competitors could develop and commercialize products that would
otherwise infringe our patents. We try to protect our
proprietary positions by filing United States and foreign patent
applications related to our proprietary technology, inventions
and improvements that are important to developing our business.

Our patent position is generally uncertain and
involves complex legal and factual questions. Legal standards
relating to the validity and scope of claims in the
biotechnology and biopharmaceutical fields are still evolving.
Accordingly, the degree of future protection for our patent
rights is uncertain. The risks and uncertainties that we face
with respect to our patents include the following:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the pending patent applications we have filed or
    to which we have exclusive rights may not result in issued
    patents or may take longer than we expect to result in issued
    patents;
|
| |  | the claims of any patents that issue may not
    provide meaningful protection;                                                                                                               
|
| |  | we may be unable to develop additional
    proprietary technologies that are patentable;                                                                                                      
|
| |  | the patents licensed or issued to us may not
    provide a competitive advantage;                                                                                                             

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| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | other companies may challenge patents licensed or
    issued to us;                                                                                                                                                                                                        
|
| |  | disputes may arise regarding the invention and
    corresponding ownership rights in inventions and know-how
    resulting from the joint creation or use of intellectual
    property by us, our licensors, corporate partners and other
    scientific collaborators; and
|
| |  | other companies may design around our patented
    technologies.                                                                                                                                                                                                           

We have licensed several patent applications from
SRI related to our microsphere encapsulation technology. One of
these patent applications is currently the subject of opposition
proceedings before the European Patent Office. The European
Patent Office has revoked the previously issued European patent.
Although SRI has appealed this decision, it is uncertain whether
SRI will prevail in this opposition proceeding. As a result,
this patent may not issue in Europe.

IDEC has challenged the validity of several of
our patents related to BEXXAR therapy by seeking declaratory
judgment of invalidity of these patents. IDEC is also seeking a
declaratory judgment that its Zevalin product for the treatment
of NHL is not infringing the patents. We, GSK, our collaboration
partner for BEXXAR therapy in the United States, and the Regents
of the University of Michigan are parties to a lawsuit against
IDEC alleging patent infringement of certain of our patents by
Zevalin and seeking monetary damages and permanent injunctive
relief. Claims in the patents at issue in the litigation cover
composition of matter and methods-of-use in the treatment of
NHL. If IDEC is successful in these proceedings, IDEC would be
able to market its Zevalin product without the need to license
from us any of our patents. An unfavorable outcome of this
matter could have a materially adverse effect on our operating
results from the sale of BEXXAR therapy, if it is approved.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | If we are unable to gain access to patent
    and proprietary rights of others, we may be unable to compete
    effectively.

Our success depends in part on our ability to
gain access to third-party patent and proprietary rights and to
operate our business without infringing on third-party patent
rights. We may be required to obtain licenses to patents or
other proprietary rights from third parties to develop,
manufacture and commercialize our product candidates. Licenses
required under third-party patents or proprietary rights may not
be available on terms acceptable to us, if at all. If we do not
obtain the required licenses, we could encounter delays in
product development while we attempt to redesign products or
methods or we could be unable to develop, manufacture or sell
products requiring these licenses.



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to protect our trade
    secrets, we may be unable to protect our interests in
    proprietary know-how that is not patentable or for which we have
    elected not to seek patent protection.

Our success depends in part on our ability to
protect trade secrets that are not patentable or for which we
have elected not to seek patent protection. To protect our trade
secrets, we rely primarily on confidentiality agreements with
employees and third parties, and protective contractual
provisions such as those contained in license agreements and
research agreements. Nevertheless, other companies may develop
similar or alternative technologies or duplicate our
technologies that are not protected by patents, or otherwise
obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other
protective contracts we have entered into, and we may not become
aware of, or have adequate remedies in the event of, any breach.
Any material leak of confidential data into the public domain or
to third parties could harm our competitive position.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | If we are unable to protect our trademarks,
    we may be unable to compete effectively.

We try to protect our trademarks by applying for
United States and foreign registrations for marks that are
important to developing our business. However, the laws of some
foreign countries do not protect our proprietary rights to the
same extent as do the laws of the United States, and effective
trademark protection may not be available in other
jurisdictions. If we are unable to protect our trademarks, we
may be unable to establish brand awareness for our products,
which could limit our ability to compete effectively. Of our

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trademarks, MPL adjuvant is currently the subject
of an opposition proceeding before the Office for the
Harmonization in the Internal Market, which handles initial
prosecution and opposition of European trademarks. We may not
ultimately prevail in this opposition proceeding. As a result,
we may not receive trademark protection for MPL adjuvant in
Europe.




| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Litigation regarding intellectual property
    rights owned or used by us may be costly and
    time-consuming.

As a result of litigation, interferences,
opposition proceedings and other administrative proceedings in
which we are or may become involved, including the IDEC
litigation, we may incur substantial expense and the proceedings
may divert the efforts of our technical and management
personnel. An adverse determination in proceedings of this type
could subject us to significant liabilities, allow our
competitors to market competitive products without obtaining a
license from us, or require us to seek licenses from third
parties that may not be available on commercially reasonable
terms, if at all. If we cannot obtain such licenses, we may be
restricted or prevented from developing and commercializing our
product candidates.

The enforcement, defense and prosecution of
intellectual property rights, United States Patent and Trademark
Office interference proceedings and related legal and
administrative proceedings in the United States and elsewhere
involve complex legal and factual questions. As a result, these
proceedings are costly and time-consuming, and their outcome is
uncertain. Litigation may be necessary to:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | assert claims of infringement;                                                           
|
| |  | enforce our issued and licensed patents;                                                 
|
| |  | protect our trade secrets or know-how; or                                                
|
| |  | determine the enforceability, scope and validity
    of the proprietary rights of others.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | If we do not successfully integrate
    potential future acquisitions, we may incur unexpected costs and
    disruptions to our business.

We have completed several acquisitions of
complementary technologies, product candidates and businesses.
In the future, we may acquire additional complementary
companies, products and product candidates or technologies.
Managing these acquisitions has entailed and may in the future
entail numerous operational and financial risks and strains,
including:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | exposure to unknown liabilities;                                                                                                                                                                        
|
| |  | higher-than-expected acquisition and integration
    costs;                                                                                                                                             
|
| |  | difficulty and cost in combining the operations
    and personnel of acquired businesses with our operations and
    personnel;                                                                         
|
| |  | disruption of our business and diversion of our
    managements time and attention to integrating or
    completing the development or commercialization of any acquired
    technologies;             
|
| |  | impairment of relationships with key customers of
    acquired businesses due to changes in management and ownership;                                                                                   
|
| |  | inability to retain key employees of acquired
    businesses; and                                                                                                                                       
|
| |  | increased amortization expenses if an acquisition
    results in significant intangible assets or potential
    write-downs of goodwill and other intangible assets due to
    impairment of the assets.

For example, in December 2000 we acquired
Coulter, a publicly held biotechnology company specializing in,
among other things, the development of therapeutic antibodies,
including BEXXAR therapy. As a result of our acquisition of
Coulter, we acquired direct sales and marketing personnel in
preparation for the launch of BEXXAR therapy. In an effort to
minimize expenses during the delay in the FDA review of BEXXAR
therapy, we initiated expense reductions, including a 15%
reduction in total headcount in March 2001. The majority of
these reductions took place in the operations that we acquired
from Coulter. During the first

56



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quarter of 2002 we experienced a decrease in the
value of our common stock subsequent to receiving the complete
review letter from the FDA regarding the BEXXAR BLA. As a
result, goodwill and other intangibles were re-evaluated and we
recognized a $161.1 million goodwill impairment charge.
Regulatory approval by the FDA for BEXXAR therapy may be further
delayed or rejected, in which case we may not gain substantial
benefit from the Coulter acquisition. In May 2002, we sold
specific preclinical assets and equipment that we acquired from
Coulter to Medarex, Inc. and, in connection with the asset sale,
initiated a further headcount reduction.




| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend heavily on the principal members
    of our management and scientific staff, the loss of any of whom
    could impair our ability to compete.

The loss of the services of any of the principal
members of our management and scientific staff could
significantly delay or prevent the achievement of our scientific
or business objectives. Competition among biotechnology and
biopharmaceutical companies for qualified employees is intense,
and the ability to retain and attract qualified individuals is
critical to our success. We may be unable to attract and retain
these individuals currently or in the future on acceptable
terms, if at all. In addition, we do not maintain key
person life insurance on any of our officers, employees or
consultants.

We also have relationships with scientific
collaborators at academic and other institutions, some of whom
conduct research at our request or assist us in formulating our
research, development or clinical strategy. These scientific
collaborators are not our employees and may have commitments to,
or consulting or advisory contracts with, other entities that
may limit their availability to us. We have limited control over
the activities of these scientific collaborators and can
generally expect these individuals to devote only limited
amounts of time to our activities. Failure of any of these
persons to devote sufficient time and resources to our programs
could harm our business. In addition, these collaborators may
have arrangements with other companies to assist the companies
in developing technologies that may compete with our products.



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to compete effectively in
    the highly competitive biotechnology and biopharmaceutical
    industries, our business will fail.

The biotechnology and biopharmaceutical
industries are intensely competitive, and we may be unable to
compete effectively in these industries. Many companies and
institutions compete with us in developing alternative therapies
to treat or prevent cancer, infectious diseases and autoimmune
diseases, including:



| |   |                           
| | - | --------------------------
| |  | pharmaceutical companies; 
|
| |  | biotechnology companies;  
|
| |  | academic institutions; and
|
| |  | research organizations.   

Moreover, technology controlled by third parties
that may be advantageous to our business may be acquired or
licensed by our competitors, thereby preventing us from
obtaining technology on commercially reasonable terms, if at all.

Many of the companies developing competing
technologies and products have significantly greater financial
resources and expertise in research and development,
manufacturing, preclinical and clinical development, obtaining
regulatory approvals and marketing than we do. Other smaller
companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and
established companies. Academic institutions, government
agencies and other public and private research organizations may
also conduct research, seek patent protection and establish
collaborative arrangements for research and development,
manufacturing, and preclinical and clinical development, and
obtain regulatory approval and market of products similar to
ours. These companies and institutions compete with us in
recruiting and

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retaining qualified scientific and management
personnel, as well as in acquiring and developing technologies
complementary to our programs. We will face competition with
respect to:




| |   |                                          
| | - | -----------------------------------------
| |  | product efficacy and safety;             
|
| |  | timing and scope of regulatory approvals;
|
| |  | availability of resources;               
|
| |  | reimbursement coverage;                  
|
| |  | product price; and                       
|
| |  | patent position.                         

Competitors may develop more effective or more
affordable products, or may achieve earlier patent protection or
product commercialization, than we do. These competitive
products may achieve a greater market share or render our
products obsolete.

IDECs product, Zevalin, received FDA
approval for commercial sale in the United States in February
2002. Zevalin has been approved and is being marketed for the
treatment of NHL in the United States, the indication for which
we are seeking approval to sell BEXXAR therapy in the United
States. Consequently, IDEC could have a significant advantage
over us in sales and marketing of products for the treatment of
NHL in the United States.

Our stock
price could be very volatile and your shares may suffer a
decline in value.

The market prices for securities of biotechnology
companies have in the past been, and are likely to continue in
the future to be, very volatile. As a result of the fluctuations
in the price of our common stock you may be unable to sell your
shares at or above the price you paid for them. The market price
of our common stock may be subject to substantial volatility
depending on numerous factors, many of which are beyond our
control, including:



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | announcements regarding the results of discovery
    efforts and preclinical and clinical activities by us or our
    competitors;              
|
| |  | progress or delay of our or our competitors
    regulatory approvals;                                                                          
|
| |  | announcements regarding the acquisition of
    technologies or companies by us or our competitors;                                              
|
| |  | changes in our existing corporate partnerships or
    licensing arrangements;                                                                   
|
| |  | establishment of additional corporate
    partnerships or licensing arrangements by us or our competitors;                                      
|
| |  | technological innovations or new commercial
    products developed by us or our competitors;                                                    
|
| |  | changes in our or our competitors
    intellectual property portfolio;                                                                         
|
| |  | developments or disputes concerning our or our
    competitors proprietary rights;                                                             
|
| |  | issuance of new or changed securities
    analysts reports and their recommendations regarding us or
    our competitors;                      
|
| |  | changes in government regulations;                                                                                                              
|
| |  | economic and other external factors;                                                                                                            
|
| |  | additions or departures of any of our key
    personnel;                                                                                        
|
| |  | operating losses by us; and                                                                                                                     
|
| |  | actual or anticipated fluctuations in our
    quarterly financial and operating results and degree of trading
    liquidity in our common stock.

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Our common stock has traded as high as $72.00 and
as low as $4.48 since the beginning of 2000. The last reported
sales price of our common stock on December 31, 2002 was
$6.39. If our stock price declines significantly, we may be
unable to raise additional capital. Significant declines in the
price of our common stock could also impede our ability to
attract and retain qualified employees and reduce the liquidity
of our common stock.



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Product liability claims may damage our
    reputation and if insurance proves inadequate the product
    liability claims may harm our financial position.

Our business exposes us to the risk of product
liability claims inherent in manufacturing, testing and
marketing therapies for treating people with cancer, infectious
diseases and autoimmune diseases. A product liability claim may
damage our reputation by raising questions about a
products safety and efficacy and could limit our ability
to sell one or more products by preventing or interfering with
product commercialization. Although we have product liability
and clinical trial liability insurance that we believe is
commercially reasonable, this coverage may be inadequate or may
be unavailable in the future on acceptable terms, if at all.
Defending a suit, regardless of its merit, could be costly and
could divert management attention.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | State laws and our certificate of
    incorporation may inhibit potential acquisition bids that could
    be beneficial to our stockholders.

Provisions of our amended and restated
certificate of incorporation and bylaws, as well as provisions
of Delaware and Washington law, will make it more difficult for
a third party to acquire us, even if doing so would be
beneficial for our stockholders. This could limit the price that
certain investors might be willing to pay in the future for our
shares of common stock. For example, certain provisions of our
certificate of incorporation or bylaws:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | allow our board to issue preferred stock without
    any vote or further action by the stockholders;
|
| |  | eliminate the right of stockholders to act by
    written consent without a meeting;                
|
| |  | eliminate cumulative voting in the election of
    directors;                                       
|
| |  | specify a supermajority requirement for
    stockholders to call a special meeting;                 
|
| |  | specify restrictive procedures for director
    nominations by stockholders; and                    
|
| |  | specify a supermajority requirement for
    stockholders to change the number of directors.         

We are subject to certain provisions of Delaware
and Washington law, which could also delay or make more
difficult a merger, tender offer or proxy contest involving us.
In particular, Section 203 of the Delaware General
Corporation Law prohibits a Delaware corporation from engaging
in certain business combinations with any interested stockholder
for a period of three years unless specific conditions are met.
Similarly, Chapter 23B.19 of the Washington Business
Corporation Act prohibits corporations based in Washington from
engaging in certain business combinations with any interested
stockholder for a period of five years unless specific
conditions are met.

In addition, certain provisions of Delaware and
Washington law could have the effect of delaying, deferring or
preventing a change in control of us, including, without
limitation, discouraging a proxy contest or making more
difficult the acquisition of a substantial block of our common
stock. The provisions could also limit the price that investors
might be willing to pay in the future for shares of our common
stock.

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Item 8.     Financial
Statements and Supplementary Data

REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

Corixa Corporation


We have audited the accompanying consolidated
balance sheets of Corixa Corporation as of December 31,
2002 and 2001, and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended December 31, 2002.
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 in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Corixa Corporation at
December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated
financial statements, the Company adopted the full provisions of
Statement of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002. The Company
also changed its method of accounting for revenue recognition
based on guidance provided in SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements,
effective January 1, 2000.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

Seattle, Washington

January 29, 2003


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CORIXA CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                            |                                                |                                                                                                             |        |            |         |  |         |           |         | 
|------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------ | ---------- | ------- |  | ------- | --------- | ------- | 
|                                            |                                                |                                                                                                            
|                                            |                                                | December 31,                                                                                               
|                                            |                                                |                                                                                                            
|                                            |                                                | 2002                                                                                                        |        | 2001      
|                                            |                                                |                                                                                                             |        |           
|                                            |                                                |                                                                                                            
|                                            |                                                | (In thousands)                                                                                             
|ASSETS                                     
|Current assets:                             |                                                |                                                                                                             |        |            |         |  |         |          
|                                            | Cash and cash equivalents                      |                                                                                                             | $      | 47,363     |         |  | $       | 33,338    |        
|                                            | Securities available-for-sale                  |                                                                                                             |        | 41,194     |         |  |         | 42,446    |        
|                                            | Accounts receivable                            |                                                                                                             |        | 8,919      |         |  |         | 5,532     |        
|                                            | Interest receivable                            |                                                                                                             |        | 789        |         |  |         | 1,157     |        
|                                            | Prepaid expenses and other current assets      |                                                                                                             |        | 7,130      |         |  |         | 4,911     |        
|                                            | Deposits                                       |                                                                                                             |        |           |         |  |         | 1,825     |        
|                                            |                                                |                                                                                                             |        |            |         |  |         |          
|                                            |                                                | Total current assets                                                                                        |        |            | 105,395 |  |         |           | 89,209  | 
|Property and equipment, net                 |                                                |                                                                                                             | 41,876 |            |         |  | 48,999  |          
|Securities available-for-sale, noncurrent   |                                                |                                                                                                             | 28,200 |            |         |  | 42,939  |          
|Acquisition-related intangible assets, net  |                                                |                                                                                                             | 13,929 |            |         |  | 176,969 |          
|Deferred charges, deposits and other assets |                                                |                                                                                                             | 6,706  |            |         |  | 9,266   |          
|                                            |                                                |                                                                                                             |        |            |         |  |         |          
|                                            |                                                | Total assets                                                                                                |        | $          | 196,106 |  |         | $         | 367,382 | 
|                                            |                                                |                                                                                                             |        |            |         |  |         |          
|LIABILITIES AND STOCKHOLDERS
    EQUITY   
|Current liabilities:                        |                                                |                                                                                                             |        |            |         |  |         |          
|                                            | Accounts payable and accrued liabilities       |                                                                                                             | $      | 15,100     |         |  | $       | 23,595    |        
|                                            | Dividend payable                               |                                                                                                             |        | 353        |         |  |         | 469       |        
|                                            | Current portion of deferred revenue            |                                                                                                             |        | 8,999      |         |  |         | 17,566    |        
|                                            | Current portion of long-term obligations       |                                                                                                             |        | 25,151     |         |  |         | 5,755     |        
|                                            |                                                |                                                                                                             |        |            |         |  |         |          
|                                            |                                                | Total current liabilities                                                                                   |        |            | 49,603  |  |         |           | 47,385  | 
|Deferred revenue, less current portion      |                                                |                                                                                                             | 11,191 |            |         |  | 8,575   |          
|Long-term obligations, less current portion |                                                |                                                                                                             | 6,920  |            |         |  | 27,657  |          
|Commitments and contingencies               |                                                |                                                                                                             |        |            |         |  |         |          
|Redeemable common stock                     |                                                |                                                                                                             |       |            |         |  | 2,000   |          
|Stockholders equity:                       |                                                |                                                                                                             |        |            |         |  |         |          
|                                            | Convertible preferred stock, $0.001 par value: |                                                                                                             |        |            |         |  |         |           |        
|                                            |                                                | Authorized  10,000,000                                                                                     |        |            |         |  |         |           |         | 
|                                            |                                                | Designated Series A  12,500
    shares; Issued and outstanding  12,500                                    |        |            |        |  |         |           |        | 
|                                            |                                                | Designated Series B  37,500
    shares; Issued and outstanding  37,500                                    |        |            |        |  |         |           |        | 
|                                            | Common stock, $0.001 par value:                |                                                                                                             |        |            |         |  |         |           |        
|                                            |                                                | Authorized  100,000,000 shares; Issued
    and outstanding  50,216,683 in 2002 and 41,573,398 in
    2001 |        |            | 50      |  |         |           | 41      | 
|                                            | Additional paid-in capital                     |                                                                                                             |        | 1,238,958  |         |  |         | 1,187,987 |        
|                                            | Deferred compensation                          |                                                                                                             |        | (667       | )       |  |         | (3,996    | )      
|                                            | Accumulated other comprehensive income         |                                                                                                             |        | 692        |         |  |         | 975       |        
|                                            | Accumulated deficit                            |                                                                                                             |        | (1,110,641 | )       |  |         | (903,242  | )      
|                                            |                                                |                                                                                                             |        |            |         |  |         |          
|                                            |                                                | Total stockholders equity                                                                                  |        |            | 128,392 |  |         |           | 281,765 | 
|                                            |                                                |                                                                                                             |        |            |         |  |         |          
|                                            |                                                | Total liabilities and stockholders equity                                                                  |        | $          | 196,106 |  |         | $         | 367,382 | 
|                                            |                                                |                                                                                                             |        |            |         |  |         |          

See accompanying notes

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CORIXA CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |         |         | 
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------- | -------- | ------- | ------- | ---- | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                                                |                                              |                                         
|                                                                                                |                                              | Year Ended December 31,                 
|                                                                                                |                                              |                                         
|                                                                                                |                                              | 2002                                     |          | 2001    |         | 2000
|                                                                                                |                                              |                                          |          |         |         |     
|                                                                                                |                                              |                                         
|                                                                                                |                                              | (In thousands, except per share amounts)
|Revenue:                                                                                        |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|                                                                                                | Collaborative agreements                     |                                          | $        | 46,134  |         |      | $        | 55,128  |         |   | $        | 34,643  |        
|                                                                                                | Government grants                            |                                          |          | 2,604   |         |      |          | 2,937   |         |   |          | 2,331   |        
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|                                                                                                |                                              | Total revenue                            |          |         | 48,738  |      |          |         | 58,065  |   |          |         | 36,974  | 
|Operating expenses:                                                                             |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|                                                                                                | Research and development                     |                                          |          | 98,359  |         |      |          | 139,873 |         |   |          | 61,945  |        
|                                                                                                | Sales, general and administrative            |                                          |          | 22,249  |         |      |          | 22,650  |         |   |          | 6,702   |        
|                                                                                                | Intangible asset amortization                |                                          |          | 439     |         |      |          | 56,084  |         |   |          | 4,457   |        
|                                                                                                | Acquired in-process research and development |                                          |          |        |         |      |          |        |         |   |          | 629,700 |        
|                                                                                                | Goodwill impairment                          |                                          |          | 161,060 |         |      |          |        |         |   |          |        |        
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|                                                                                                |                                              | Total operating expenses                 |          |         | 282,107 |      |          |         | 218,607 |   |          |         | 702,804 | 
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|Loss from operations                                                                            |                                              |                                          | (233,369 | )       |         |      | (160,542 | )       |         |   | (665,830 | )      
|Interest income                                                                                 |                                              |                                          | 4,287    |         |         |      | 9,349    |         |         |   | 5,378    |        
|Interest expense                                                                                |                                              |                                          | (2,275   | )       |         |      | (2,295   | )       |         |   | (810     | )      
|Other income                                                                                    |                                              |                                          | 23,958   |         |         |      | 5,451    |         |         |   | 431      |        
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|Loss before cumulative effect of change in
    accounting principle                             |                                              |                                          | (207,399 | )       |         |      | (148,037 | )       |         |   | (660,831 | )      
|Cumulative effect of change in accounting
    principle                                         |                                              |                                          |         |         |         |      |         |         |         |   | (6,338   | )      
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|Net loss                                                                                        |                                              |                                          | (207,399 | )       |         |      | (148,037 | )       |         |   | (667,169 | )      
|Preferred stock dividend                                                                        |                                              |                                          | (767     | )       |         |      | (1,730   | )       |         |   | (9,887   | )      
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|Net loss applicable to common stockholders                                                      |                                              | $                                        | (208,166 | )       |         | $    | (149,767 | )       |         | $ | (677,056 | )      
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|Basic and diluted loss per share before
    cumulative effect of change in accounting principle |                                              | $                                        | (4.67    | )       |         | $    | (3.66    | )       |         | $ | (32.00   | )      
|Cumulative effect of change in accounting
    principle per share                               |                                              |                                          |         |         |         |      |         |         |         |   | (0.30    | )      
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|Basic and diluted net loss per common share                                                     |                                              | $                                        | (4.67    | )       |         | $    | (3.66    | )       |         | $ | (32.30   | )      
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        
|Shares used in computation of basic and diluted
    net loss per common share                   |                                              |                                          | 44,611   |         |         |      | 40,961   |         |         |   | 20,961   |        
|                                                                                                |                                              |                                          |          |         |         |      |          |         |         |   |          |        

See accompanying notes

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CORIXA CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |          |  
|------------------------------------------------------------------------------------------ | -------------------------------------------------------- | --------------- | -- | ------------ |  | ---------- | - | -------- |  | ------------- | ------ | ------------ |  | ------------- | -- | ------- |  | ------ | --------- | - |  | - | ------- | - |  | - | ---- | ----- | - | - | ---------- | -------- | - | - | ------- | -------- | -
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |              
|                                                                                           |                                                          | Preferred stock |    | Common stock |  | Additional |   |          |  | other         |        |              |  | Total        
|                                                                                           |                                                          |                 |    |              |  | paid-in    |   | Deferred |  | comprehensive |        | Accumulated  |  | stockholders
|                                                                                           |                                                          | Shares          |    | Amount       |  | Shares     |   | Amount   |  | capital       |        | compensation |  | income (loss) |    | deficit |  | equity
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |       
|                                                                                           |                                                          |                 |    |             
|                                                                                           |                                                          | (In thousands)  |    |             
|Balance at January 1, 2000                                                                 |                                                          |                 | 12 |              |  |            |  |          |  |               | 18,627 |              |  |               | 19 |         |  |        | 147,926   |   |  |   | (441    | ) |  |   | (687 | )     |   |   | (88,036    | )        |   |   | 58,781  |         
|Issuance of Series B convertible preferred
    stock and common stock warrants             |                                                          |                 | 38 |              |  |            |   |          |  |               |       |              |  |               |   |         |  |        | 37,500    |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 37,500  |         
|Preferred stock dividend                                                                   |                                                          |                 |   |              |  |            |  |          |  |               |       |              |  |               |   |         |  |        | (625      | ) |  |   |        |   |  |   |     |       |   |   |           |          |   |   | (625    | )       
|Issuance of common stock (net of offering costs
    of $4,198)                             |                                                          |                 |   |              |  |            |  |          |  |               | 1,900  |              |  |               | 2  |         |  |        | 56,600    |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 56,602  |         
|Stock options exercised                                                                    |                                                          |                 |   |              |  |            |  |          |  |               | 592    |              |  |               |   |         |  |        | 5,296     |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 5,296   |         
|Issuance of common stock under the employee stock
    purchase plan                        |                                                          |                 |   |              |  |            |  |          |  |               | 63     |              |  |               |   |         |  |        | 948       |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 948     |         
|Issuance of common stock options in exchange for
    technology and services               |                                                          |                 |   |              |  |            |  |          |  |               | 24     |              |  |               |   |         |  |        | 1,700     |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 1,700   |         
|Issuance of common stock for acquisitions                                                  |                                                          |                 |   |              |  |            |   |          |  |               | 19,115 |              |  |               | 19 |         |  |        | 939,179   |   |  |   | (29,212 | ) |  |   |     |       |   |   |           |          |   |   | 909,986 |         
|Stock warrants net exercised                                                               |                                                          |                 |   |              |  |            |  |          |  |               | 137    |              |  |               |   |         |  |        |          |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   |        |         
|Amortization of deferred compensation                                                      |                                                          |                 |   |              |  |            |  |          |  |               |       |              |  |               |   |         |  |        |          |   |  |   | 895     |   |  |   |     |       |   |   |           |          |   |   | 895     |         
|Comprehensive loss:                                                                        |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|                                                                                           | Net unrealized gain on securities
    available-for-sale |                 |    |             |  |            |   |         |  |               |        |             |  |               |    |        |  |        |           |  |  |   |         |  |  |   |      | 661   |   |   |            |         |   |   |         | 661      |  
|                                                                                           | Net loss                                                 |                 |    |             |  |            |   |         |  |               |        |             |  |               |    |        |  |        |           |  |  |   |         |  |  |   |      |      |   |   |            | (667,169 | ) |   |         | (667,169 | )
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|                                                                                           | Comprehensive loss                                       |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         | (666,508 | )
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|Balance at December 31, 2000                                                               |                                                          |                 | 50 |              |  |            |  |          |  |               | 40,458 |              |  |               | 40 |         |  |        | 1,188,524 |   |  |   | (28,758 | ) |  |   | (26  | )     |   |   | (755,205   | )        |   |   | 404,575 |         
|Preferred stock dividend                                                                   |                                                          |                 |   |              |  |            |  |          |  |               | 73     |              |  |               |   |         |  |        | (625      | ) |  |   |        |   |  |   |     |       |   |   |           |          |   |   | (625    | )       
|Stock options exercised                                                                    |                                                          |                 |   |              |  |            |  |          |  |               | 629    |              |  |               | 1  |         |  |        | 3,525     |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 3,526   |         
|Issuance of common stock under the employee stock
    purchase plan                        |                                                          |                 |   |              |  |            |  |          |  |               | 125    |              |  |               |   |         |  |        | 1,508     |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 1,508   |         
|Issuance of common stock for cash                                                          |                                                          |                 |   |              |  |            |  |          |  |               | 271    |              |  |               |   |         |  |        | 3,832     |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 3,832   |         
|Issuance of stock options in exchange for
    technology and services                      |                                                          |                 |   |              |  |            |  |          |  |               |       |              |  |               |   |         |  |        | 444       |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 444     |         
|Stock warrants net exercised                                                               |                                                          |                 |   |              |  |            |  |          |  |               | 17     |              |  |               |   |         |  |        |          |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   |        |         
|Amortization of deferred compensation, net of
    $9,221 reversal for terminated employees |                                                          |                 |   |              |  |            |  |          |  |               |       |              |  |               |   |         |  |        | (9,221    | ) |  |   | 24,762  |   |  |   |     |       |   |   |           |          |   |   | 15,541  |         
|Comprehensive loss:                                                                        |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|                                                                                           | Net unrealized gain on securities
    available-for-sale |                 |    |             |  |            |   |         |  |               |        |             |  |               |    |        |  |        |           |  |  |   |         |  |  |   |      | 1,001 |   |   |            |         |   |   |         | 1,001    |  
|                                                                                           | Net loss                                                 |                 |    |             |  |            |   |         |  |               |        |             |  |               |    |        |  |        |           |  |  |   |         |  |  |   |      |      |   |   |            | (148,037 | ) |   |         | (148,037 | )
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|                                                                                           | Comprehensive loss                                       |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         | (147,036 | )
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|Balance at December 31, 2001                                                               |                                                          |                 | 50 |              |  |            |  |          |  |               | 41,573 |              |  |               | 41 |         |  |        | 1,187,987 |   |  |   | (3,996  | ) |  |   | 975  |       |   |   | (903,242   | )        |   |   | 281,765 |         
|Preferred stock dividend                                                                   |                                                          |                 |   |              |  |            |  |          |  |               | 147    |              |  |               |   |         |  |        | 116       |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 116     |         
|Stock options exercised                                                                    |                                                          |                 |   |              |  |            |  |          |  |               | 52     |              |  |               |   |         |  |        | 90        |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 90      |         
|Issuance of common stock under the employee stock
    purchase plan                        |                                                          |                 |   |              |  |            |  |          |  |               | 138    |              |  |               |   |         |  |        | 736       |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 736     |         
|Issuance of common stock (net of offering costs
    of $2,622)                             |                                                          |                 |   |              |  |            |  |          |  |               | 8,298  |              |  |               | 9  |         |  |        | 50,038    |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 50,047  |         
|Remeasurement and Issuance of stock options in
    exchange for consulting services        |                                                          |                 |   |              |  |            |  |          |  |               | 9      |              |  |               |   |         |  |        | (112      | ) |  |   |        |   |  |   |     |       |   |   |           |          |   |   | (112    | )       
|Reclassification of redeemable common stock to
    equity                                  |                                                          |                 |   |              |  |            |  |          |  |               |       |              |  |               |   |         |  |        | 2,000     |   |  |   |        |   |  |   |     |       |   |   |           |          |   |   | 2,000   |         
|Amortization of deferred compensation, net of
    $1,897 reversal for terminated employees |                                                          |                 |   |              |  |            |  |          |  |               |       |              |  |               |   |         |  |        | (1,897    | ) |  |   | 3,329   |   |  |   |     |       |   |   |           |          |   |   | 1,432   |         
|Comprehensive loss:                                                                        |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|                                                                                           | Net unrealized gain on securities
    available-for-sale |                 |    |             |  |            |   |         |  |               |        |             |  |               |    |        |  |        |           |  |  |   |         |  |  |   |      | (283  | ) |   |            |         |   |   |         | (283     | )
|                                                                                           | Net loss                                                 |                 |    |             |  |            |   |         |  |               |        |             |  |               |    |        |  |        |           |  |  |   |         |  |  |   |      |      |   |   |            | (207,399 | ) |   |         | (207,399 | )
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|                                                                                           | Comprehensive loss                                       |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         | (207,682 | )
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         
|Balance at December 31, 2002                                                               |                                                          |                 | 50 |              |  | $          |  |          |  |               | 50,217 |              |  | $             | 50 |         |  | $      | 1,238,958 |   |  | $ | (667    | ) |  | $ | 692  |       |   | $ | (1,110,641 | )        |   | $ | 128,392 |         
|                                                                                           |                                                          |                 |    |              |  |            |   |          |  |               |        |              |  |               |    |         |  |        |           |   |  |   |         |   |  |   |      |       |   |   |            |          |   |   |         |         

See accompanying notes

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CORIXA CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |         |         |  
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | -------- | ------- | ------ | ---- | -------- | -------- | ------ | - | -------- | ------- | ------- | -
|                                                                                |                                                                                      |                                          
|                                                                                |                                                                                      | Year Ended December 31,                  
|                                                                                |                                                                                      |                                          
|                                                                                |                                                                                      | 2002                                      |          | 2001    |        | 2000
|                                                                                |                                                                                      |                                           |          |         |        |     
|                                                                                |                                                                                      |                                          
|                                                                                |                                                                                      | (In thousands)                           
|Operating activities                                                            |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|Net loss                                                                        |                                                                                      | $                                         | (207,399 | )       |        | $    | (148,037 | )        |        | $ | (667,169 | )      
|Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|                                                                                | Acquired in-process research and development                                         |                                           |          |        |        |      |          |         |        |   |          | 629,700 |        
|                                                                                | Cumulative effect of accounting change                                               |                                           |          |        |        |      |          |         |        |   |          | 6,338   |        
|                                                                                | Goodwill impairment                                                                  |                                           |          | 161,060 |        |      |          |         |        |   |          |        |        
|                                                                                | Amortization of deferred compensation                                                |                                           |          | 1,432   |        |      |          | 15,541   |        |   |          | 895     |        
|                                                                                | Depreciation and amortization                                                        |                                           |          | 12,606  |        |      |          | 66,500   |        |   |          | 8,268   |        
|                                                                                | Equity instruments remeasured and issued in
    exchange for technology and services |                                           |          | (112    | )      |      |          | 444      |        |   |          | 1,700   |        
|                                                                                | Gain on sale of investment                                                           |                                           |          | (998    | )      |      |          | (4,513   | )      |   |          |        |        
|                                                                                | Changes in certain assets and liabilities:                                           |                                           |          |         |        |      |          |          |        |   |          |         |        
|                                                                                |                                                                                      | Accounts receivable                       |          |         | (3,387 | )    |          |          | 8,304  |   |          |         | (3,449  | )
|                                                                                |                                                                                      | Interest receivable                       |          |         | 368    |      |          |          | 898    |   |          |         | (734    | )
|                                                                                |                                                                                      | Prepaid expenses and other current assets |          |         | 2,166  |      |          |          | 2,890  |   |          |         | (12,307 | )
|                                                                                |                                                                                      | Accounts payable and accrued liabilities  |          |         | (4,746 | )    |          |          | (3,722 | ) |          |         | (2,580  | )
|                                                                                |                                                                                      | Deferred revenue                          |          |         | (5,951 | )    |          |          | (4,083 | ) |          |         | 15,650  |  
|                                                                                |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|Net cash used in operating activities                                           |                                                                                      |                                           | (44,961  | )       |        |      | (65,778  | )        |        |   | (23,688  | )      
|Investing activities                                                            |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|                                                                                | Purchases of securities available-for-sale                                           |                                           |          | (79,896 | )      |      |          | (232,725 | )      |   |          | (92,608 | )      
|                                                                                | Proceeds from maturities of securities
    available-for-sale                        |                                           |          | 27,565  |        |      |          | 206,785  |        |   |          | 29,589  |        
|                                                                                | Proceeds from sale of securities
    available-for-sale                              |                                           |          | 68,039  |        |      |          | 88,218   |        |   |          | 29,429  |        
|                                                                                | Purchases of property and equipment                                                  |                                           |          | (6,255  | )      |      |          | (18,115  | )      |   |          | (3,019  | )      
|                                                                                | Net cash received in acquisitions                                                    |                                           |          |        |        |      |          |         |        |   |          | 4,397   |        
|                                                                                | Proceeds from sale of investments                                                    |                                           |          |        |        |      |          | 5,974    |        |   |          | 1,539   |        
|                                                                                |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|Net cash provided by (used in) investing
    activities                         |                                                                                      |                                           | 9,453    |         |        |      | 50,137   |          |        |   | (30,673  | )      
|Financing activities                                                            |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|                                                                                | Proceeds from issuance of common stock                                               |                                           |          | 50,873  |        |      |          | 8,866    |        |   |          | 62,846  |        
|                                                                                | Proceeds from issuance of preferred stock                                            |                                           |          |        |        |      |          |         |        |   |          | 37,500  |        
|                                                                                | Principal payments on capital leases                                                 |                                           |          | (886    | )      |      |          | (997     | )      |   |          | (937    | )      
|                                                                                | Principal payments made on long-term obligations                                     |                                           |          | (5,232  | )      |      |          | (12,837  | )      |   |          | (2,131  | )      
|                                                                                | Proceeds from short-term obligations                                                 |                                           |          |        |        |      |          | 2,344    |        |   |          | 1,000   |        
|                                                                                | Proceeds from long-term obligations                                                  |                                           |          | 4,778   |        |      |          | 5,156    |        |   |          | 3,000   |        
|                                                                                | Dividends paid                                                                       |                                           |          |        |        |      |          | (625     | )      |   |          | (625    | )      
|                                                                                |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|Net cash provided by financing activities                                       |                                                                                      |                                           | 49,533   |         |        |      | 1,907    |          |        |   | 100,653  |        
|Net increase (decrease) in cash and cash
    equivalents                        |                                                                                      |                                           | 14,025   |         |        |      | (13,734  | )        |        |   | 46,292   |        
|Cash and cash equivalents at beginning of period                                |                                                                                      |                                           | 33,338   |         |        |      | 47,072   |          |        |   | 780      |        
|                                                                                |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|Cash and cash equivalents at end of period                                      |                                                                                      | $                                         | 47,363   |         |        | $    | 33,338   |          |        | $ | 47,072   |        
|                                                                                |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|Supplemental Disclosures of Cash Flow
    Information:                          |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|                                                                                | Interest paid                                                                        |                                           | $        | 2,667   |        |      | $        | 2,458    |        |   | $        | 607     |        
|Supplemental Schedule of Noncash Investing and
    Financing Activities:        |                                                                                      |                                           |          |         |        |      |          |          |        |   |          |        
|                                                                                | Equity instruments issued for acquisitions                                           |                                           | $        |        |        |      | $        |         |        |   | $        | 939,198 |        
|                                                                                | Common stock issued for payment of preferred
    stock dividend                      |                                           | $        | 880     |        |      | $        | 1,105    |        |   | $        |        |        
|                                                                                | Reclassification of common stock to equity                                           |                                           | $        | 2,000   |        |      | $        |         |        |   | $        |        |        

See accompanying notes

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CORIXA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Description of
Business and Summary of Significant Accounting
Policies



| |                                                      
| | -----------------------------------------------------
| | Description of Business and Basis of
    Presentation

For over eight years, we have been engaged in
discovery and development of innovative immunotherapeutic
products to address debilitating and life-threatening conditions
caused by cancer, infectious disease and autoimmune disease.
Creating successful immunotherapeutic products requires
understanding and directing the bodys immune system to
prevent and fight disease. Variations in disease-causing
organisms and human genetics make immunotherapeutic product
development a challenging, complex undertaking, but one that we
believe will have a significant impact on human health in the
coming years. The consolidated financial statements include our
accounts and those of our wholly owned subsidiary, Coulter. All
significant intercompany account balances and transactions have
been eliminated in consolidation.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

All short-term investments, which consist
primarily of bankers acceptances and certificates of
deposit, with maturities of three months or less at date of
purchase, are considered to be cash equivalents. The amounts are
recorded at cost, which approximates fair market value.



| |                              
| | -----------------------------
| | Securities Available-for-Sale

Our investment portfolio is classified as
available-for-sale and is segregated into current and
non-current portions based on the remaining term of the
instrument. Investments with outstanding maturity dates of two
years or longer are classified as non-current. Our primary
investment objectives are preservation of principal, a high
degree of liquidity and a maximum total return. We invest
primarily in (United States dollar denominated only): commercial
paper; short and mid-term corporate notes/bonds, with no more
than 10% of the portfolio in any one corporate issuer; and
federal agencies with terms not exceeding four years. Such
securities are stated at fair value, with the unrealized gains
and losses reflected in stockholders equity. Interest
earned on securities is included in interest income. The
amortized cost of investments is adjusted for amortization of
premiums and accretion of discounts to maturity. Such
amortization and accretions are included in interest income. The
cost of securities sold is calculated using the specific
identification method.



| |                       
| | ----------------------
| | Certain Concentrations

Credit Risk.We are
subject to concentration of credit risk, primarily from our
investments. Credit risk for investments is managed by the
purchase of investment-grade securities, A1/P1 for money market
instruments and A or better for debt instruments, and
diversification of the investment portfolio among issuers and
maturities.

Suppliers.We have
contracted with a third-party manufacturer, BI Pharma KG, to
produce bulk anti-B1 antibody tositumomab, or tositumomab, a key
component of BEXXAR therapy for use in ongoing clinical trials
and to meet commercial requirements, as well as provide for
fill/ finish and packaging services. We have committed to
purchase minimum annual quantities of tositumomab from BI Pharma
KG. The minimum annual order for 2003 is approximately
$5.3 million. We have also contracted with a third-party
manufacturer, Nordion, for radiolabeling for the United States
supply the tositumomab component of BEXXAR therapy at
Nordions centralized radiolabeling facility. This
agreement expires on May 31, 2004. We are actively
negotiating with Nordion to enter into a new agreement to
radiolabel tositumomab. If we are unable to finalize a new
agreement with Nordion on acceptable terms, we will need to
secure a new source of radiolabeling. Although we are evaluating
additional sources of radiolabeling, we may be unable to secure
additional sources on commercially reasonable terms or on a
timely basis, if at all.

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment is stated at cost and is
depreciated on the straight-line method over the assets
estimated useful lives, which range from three to seven years
for computers and equipment and twenty years for buildings.
Leasehold improvements are amortized over the lesser of their
estimated useful lives or the term of the lease. Amortization of
assets recorded under capital leases is included in depreciation.



| |                                          
| | -----------------------------------------
| | Acquisition-Related Intangible
    Assets

Effective January 1, 2002, we adopted
SFAS 141, Business Combinations and
SFAS 142, Goodwill and Other Intangible
Assets.SFAS 141 requires that the purchase
method of accounting be used for all business combinations
initiated after June 30, 2001, and also specifies the
criteria for the recognition of intangible assets separately
from goodwill. Under the new rules, goodwill is no longer
amortized but is subject to an impairment test at least annually
or more frequently if impairment indicators arise. Separately
identified and recognized intangible assets resulting from
business combinations completed before July 1, 2001, that
did not meet the new criteria for separate recognition of
intangible assets were subsumed in goodwill upon adoption. The
only intangible asset of the company that did not meet the
separate recognition criteria of SFAS 141 was our assembled
workforce. We continue to amortize intangible assets that meet
the new criteria over their useful lives. In accordance with
SFAS 142, we performed a transitional impairment test of
goodwill as of January 1, 2002, which did not result in an
impairment of goodwill.

A reconciliation of previously reported net loss
and net loss per share to the amounts adjusted for the exclusion
of goodwill amortization as if we had adopted FAS 142 on
January 1, 2000, is as follows (in thousands):

|                                                                       |  |                         |          |      |  |   |          |  
|---------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | - | -------- | -
|                                                                       |  |                        
|                                                                       |  | Year Ended December 31,
|                                                                       |  |                        
|                                                                       |  | 2001                    |          | 2000
|                                                                       |  |                         |          |     
|Net loss applicable to common stockholders, as
    reported            |  | $                       | (149,767 | )    |  | $ | (677,056 | )
|Add back: Amortized goodwill and assembled
    workforce               |  |                         | 55,645   |      |  |   | 4,017    |  
|                                                                       |  |                         |          |      |  |   |          |  
|Net loss applicable to common stockholders, as
    adjusted            |  | $                       | (94,122  | )    |  | $ | (673,039 | )
|                                                                       |  |                         |          |      |  |   |          |  
|Basic and diluted net loss per share as reported                       |  | $                       | (3.66    | )    |  | $ | (32.30   | )
|                                                                       |  |                         |          |      |  |   |          |  
|Goodwill amortization                                                  |  | $                       | 1.36     |      |  | $ | 0.19     |  
|                                                                       |  |                         |          |      |  |   |          |  
|Basic and diluted net loss per share, as adjusted                      |  | $                       | (2.30    | )    |  | $ | (32.11   | )
|                                                                       |  |                         |          |      |  |   |          |  
|Shares used in computation of basic and diluted
    net loss per share |  |                         | 40,691   |      |  |   | 20,961   |  
|                                                                       |  |                         |          |      |  |   |          |  

On March 12, 2002, we received a second
complete review letter from the FDA regarding our BLA for BEXXAR
therapy. In the complete review letter, the FDA stated that
additional clinical studies will be required to provide
sufficient evidence of the safety and net clinical benefit of
BEXXAR therapy.

Upon announcement on March 13, 2002 of the
receipt of the complete review letter from the FDA, the value of
our common stock declined which, in managements opinion
represented an indication of impairment of recorded goodwill. In
accordance with the requirements of SFAS 142, an interim
test of goodwill impairment was performed as of March 13,
2002. The impairment test involves a two-step approach. Under
step one of the test, we compared our estimated fair value (the
reporting unit) based upon the market price of our common stock
to the carrying value of our equity. Because the carrying value
of our equity exceeded our fair value, we performed step two of
the test, which involved allocating our fair value to all of our
assets and liabilities to determine how much, if any, of the
excess value should be allocated to goodwill. The results of the
impairment test indicated that no goodwill was present and
accordingly, we recognized a $161.1 million goodwill
impairment charge in the first quarter of 2002.

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Acquisition-related intangible assets at
December 31, 2002, consist of adjuvant know-how and an
assumed lease with balances of approximately $1.6 million
and $12.3 million, respectively. Adjuvant know-how and the
acquired lease are amortized on the straight-line method over
periods of seven and ten years, respectively. Amortization of
the acquired lease is recorded as additional rent expense. The
expected future annual amortization expense of our other
acquisition-related intangible assets is as follows (in
thousands):

|                            |  |              |        | 
|--------------------------- |  | ------------ | ------ | 
|                            |  | Expected    
|                            |  | Amortization
|Year Ending December 31,    |  | Expense     
|                            |  |             
|2003                        |  | $            | 1,980  | 
|2004                        |  |              | 1,980  | 
|2005                        |  |              | 1,980  | 
|2006                        |  |              | 1,870  | 
|2007                        |  |              | 1,540  | 
|Thereafter                  |  |              | 4,579  | 
|                            |  |              |        | 
|Total expected amortization |  | $            | 13,929 | 
|                            |  |              |        | 

We expect to incur losses related to these leases
as we enter into sublease arrangements in the future. These
anticipated losses will be recognized at the time we enter into
the sublease agreements. At December 31, 2002 and 2001, we
had approximately $4.6 million and $62.7 million,
respectively, of accumulated amortization related to intangible
assets.



| |                         
| | ------------------------
| | Stock-Based Compensation

We have adopted the disclosure-only provisions of
SFAS No. 123, Accounting for Stock-Based
Compensationand apply Accounting Principles Board
Opinion No. 25, or APB 25, and related interpretations
in accounting for our stock option plans. Accordingly, our
employee stock-based compensation expense is recognized based on
the intrinsic value of the option on the date of grant.

At December 31, 2002 we had two stock-based
employee compensation plans, which are described more fully in
Note 9. No stock-based employee compensation cost, other than
compensation associated with options assumed in acquisitions, is
reflected in net loss, as all options granted under those plans
had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following
table illustrates the effect on net loss and net loss per share
if we had applied the fair value recognition of SFAS 123,
Accounting for Stock-Based Compensation, to stock-based
employee compensation.

|                                                                                                                 |                    |                                       |         |          |   |      |         |          |   |  |        |          |  
|---------------------------------------------------------------------------------------------------------------- | ------------------ | ------------------------------------- | ------- | -------- | - | ---- | ------- | -------- | - |  | ------ | -------- | -
|                                                                                                                 |                    |                                      
|                                                                                                                 |                    | Year Ended December 31,              
|                                                                                                                 |                    |                                      
|                                                                                                                 |                    | 2002                                  |         | 2001     |   | 2000
|                                                                                                                 |                    |                                       |         |          |   |     
|                                                                                                                 |                    |                                      
|                                                                                                                 |                    | (In thousands, except per share data)
|Net loss applicable to common shareholders:                                                                      |                    |                                       |         |          |   |      |         |          |   |  |        |         
|                                                                                                                 | As reported        |                                       | $       | (208,166 | ) |      | $       | (149,767 | ) |  | $      | (677,056 | )
|Additional stock-based employee compensation
    expense determined under fair value based method for all awards |                    |                                       | (16,822 | )        |   |      | (21,896 | )        |   |  | (7,554 | )       
|                                                                                                                 |                    |                                       |         |          |   |      |         |          |   |  |        |         
|                                                                                                                 | Pro forma net loss |                                       | $       | (224,988 | ) |      | $       | (171,663 | ) |  | $      | (684,610 | )
|                                                                                                                 |                    |                                       |         |          |   |      |         |          |   |  |        |         
|Net loss per share:                                                                                              |                    |                                       |         |          |   |      |         |          |   |  |        |         
|                                                                                                                 | As reported        |                                       | $       | (4.67    | ) |      | $       | (3.66    | ) |  | $      | (32.30   | )
|                                                                                                                 | Pro forma          |                                       |         | (5.04    | ) |      |         | (4.19    | ) |  |        | (32.66   | )

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Stock compensation expense for options granted to
nonemployees has been determined in accordance with
SFAS 123 and EITF 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services,as the fair value of the consideration
received or the fair value of the equity instruments issued,
whichever is more reliably measured. The fair value of options
granted to nonemployees is periodically re-measured as the
underlying options vest.



| |                 
| | ----------------
| | Use of Estimates

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 amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.



| |                            
| | ---------------------------
| | Other Financial Instruments

As of December 31, 2002 and
December 31, 2001, the carrying value of financial
instruments such as receivables and payables approximated their
fair values, based on the short-term maturities of these
instruments. Additionally, the carrying value of long-term
liabilities approximated their fair values because the
underlying interest rates approximate market rates at the
balance sheet dates.



| |        
| | -------
| | Revenue

We generate revenue from technology licenses,
collaborative research and development arrangements, cost
reimbursement contracts and sales of adjuvant products. Revenue
under technology licenses and collaborative agreements typically
consists of nonrefundable and/or guaranteed technology license
fees, collaborative research funding, technology access fees,
and various milestone and future product royalty or
profit-sharing payments.

Revenue associated with up-front license,
technology access and research and development funding payments
under collaborative agreements is recognized ratably over the
relevant periods based on the terms of the agreement, generally
the research and development period. Revenue from substantive
at-risk milestones and future product royalties is recognized as
earned based on the completion of the milestones and product
sales, as defined in the respective agreements. Revenue under
cost reimbursement contracts is recognized as the related costs
are incurred. Revenue from product sales is recognized upon
customer acceptance of the product. Payments received in advance
of recognition as revenue are recorded as deferred revenue. We
recognized 73% of our collaborative revenue in 2002 from
five collaborative partners, 84% from five collaborative
partners in 2001 and 73% from three collaborative partners
in 2000.

Effective January 1, 2000, we changed our
method of accounting for nonrefundable up-front license fees to
recognize such fees over the period of our continuing
involvement, generally the term of the related research and
development collaboration arrangement on a straight-line basis,
as this method best matches the effort provided. We had
previously recognized nonrefundable up-front license fees as
revenue when the technology was transferred and when all
significant contractual obligations relating to the fees had
been fulfilled. We believe the change in accounting principle is
preferable based on guidance provided in SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial
Statements. The $6.3 million cumulative effect of the
change in accounting principle, calculated as of January 1,
2000, was reported as a charge in the year ended
December 31, 2000. The cumulative effect was initially
recorded as deferred revenue and is being recognized as revenue
over the remaining research and development period. For the year
ended December 31, 2000, the impact of the change in
accounting was to increase net loss by $3.9 million, or
$0.19 per share, composed of the $6.3 million cumulative
effect of the change as described above ($0.30 per share) less
$2.4 million of the deferred revenue resulting from the
cumulative effect adjustment that was recognized as revenue
during 2000 ($0.11 per share). Revenue for 2002 includes
$1.5 million and 2001 and 2000 includes $2.4 million
of revenue previously recognized and included in the cumulative
effect adjustment.

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                      
| | -------------------------------------
| | Research and Development
    Expenses

Pursuant to SFAS No. 2, Accounting
for Research and Development Costs, our research and
development costs are expensed as incurred. The value of
acquired IPR&D is charged to expense on the date of
acquisition. Research and development expenses include, but are
not limited to, payroll and personnel expense, lab supplies,
preclinical, outside manufacturing, legal fees and consulting.



| |                   
| | ------------------
| | Net Loss Per Share

Basic net loss per share is calculated by
dividing net loss applicable to common stockholders by the
weighted average number of common shares outstanding. Diluted
net loss per share is calculated by dividing the net loss
applicable to common stockholders by the weighted average common
shares outstanding plus the dilutive effect of outstanding stock
options, stock warrants and preferred stock. Because we report a
net loss, diluted net loss per share is the same as basic net
loss per share because the effect of outstanding stock options,
stock warrants and preferred stock being added to weighted
average shares outstanding would reduce the loss per share.
Therefore, outstanding stock options, stock warrants and
preferred stock are not included in the calculation.



| |                    
| | -------------------
| | Segment Information

We currently operate as a single segment under
SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information.



| |                  
| | -----------------
| | Long-Lived Assets

Effective January 1, 2002, we adopted
Statement of Financial Accounting Standards, or SFAS, 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.SFAS 144 supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of. The primary
objectives of SFAS 144 are to develop one accounting model
based on the framework established in SFAS 121 for
long-lived assets to be disposed of by sale, and to address
significant implementation issues. Our adoption of SFAS 144
did not have an impact on our financial position or results of
operations.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In June 2002 the FASB, issued Statement
No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. The standard addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue
No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). Statement No. 146 states that a
liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair
value in the period in which the liability is incurred, except
for a liability for one-time termination benefits that are
incurred over a period of time. The standard will be effective
for exit or disposal activities initiated after
December 31, 2002. We do not expect the adoption of
SFAS 146 to have a significant impact on our financial
position or results of operations.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No. 5, 57 and 107 and
Rescission of FASB Interpretation No. 34. FIN 45
clarifies the requirements of SFAS No. 5,
Accounting for Contingencies, relating to the
guarantors accounting for, and disclosure of, the issuance
of certain types of guarantees. The disclosure provisions of
FIN 45 are effective for financial statements of periods
that end after December 15, 2002. However, the provisions
for initial recognition and measurement are effective on a
prospective basis for guarantees that are

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

issued or modified after December 31, 2002.
This Interpretation does not currently have any impact on our
consolidated results of operations, financial position or
disclosure.

On December 31, 2002, FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 148 requires accounting
policy note disclosures to provide the method of stock option
accounting for each year presented in the financial statements
and, for each year until all years presented in the financial
statements recognize the fair value of stock-based compensation.
Also, SFAS No. 148 provides two additional transition
methods that eliminate the ramp-up effect resulting from
applying the expense recognition provisions of SFAS
No. 123. The transition provisions and annual statement
disclosure requirements of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The interim
statement disclosure requirements are effective for the first
interim statement that includes financial information after
December 15, 2002. We do not believe there will be a
material financial effect from the adoption of this new standard
unless we were to make a change in our accounting policy and
account for stock option grants as compensation expense.

In January 2003, the FASB issued FASB
Interpretation No. 46, or FIN 46, Consolidation of
Variable Interest Entities.FIN 46 clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain
entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. FIN 46
applies to public enterprises as of the beginning of the
applicable interim or annual period. The Company does not
believe there will be a material effect upon its financial
condition or results of operations from the adoption of the
provisions of FIN 46.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to the
prior years financial statements to conform to the 2002
presentation.

2.     Scientific
Collaborative and License Agreements

Kirin.In December
2002, we entered into a multiyear development and
commercialization agreement with Kirin for potential cancer
vaccine for the treatment of multiple forms of cancer, including
leukemia, myelodysplasia and melanoma. Under the agreement we
grant Kirin exclusive rights to develop and market vaccine
products resulting from our WT1 antigen vaccine program in Asia/
Australasia. We and Kirin have agreed to share WT1 vaccine
commercialization rights and Kirin will fund one-half of the
research and development cost in North America. We will retain
marketing rights for the potential vaccine in Europe. Upon
effectiveness of the agreement, Kirin paid us $3 million in
up front license fees which will be recorded as revenue over the
estimated research and development term of the agreement of
approximately nine years. Under the terms of the agreement,
Kirin will co-fund development of WT1 vaccine products and has
agreed to pay us success-based milestone payments and royalties
on future product sales in Asia/ Australasia.

Amersham Health.In
October 2001, we entered into an agreement whereby Amersham
Health has agreed to market BEXXAR therapy in Europe. We and
Amersham Health will cooperate to register the product in
Europe. Amersham Health will be the holder of the MAA for BEXXAR
therapy in Europe. We will be responsible for the generation of
clinical trial data to support registration in Europe. Amersham
Health will be responsible for manufacture and sale of BEXXAR
therapy in Europe. Under the terms of the agreement Amersham
Health has agreed to purchase a total of up to $15 million
of our common stock. Upon

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

execution of the agreement Amersham Health
purchased 271,343 shares of our common stock for a total of
$5 million, or $18.43 per share, which represented a
premium to the then current market value of our common stock of
approximately forty percent or $1.4 million. The premium
has been accounted for as a nonrefundable license payment and
was deferred and will be recognized as revenue ratably over the
term of the agreement, consistent with our revenue recognition
policy. On December 4, 2002, we sold 636,173 shares of
our common stock to Amersham Health for a total purchase price
of $5 million in cash or $7.86 per share, which
represents the average price over a specified period around the
date of the sale. At our option, Amersham Health has agreed to
purchase from us an additional $5 million of our common
stock at market value on or before April 26, 2003. In
addition, Amersham Health has agreed to pay us milestone
payments upon regulatory approval in the territory and
achievement of certain sales volume targets. Amersham Health has
agreed to pay us royalties on all future product sales in
Europe. We recognized revenue from this agreement of
approximately $389,000 and $65,000 in 2002 and 2001,
respectively.

Medicis.In August
2000, we entered into a multi-year development,
commercialization and license agreement with Medicis covering
our psoriasis immunotherapeutic product, PVAC treatment. Under
the agreement we grant Medicis exclusive rights to PVAC
treatment in the United States and Canada. We are predominantly
responsible for development and manufacturing, and Medicis will
be responsible for commercialization and distribution. Under the
terms of the agreement, Medicis has agreed to pay us license
fees, research funding and earned milestone payments, including
commercialization and cumulative net sales threshold milestone
payments. Medicis made a nonrefundable payment of $17 million
upon effectiveness of the agreement. Additionally, upon
commercial sale of the product, Medicis has agreed to purchase
inventory from us and pay a royalty on net sales of the product.
Nonrefundable payments received are currently being recognized
over the estimated research and development period of
approximately four and a half years. We recognized revenue from
this agreement of $3.1 million, $4.6 million and
$1.4 million in 2002, 2001 and 2000, respectively.

We developed PVAC treatment in collaboration with
New Zealand-based Genesis. We paid Genesis $8.1 million in
2000, as a result of payments received from Medicis. We also
paid $900,000 to SR Pharma, our licensor for certain
intellectual property related to PVAC treatment. These payments
are being amortized over the related period the Medicis revenues
are being recognized.

Zenyaku Kogyo.In
August 1999, we entered into a corporate partnership with
Zenyaku Kogyo for researching and developing PVAC treatment in
Japan. In May 2002, the three year research term of the
agreement expired and Zenyaku Kogyos research funding
obligation ceased. Zenyaku Kogyos exclusive rights to PVAC
treatment in Japan continue and they are responsible for future
milestone payments based on successful clinical and commercial
progress, and royalties on future product sales. We recognized
revenue of $2.0 million in 2002, $2.2 million in 2001 and
$969,000 in 2000, in connection with the agreement.

Zambon Group and the Pharmaceutical Division
of Japan Tobacco.During May and
June 1999, we entered into corporate partnerships with
Zambon and JT, respectively, for the research, development and
commercialization of vaccine products aimed at preventing and/or
treating lung cancer. Zambon has exclusive rights to develop and
sell vaccine products in Europe, the countries of the former
Soviet Union, Argentina, Brazil and Columbia and co-exclusive
rights in China. Under the June 1999 agreement, we granted JT
exclusive rights to develop and sell vaccine products outside of
the territory licensed to Zambon, including the United States
and Japan, and co-exclusive rights to develop and sell vaccine
products in China. We also granted Zambon a nonexclusive license
and JT an option to formulate vaccines that may result from the
collaboration using our microsphere delivery system with our
proprietary adjuvants. During 2002, the three-year research
terms of the agreements expired and the respective research
funding obligations ceased. In November 2002, we and Zambon
amended our agreement so that we jointly fund clinical testing
of a non-small cell lung cancer vaccine. In addition,
Zambons option to sell $2.0 million of our common
stock back to us expired upon termination of the research phase.
In December 2002, we recorded a milestone payment of

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$1.0 million from Zambon in connection with
the filing of our IND for a lung cancer vaccine candidate in the
United States. In January 2003, we amended and restated our
agreement with JT so that we hold exclusive rights to all
antigens discovered in our lung cancer vaccine program in all
countries previously licensed to JT, with the exception of
rights associated with commercialization of a non small cell,
lung carcinoma vaccine candidate in Japan. Under the terms of
our amended agreement with JT, JT will continue to hold an
exclusive license to this vaccine candidate for development and
commercialization in Japan, and we will hold all rights in North
America and in those territories not previously licensed to
Zambon. In connection with the restructuring of the JT
agreement, we and JT have agreed to pay each other fees,
milestones and royalties in the event that development
milestones and product sales are achieved. We recognized revenue
of $6.9 million, $7.7 million and $6.7 million in
connection with the Zambon and JT agreements in 2002, 2001 and
2000, respectively. Amounts receivable from Zambon at
December 31, 2002 was $1.2 million and $562,000 at
December 31, 2001.

GSK.In October
1998, we entered into a collaboration and license agreement
effective September 1, 1998 with GSK for multiple discovery
programs. In August 2002 the funded research and development
period of our collaboration and license agreement with GSK
terminated in all of the cancer fields covered by the agreement.
In October 2002 GSK extended the funded research and development
period for the programs for tuberculosis and chlamydia vaccines
through August 2004. We recognized revenue of
$11.7 million, $13.7 million and $12.7 million in
2002, 2001 and 2000, respectively, from this agreement. Revenue
for 2002, includes $1.3 million of revenue and for both
2001 and 2000 includes $1.9 million recognized as a result
of the cumulative effect adjustment.

In January 2003, we and GSK entered into a new
agreement which extends our and GSKs collaborative efforts
into vaccine development and potential proof-of-principle
clinical trials. Under the terms of the new agreement, GSK
granted us a worldwide, exclusive license to develop a vaccine
candidate for prostate cancer and a vaccine candidate for breast
cancer. As a part of the agreement, GSK retains the option to
buy-back exclusive worldwide rights for either or both vaccine
candidates following the completion of proof-of-principle
clinical trials. If GSK exercises its buy-back rights, we have
the option of participating in further development, up to and
including a sharing of promotion rights in the United States.
The buy-back price will be based on our research costs incurred
under this new agreement plus a premium of 25% and up to an
additional $3.0 million depending on the stage of
development at the time GSK exercises its buy-back option. In
the event GSK does not exercise its buy-back option, we will be
free to develop the vaccines alone or with other partners and
have agreed to pay GSK success-based milestones and royalties in
the event of product sales. Under our new agreement, we will be
responsible for providing resources and development funding of
up to $32 million to complete proof-of-principle clinical
studies over a period of time in excess of five years. This
funding will be used to pay for GMP grade material, production
and clinical trials for prostate and breast vaccine development
efforts.

GSK purchased $2.5 million of our common
stock in 1998 at a premium to our fair market value.
Additionally, with respect to the $5.0 million loan from
GSK under a prior collaboration agreement, GSK may elect to have
us repay such amount on the September 2003 maturity date or
convert such amounts into the purchase of our common stock at a
premium to our then-current fair market value.

As a result of our acquisition of Coulter, we
acquired a collaborative agreement with GSK for developing and
commercializing BEXXAR, which has completed Phase III clinical
trials in the United States and is the subject of a BLA
currently under review by the FDA for treatment of NHL. On
December 17, 2002, the ODAC agreed that data from clinical
trials of BEXXAR therapy provided substantial evidence of
clinical benefit in both rituximab-refractory patients and
clinical utility in chemotherapy-refractory, low-grade and
follicular (NHL, with or without transformation. The panel voted
10-3 in support of the efficacy of BEXXAR therapy in
rituximab-refractory patients and unanimously supported its
clinical utility in chemotherapy-relapsed and refractory,
low-grade NHL, with or without transformation. Coulter and GSK
executed the

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

agreement in 1998 and amended it in April 2000 to
reduce GSKs territory to the United States. We and GSK
have agreed to co-market BEXXAR therapy in the United States and
share revenue, cost of goods sold, sales and marketing costs and
other costs associated with BEXXAR therapy related activities.
Currently, we share the pre-launch marketing costs associated
with preparation for the potential commercialization of BEXXAR
therapy. For 2002 and 2001, our share of these expenses was
$4.9 million and $3.5 million, respectively and has
been classified as sales, general and administrative expense.

Under the terms of the agreement, GSK has agreed
to reimburse us for certain development costs and pay us for the
achievement of certain defined clinical development, regulatory
and sales milestones. We recognized revenue of $7 million
and $12.9 million in 2002 and 2001, respectively under the
terms of this agreement.

The agreement also provided for a
$15 million credit line, which was fully drawn by Coulter
in December 2000 prior to the acquisition. No amounts remain
available under the credit line. Borrowings under the credit
line are due in October 2003. We are subject to certain
financial covenants including liquidity and net worth covenants
as defined in the agreement. At December 31, 2002, we were
in compliance with these covenants. Quarterly interest payments,
due in arrears, are at a fixed interest rate of 9.5%. Interest
expense for 2002 was approximately $1.4 million. At our
sole discretion, we may repay the principal in either cash or
common stock. Payment in our common stock would be based upon
the fair market value of our common stock at the time of payment.

We have several license and supply agreements
with GSK whereby we have licensed certain adjuvants for use in
vaccines that GSK is developing for infectious diseases, cancer
and allergy. These agreements grant GSK exclusive and
co-exclusive license rights depending on the disease field and
territory. Under the terms of the agreements, GSK pays annual
license fees, milestones, transfer payments and future royalty
payments. We recognized revenue of $4.3 million in 2002 and
$2.8 million in 2001 and $3.5 million in 2000 in
connection with these agreements. Amounts receivable from GSK
under these agreements at December 31, 2002 and 2001 were
$6.2 million and $2.9 million, respectively.

Wyeth.We have
several license and supply agreements with Wyeth, granting Wyeth
licenses to certain adjuvants for use in vaccines for certain
infectious disease fields that Wyeth is developing. These
agreements grant Wyeth exclusive and co-exclusive license rights
depending on the disease field and territory. Under the terms of
the agreements, Wyeth pays annual license fees, milestones,
transfer payments and future royalty payments. We recognized
revenue of $2.0 million, $906,000 and $962,000 in 2002,
2001 and 2000, respectively.

Other Agreements.We
have various other collaborative research agreements with
academic universities and research institutions, which expire at
various intervals through 2003. Certain agreements stipulate the
reimbursement by us of research costs incurred by these
universities and institutions on our behalf. Included in
research and development expenses for the years ended
December 31, 2002, 2001 and 2000 are reimbursements
approximating $8.7 million, $9.1 million and
$4.6 million, respectively. Certain 2002 collaborative
agreements extend into fiscal years 2003, and as of
December 31, 2002, we are committed to reimburse these
universities and institutions approximately $328,000 in 2003.

We have entered into certain license agreements
and obtained options to negotiate license agreements under the
terms of which we received license, technology and patent
rights. During 2002, 2001 and 2000, we paid initial license
and/or option fees approximating $776,000, $1.2 million and
$3.4 million, respectively. In addition, we issued 9,599 and
23,809 shares of common stock and options valued at $55,637 and
$1,022,275 during 2002 and 2000, respectively, in exchange for
such rights. No common stock or options were issued in 2001. All
such amounts were expensed when paid and are included in
research and development expense as the related technology was
in development, and did not have alternative future uses.

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Certain agreements call for royalty and milestone
payments to be paid by us. The agreements are for terms from 10
to 17 years or the expiration of the last issued patent
within the licensed technology, unless terminated earlier for
certain specified events, as defined in the respective
agreements.

Additionally, we have entered into research and
license and supply agreements and granted rights to other
parties to negotiate license agreements under the terms of which
we provide license, technology and patent rights and quantities
of product for research and clinical development purposes. Under
the terms of the agreements, we will receive additional license
fees, option fees and/or reimbursement of certain research and
development costs and product sales revenue. The agreements may
also provide for one-time payments upon achieving certain
milestones and the payment of royalties based on product sales.

We estimate that research and development
expenses incurred under these scientific collaborative and
license agreements were approximately $75.0 million,
$99.6 million and $37.3 million in 2002, 2001 and 2000.

Because of the large number of research projects
we have ongoing at any one time, and the ability to utilize
resources across several projects, the majority of our research
and development costs are not directly tied to any individual
project and are allocated among multiple projects. Our project
management is based primarily on scientific data and
supplemented by these cost allocations, which are based
primarily on human resource time incurred on each project. The
costs allocated to a project as a result do not necessarily
reflect the actual costs of the project. Accordingly, we do not
maintain actual cost incurred information for our projects on a
project-by-project basis. Costs attributed to research and
preclinical projects largely represent our pipeline generating
activities. Costs associated with clinical development programs
represent the advancement of these activities into product
candidates.

3.     Acquisition of
Coulter Pharmaceutical, Inc.

On December 22, 2000, we acquired all of the
outstanding shares of common stock of Coulter, a company focused
on developing products for treating cancer. The acquisition was
accounted for as a purchase transaction. Aggregate consideration
was approximately $917.1 million, which consisted of
19,114,649 shares of our common stock, with a market value
of approximately $806.8 million, assumed Coulter stock options
valued at approximately $132.4 million, less
$29.2 million associated with the intrinsic value of
unvested options and transaction costs of $7.1 million. The
$29.2 million was recorded as deferred compensation and is
being amortized to compensation expense over the remaining
vesting periods. The aggregate purchase price was allocated,
based on estimated fair values on the acquisition date, as
follows (in thousands):

|                                             |                                 |   |         |         | 
|-------------------------------------------- | ------------------------------- | - | ------- | ------- | 
|Assets acquired                              |                                 | $ | 108,807 |        
|Liabilities assumed                          |                                 |   | (45,296 | )      
|Acquired in-process research and development |                                 |   | 629,700 |        
|Assumed lease                                |                                 |   | 15,405  |        
|Assembled workforce                          |                                 |   | 3,900   |        
|Goodwill                                     |                                 |   | 204,556 |        
|                                             |                                 |   |         |        
|                                             | Total purchase price allocation |   | $       | 917,072 | 
|                                             |                                 |   |         |        

Certain Coulter employees were granted
approximately 25,000 shares of common stock that will vest upon
the FDAs approval of BEXXAR therapy, our lead product
candidate. Vesting will occur regardless of employment status at
the time of approval. These shares will be valued and expensed
at the time of approval.

Acquired IPR&D represents the present value
of the estimated after-tax cash flows expected to be generated
by the purchased technology, which, at the acquisition date, had
not yet reached technological feasibility. The cash flow
projections for revenues were based on estimates of growth rates
and the aggregate size of the respective market for each
product, probability of technical success given the stage of
development

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

at the time of acquisition, royalty rates based
on prior licensing agreements, product sales cycles; and the
estimated life of a products underlying technology.
Estimated operating expenses and income taxes were deducted from
estimated revenue projections to arrive at estimated after-tax
cash flows. Projected operating expenses include general and
administrative expenses, and research and development costs. The
rates utilized to discount projected cash flows were 30% to 55%
for in-process technologies used, depending on the relative risk
of each in-process technology, and were based primarily on
venture capital rates of return and the weighted average cost of
capital for us at the time of acquisition.

The foregoing estimates and projections regarding
the Coulter acquisition were based on assumptions we believed to
be reasonable at the time of the acquisition, but which are
inherently uncertain and unpredictable. If these projects are
not successfully developed, our business, operating results and
financial condition may be adversely affected. As of the date of
the acquisition, we concluded that once completed, the
technologies under development can only be economically used for
their specific and intended purposes and that such in-process
technology has no alternative future use after taking into
consideration the overall objectives of the project, progress
toward the objectives, and uniqueness of developments to these
objectives. If we fail in our efforts, no alternative economic
value will result. If the projects fail, the economic
contribution expected to be made by the IPR&D will not
materialize. The risk of untimely completion includes the risk
that alternative vaccines, immunotherapeutics or diagnostics
will be developed by competitors.

4.     Securities
Available-For-Sale

Securities available-for-sale consists of the
following (in thousands):

|                  |                            |                |        |            |  |            |       |        |  |   |      |      |   |   |        |        | 
|----------------- | -------------------------- | -------------- | ------ | ---------- |  | ---------- | ----- | ------ |  | - | ---- | ---- | - | - | ------ | ------ | 
|                  |                            |                |        | Gross      |  | Gross      |       |       
|                  |                            |                |        | Unrealized |  | Unrealized |       | Market
|                  |                            | Amortized Cost |        | Gain       |  | Loss       |       | Value 
|                  |                            |                |        |            |  |            |       |       
|December 31, 2002 |                            |                |        |            |  |            |       |        |  |   |      |      |   |   |        |       
|                  | U.S. government agencies   |                | $      | 28,769     |  |            | $     | 185    |  |   | $    | (4   | ) |   | $      | 28,950 | 
|                  | U.S. corporate obligations |                |        | 33,027     |  |            |       | 532    |  |   |      | (21  | ) |   |        | 33,538 | 
|                  | Other                      |                |        | 6,906      |  |            |       |       |  |   |      |     |   |   |        | 6,906  | 
|                  |                            |                |        |            |  |            |       |        |  |   |      |      |   |   |        |       
|                  |                            | $              | 68,702 |            |  | $          | 717   |        |  | $ | (25  | )    |   | $ | 69,394 |       
|                  |                            |                |        |            |  |            |       |        |  |   |      |      |   |   |        |       
|December 31, 2001 |                            |                |        |            |  |            |       |        |  |   |      |      |   |   |        |       
|                  | U.S. government agencies   |                | $      | 19,771     |  |            | $     | 247    |  |   | $    | (4   | ) |   | $      | 20,014 | 
|                  | U.S. corporate obligations |                |        | 54,858     |  |            |       | 839    |  |   |      | (107 | ) |   |        | 55,590 | 
|                  | Other                      |                |        | 9,781      |  |            |       |       |  |   |      |     |   |   |        | 9,781  | 
|                  |                            |                |        |            |  |            |       |        |  |   |      |      |   |   |        |       
|                  |                            | $              | 84,410 |            |  | $          | 1,086 |        |  | $ | (111 | )    |   | $ | 85,385 |       
|                  |                            |                |        |            |  |            |       |        |  |   |      |      |   |   |        |       

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Our gross realized gains or losses were
immaterial on sales of available-for-sale securities for fiscal
2002, 2001 and 2000 and are therefore not shown. The contractual
maturities of our available-for-sale securities are shown below
(in thousands):

|                  |                                    |           |        |             |  |   |        |        | 
|----------------- | ---------------------------------- | --------- | ------ | ----------- |  | - | ------ | ------ | 
|                  |                                    |           |        | Estimated  
|                  |                                    | Amortized |        | Fair Market
|                  |                                    | Cost      |        | Value      
|                  |                                    |           |        |            
|December 31, 2002 |                                    |           |        |             |  |   |        |       
|                  | Due in one year or less            |           | $      | 17,475      |  |   | $      | 17,579 | 
|                  | Due in one year through four years |           |        | 51,227      |  |   |        | 51,815 | 
|                  |                                    |           |        |             |  |   |        |       
|                  |                                    | $         | 68,702 |             |  | $ | 69,394 |       
|                  |                                    |           |        |             |  |   |        |       
|December 31, 2001 |                                    |           |        |             |  |   |        |       
|                  | Due in one year or less            |           | $      | 25,645      |  |   | $      | 25,977 | 
|                  | Due in one year through four years |           |        | 58,765      |  |   |        | 59,408 | 
|                  |                                    |           |        |             |  |   |        |       
|                  |                                    | $         | 84,410 |             |  | $ | 85,385 |       
|                  |                                    |           |        |             |  |   |        |       



|   |                       
|-- | ----------------------
|5. | Property and Equipment

Property and equipment consists of the following
(in thousands):

|                                          |  |              |         |      |  |   |         |  
|----------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                          |  |             
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2002         |         | 2001
|                                          |  |              |         |     
|Laboratory equipment                      |  | $            | 17,050  |      |  | $ | 17,669  |  
|Land and buildings                        |  |              | 8,723   |      |  |   | 8,352   |  
|Leasehold improvements                    |  |              | 29,471  |      |  |   | 16,374  |  
|Construction in progress                  |  |              | 281     |      |  |   | 11,610  |  
|Computers and office equipment            |  |              | 15,577  |      |  |   | 14,657  |  
|                                          |  |              |         |      |  |   |         |  
|                                          |  |              | 71,102  |      |  |   | 68,662  |  
|Accumulated depreciation and amortization |  |              | (29,226 | )    |  |   | (19,663 | )
|                                          |  |              |         |      |  |   |         |  
|                                          |  | $            | 41,876  |      |  | $ | 48,999  |  
|                                          |  |              |         |      |  |   |         |  

At December 31, 2002 and 2001, we held
equipment under capitalized leases with an original cost of
approximately $11.8 million and $6.7 million,
respectively, and a net book value of approximately
$4.1 million and $245,000, respectively. These leases are
secured by the underlying assets.

Depreciation expense was $10.6 million,
$8.9 million and $3.8 million for 2002, 2001 and 2000,
respectively.



|   |            
|-- | -----------
|6. | Investments



| |                                   
| | ----------------------------------
| | LigoCyte Pharmaceuticals,
    Inc.

In October 1999, we signed a licensing and
collaborative research agreement with LigoCyte to utilize
LigoCyte technology for developing therapeutic and vaccine
products that target infections arising from Candida albicans.
We terminated our collaborative research agreement with LigoCyte
in 2001. Under the terms of the agreement and related
agreements, we paid a one-time license fee of $250,000 and
research funding of $225,000 over a one-year period. We also
purchased 293,255 shares of Series B preferred stock for
$1.0 million. In 2002, we concluded the fair value of the
investment had incurred an other than temporary

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

decline in value and we reduced the amount of the
investment to $600,000, which represents its estimated fair
value. We account for our investment in LigoCyte on the cost
method.



|   |                                             
|-- | --------------------------------------------
|7. | Accounts Payable and Accrued
    Liabilities

Accounts payable and accrued liabilities consist
of the following (in thousands):

|                                           |  |              |        |      |  |   |        | 
|------------------------------------------ |  | ------------ | ------ | ---- |  | - | ------ | 
|                                           |  |             
|                                           |  | December 31,
|                                           |  |             
|                                           |  | 2002         |        | 2001
|                                           |  |              |        |     
|Trade accounts payable                     |  | $            | 3,022  |      |  | $ | 9,492  | 
|Accrued clinical trial fees                |  |              | 1,432  |      |  |   | 2,317  | 
|Employee compensation and related expenses |  |              | 3,712  |      |  |   | 3,637  | 
|Accrued legal fees                         |  |              | 2,079  |      |  |   | 2,461  | 
|Accrued research and development expenses  |  |              | 1,922  |      |  |   | 2,370  | 
|Other accrued liabilities                  |  |              | 2,933  |      |  |   | 3,318  | 
|                                           |  |              |        |      |  |   |        | 
|                                           |  | $            | 15,100 |      |  | $ | 23,595 | 
|                                           |  |              |        |      |  |   |        | 



|   |                                                
|-- | -----------------------------------------------
|8. | Long-Term Obligations and Lease
    Obligations

Long-term obligations consist of the following
(in thousands):

|                                            |                             |              |        |       |  |   |        |        | 
|------------------------------------------- | --------------------------- | ------------ | ------ | ----- |  | - | ------ | ------ | 
|                                            |                             |             
|                                            |                             | December 31,
|                                            |                             |             
|                                            |                             | 2002         |        | 2001 
|                                            |                             |              |        |      
|Credit line and loan from corporate partner |                             | $            | 20,000 |       |  | $ | 20,000 |       
|Bank loans                                  |                             |              | 8,094  |       |  |   | 13,220 |       
|Capital lease obligations                   |                             |              | 3,977  |       |  |   | 85     |       
|Other                                       |                             |              |       |       |  |   | 107    |       
|                                            |                             |              |        |       |  |   |        |       
|                                            |                             |              | 32,071 |       |  |   | 33,412 |       
|Less current portion of obligations         |                             |              | 25,151 |       |  |   | 5,755  |       
|                                            |                             |              |        |       |  |   |        |       
|                                            | Total long-term obligations |              | $      | 6,920 |  |   | $      | 27,657 | 
|                                            |                             |              |        |       |  |   |        |       

The credit line and loan from a corporate partner
consists of a $5 million loan received in exchange for
options to license two of our early-stage cancer vaccines under
a prior collaboration agreement and a $15 million credit
line related to the commercialization of BEXXAR therapy (refer
to Note 2 with regard to the terms and conditions of the
credit line). The $15 million line matures in October 2003
and accrues interest at a fixed rate per annum equal to the
prime rate in effect on the date the loan is advanced (9.5%), or
the maximum permissible by law, whichever is less. Under the
terms of the note, we are required to meet the following minimum
covenants: (i) remaining months liquidity,
(ii) debt service coverage ratio, (iii) tangible net
worth, and (iv) leverage ratio. As of December 31,
2002, we were in compliance with these covenants. The
$5 million loan is non-interest bearing and matures in
September 2003.

As of December 31, 2002, we had outstanding
bank loans of $8.1 million. This amount is composed of
three bank loans, which require quarterly interest and principal
payments and mature in May 2003, September 2004 and August 2005.
The loans bear interest at a rate that is a function of either
the London InterBank Offering Rate, or LIBOR, or the prime rate
of a major bank or federal fund rates (1.38% and 4.25%,
respectively at December 31, 2002). Under the terms of the
notes, we are required to meet the following minimum covenants:
(i) tangible net worth, (ii) net cash calculated based
on the sum of the principal balance plus the interest reserve
under the note plus a multiple of our actual cash burn or
$37,500,000, whichever is

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

greater, (iii) total debt to net worth
ratios, and (iv) current ratio. As of December 31,
2002, we were in compliance with the covenants.

Minimum future debt payments under all credit
lines from corporate partners and bank loans at
December 31, 2002 are as follows (in thousands):

|                         |                        |                   |        |            |  |   |       |       | 
|------------------------ | ---------------------- | ----------------- | ------ | ---------- |  | - | ----- | ----- | 
|                         |                        | Credit Line and   |        |           
|                         |                        | Loan from         |        |           
|Year Ending December 31, |                        | Corporate Partner |        | Bank Loans
|                         |                        |                   |        |           
|2003                     |                        | $                 | 20,000 |            |  | $ | 3,813 |      
|2004                     |                        |                   |       |            |  |   | 2,875 |      
|2005                     |                        |                   |       |            |  |   | 1,406 |      
|                         |                        |                   |        |            |  |   |       |      
|                         | Total minimum payments |                   | $      | 20,000     |  |   | $     | 8,094 | 
|                         |                        |                   |        |            |  |   |       |      

We rent office and research facilities for our
Seattle operations under a noncancelable-operating lease that
expires in January 2005. We have issued an irrevocable standby
letter of credit in the amount of $750,000 as a security deposit
on the lease. We have the option to renew the lease for two
additional five-year terms. We rent office and research
facilities for our South San Francisco operations under an
operating lease that expires in November 2010, with an option to
renew for two additional five-year periods. We have issued a
standby letter of credit in the amount of $2.2 million and
have a security deposit of $225,000 in connection with this
lease. At December 31, 2002, noncurrent securities
available-for-sale included certificates of deposit of
$6.9 million that secure a financing agreement and deferred
charges, deposits and other assets include $2.2 million
that secure letters of credit related to our leased properties.

On October 15, 2002, we entered into a lease
agreement with Life Sciences Building, LLC to house our future
headquarters at the Ninth & Stewart Lifesciences
Building in Seattle, Washington. The lease provides us with
approximately 138,000 square feet of office and laboratory
space. The lease will commence on November 1, 2004 if
certain improvements to the building are substantially completed
and the term of the lease is 15 years. In January 2003 we
guaranteed a portion of our obligations under the lease in the
form of a letter of credit in the amount of approximately
$4.5 million.

Minimum future rental payments under all lease
agreements at December 31, 2001 are as follows (in
thousands):

|                                                |                        |         |        |           |  |   |        |        | 
|----------------------------------------------- | ---------------------- | ------- | ------ | --------- |  | - | ------ | ------ | 
|                                                |                        | Capital |        | Operating
|Year Ending December 31,                        |                        | Leases  |        | Leases   
|                                                |                        |         |        |          
|2003                                            |                        | $       | 1,634  |           |  | $ | 9,152  |       
|2004                                            |                        |         | 1,634  |           |  |   | 8,829  |       
|2005                                            |                        |         | 987    |           |  |   | 5,631  |       
|2006                                            |                        |         | 256    |           |  |   | 3,964  |       
|2007                                            |                        |         |       |           |  |   | 3,650  |       
|Thereafter                                      |                        |         |       |           |  |   | 10,544 |       
|                                                |                        |         |        |           |  |   |        |       
|                                                | Total minimum payments |         |        | 4,511     |  |   | $      | 41,770 | 
|                                                |                        |         |        |           |  |   |        |       
|Less interest                                   |                        |         | (534   | )         |  |   |        |       
|                                                |                        |         |        |           |  |   |        |       
|Present value of minimum lease payments         |                        |         | 3,977  |           |  |   |        |       
|Less current portion                            |                        |         | (1,339 | )         |  |   |        |       
|                                                |                        |         |        |           |  |   |        |       
|Capital lease obligations, less current portion |                        | $       | 2,638  |           |  |   |        |       
|                                                |                        |         |        |           |  |   |        |       

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Rent expense under operating leases was
$10.7 million in 2002, $9.8 million in 2001 and
$3.7 million in 2000.



|   |                     
|-- | --------------------
|9. | Stockholders Equity



| |                
| | ---------------
| | Preferred Stock

In April 1999, we entered into an agreement with
Castle Gate, L.L.C., an investment partnership focused primarily
on health-care and biomedical companies, to provide us with an
equity line of credit of up to $50 million, or the Line.
Upon execution of the agreement, we completed an initial draw
under the Line of $12.5 million, or the Initial Draw, and
issued Castle Gate 12,500 shares of Series A preferred
stock and warrants to purchase 1,037,137 shares of common
stock, or the Initial Closing Warrants. The Initial Closing
Warrants consist of warrants to purchase 312,500 and
724,637 shares of common stock at exercise prices of $8.50
per share and $8.28 per share, respectively. The conversion
price for the Series A preferred stock issued in the
Initial Draw is $8.50 per share.

Under the terms of the agreement, we issued
warrants on the first and second anniversaries of the Line equal
to $1.125 million and $1.0 million of common stock
respectively, based on the value of our common stock. These
warrants had a value of $5.3 million at the time we entered
into the agreement and were included in equity. Accordingly, on
April 8, 2001 and April 8, 2000, we issued warrants to
purchase 130,028 and 30,540 shares of common stock at $7.69 and
$36.84 per share, respectively.

On December 29, 2000, we drew down the
remaining $37.5 million under the Line by issuing 37,500
shares of Series B preferred stock. The Series B
preferred stock has the same rights and preferences as the
Series A preferred stock issued at the time of the Initial
Draw in April 1999. In addition, we issued warrants to purchase
237,500 shares of common stock, consisting of a warrant to
purchase 187,500 shares of common stock as required under the
terms of the Line and an additional warrant to purchase 50,000
shares of common stock, at an exercise price of $18.22 per
share. The conversion price of the Series B preferred stock
is $25.58 per share.

On the dates of the initial and remaining draws,
the effective conversion prices of the Series A and B
preferred stock (after allocating a portion of the proceeds to
the common stock warrants based on the relative fair values of
the two instruments) were at a discount to the price of the
common stock into which the preferred stock was convertible. The
discount of $5.5 million in 1999 and $9.3 million in
2000 related to the Series A and Series B preferred
stock, was recorded as preferred stock dividends.

The preferred stock has an annual cumulative
dividend rate of 5% and may be paid, at our option, in cash or
in shares of our common stock. If we elect to pay in common
stock the number of shares issued is calculated as the cash
dividend amount divided by the stated conversion price of the
respective preferred stock. The Preferred Stock may be converted
into common stock at the option of Castle Gate at any time
following issuance. Beginning on the fourth anniversary of
issuance, shares of outstanding preferred stock will be
converted into common stock if the price of our common stock
exceeds the preferred stock conversion price by at least 30%, as
specified in the agreement. Additionally, any shares of
Preferred Stock that have not been converted previously will be
converted automatically on the seventh anniversary of issuance.
Series A and Series B preferred shares have voting
rights based on the number of common shares into which the
preferred shares are convertible. In the event of liquidation,
the preferred stockholders share pro rata with common
stockholders.

We elected to pay the 2001 annual dividend on the
Series A preferred stock in shares of our common stock by
issuing 73,529 shares of common stock in April 2002. The
value of these shares at the time of issuance was approximately
$415,000, which was approximately $210,000 less than the cash
dividend value of $625,000. In addition, we elected to pay the
2002 annual dividend on the Series B preferred stock in shares
of our common stock by issuing 73,299 shares of our common stock
in December 2002. The value of these shares

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

at the time of issuance was approximately
$465,000, which was approximately $1.4 million less than
the cash dividend value of $1.9 million. The dividends have
been recorded based on the fair value of the common stock issued.

We are accruing the dividend at the lower of the
cash dividend amount or the current fair value of the shares to
be issued.



| |             
| | ------------
| | Common Stock

On August 14, 2002, we completed the sale of
7,322,562 shares of newly issued common stock and issued
five-year warrants to purchase 1,244,836 shares of our
common stock at an exercise price of $6.13 per share, in a
private placement to select institutional and other accredited
investors. We sold the newly issued common stock for $6.13 per
share and we issued the warrants at a purchase price of $.125
per share. We received net proceeds of approximately
$42.8 million, after deducting underwriting discounts and
commissions and before deducting expenses payable by us.



| |                        
| | -----------------------
| | Redeemable Common Stock

In May 1999, we issued 141,576 shares of our
common stock for $2,000,000, or $14.13 per share, to Zambon in
connection with a collaboration agreement. Under the terms of
the collaboration agreement, Zambon had the right to sell the
common stock back to us for the original purchase price at the
end of the research program term if Zambon determines that a
commercial product was not viable. This right expired in
December 2002 subsequent to the end of the research program
term. The redeemable common stock has been reclassified on the
December 31, 2002 balance sheet into stockholders
equity.



| |                   
| | ------------------
| | Stock Option Plans

Effective June 1, 2001, we amended and
restated the Amended and Restated 1994 Stock Option Plan, and
redesignated it the 2001 Stock Incentive Plan, or 2001 Plan. The
amendment provides for an increase in the shares available for
issuance by 924,950 shares to 7,500,000 shares subject
to an annual increase equal to three percent of the outstanding
common stock as of the last trading day of the prior fiscal
year, up to a maximum annual increase of 2,000,000 shares.
In addition, under the merger agreement with Coulter, we assumed
their stock option plans. As a result, we assumed options to
purchase approximately 5,614,535 shares. As of
December 31, 2002, the 2001 Plan had 11,879,818 shares
of common stock reserved for issuance to employees, directors
and consultants. The amendment also provides that we may grant
stock awards and stock appreciation rights, or SARs, under the
2001 plan. Options granted under the 2001 Plan may be designated
as incentive or nonqualified at the discretion of the plan
administrator.

Generally, options become exercisable over a
four-year period with 25% vesting on the first year anniversary
of the date of grant and the remainder vesting monthly
thereafter. All options expire no later than ten years from the
date of grant. Incentive stock options are exercisable at not
less than the fair market value of the stock at the date of
grant, and nonqualified stock options are exercisable at prices
determined at the discretion of the plan administrator, but not
less than 85% of the fair market value of the stock at the date
of grant. The plan administrator has the discretion to grant
options that are exercisable for unvested shares of common stock
and, to the extent that an optionee holds options for such
unvested shares upon termination, we have the right to
repurchase any or all of the unvested shares at the per-share
exercise price paid by the optionee for the unvested shares.

We adopted the 1997 Directors Stock Option
Plan, or the Directors Plan, on July 25, 1997. As of
December 31, 2002, 422,084 shares of common stock were
reserved for issuance under the Directors Plan. The number
of shares reserved for issuance is subject to an automatic
increase on the first trading day of each of the five calendar
years beginning in 1998 and ending in 2002, in an amount equal
to 50,000 shares or such

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

lesser amount as the board of directors may
establish. The Directors Plan provides for the grant of
nonqualified stock options to nonemployee directors. The
Directors Plan provides that each person who first became
a nonemployee director shall be granted nonqualified stock
options to purchase 15,000 shares of common stock, or the
First Option. Thereafter, on the first day of each fiscal year,
commencing in fiscal 1998, each nonemployee director shall be
automatically granted an additional option to purchase
5,000 shares of common stock, or a Subsequent Option, if,
on such date, he or she shall have served on our board of
directors for at least six months. The First Options and
Subsequent Options generally vest over 36 and 12 months,
respectively, and have 10-year terms. The exercise price of such
options shall be equal to the fair market value of our common
stock on the date of grant. The Directors Plan has a
10-year term, unless terminated earlier.

In April and June of 2001, we cancelled
approximately 1.9 million employee stock options with
exercise prices ranging from $25.13 to $51.19. We granted
approximately 1.8 million replacement options in October
and December 2001 with exercise prices equal to the then current
fair market value of the underlying stock. Each replacement
option has an equivalent vesting schedule to the option that was
exchanged.

A summary of our stock option activity and
related information follows:

|                             |                                 |             |            |                 |   |                  |                |                 |  |   |       |       | 
|---------------------------- | ------------------------------- | ----------- | ---------- | --------------- | - | ---------------- | -------------- | --------------- |  | - | ----- | ----- | 
|                             |                                 | Options     |            |                 |   | Weighted Average
|                             |                                 | Outstanding |            | Price Per Share |   | Exercise Price  
|                             |                                 |             |            |                 |   |                 
|Balance at January 1, 2000   |                                 |             | 3,416,556  |                 |   | $                | 0.33 - $169.89 |                 |  | $ | 10.39 |      
|                             | Options granted                 |             |            | 3,157,393       |   |                  |                | 19.00 -   69.44 |  |   |       | 27.15 | 
|                             | Options assumed in acquisitions |             |            | 4,262,041       |   |                  |                | 0.30 -   42.87  |  |   |       | 20.65 | 
|                             | Options exercised               |             |            | (591,322        | ) |                  |                | 0.33 -   47.48  |  |   |       | 8.94  | 
|                             | Options forfeited               |             |            | (98,328         | ) |                  |                | 0.99 -   71.53  |  |   |       | 15.68 | 
|                             |                                 |             |            |                 |   |                  |                |                 |  |   |       |      
|Balance at December 31, 2000 |                                 |             | 10,146,340 |                 |   |                  | 0.30 -  169.89 |                 |  |   | 19.89 |      
|                             | Options granted                 |             |            | 3,362,085       |   |                  |                | 8.00 -   27.63  |  |   |       | 14.18 | 
|                             | Options exercised               |             |            | (629,247        | ) |                  |                | 0.30 -   23.55  |  |   |       | 15.87 | 
|                             | Options forfeited               |             |            | (3,505,731      | ) |                  |                | 0.75 -   73.77  |  |   |       | 25.06 | 
|                             |                                 |             |            |                 |   |                  |                |                 |  |   |       |      
|Balance at December 31, 2001 |                                 |             | 9,373,447  |                 |   |                  | 0.30 -  169.89 |                 |  |   | 16.88 |      
|                             | Options granted                 |             |            | 3,038,900       |   |                  |                | 5.49 -   14.75  |  |   |       | 6.05  | 
|                             | Options exercised               |             |            | (52,225         | ) |                  |                | 0.33 -    9.50  |  |   |       | 9.85  | 
|                             | Options forfeited               |             |            | (2,703,901      | ) |                  |                | 2.24 -  169.89  |  |   |       | 22.21 | 
|                             |                                 |             |            |                 |   |                  |                |                 |  |   |       |      
|Balance at December 31, 2002 |                                 |             | 9,656,221  |                 |   |                  | 0.30 -  169.89 |                 |  |   | 12.06 |      
|                             |                                 |             |            |                 |   |                  |                |                 |  |   |       |      

The following table summarizes information about
the stock options outstanding at December 31, 2002:

|                 |  |                     |           |                     |  |          |      |        |  |          |       |  |  |  |           |  |  |   |       | 
|---------------- |  | ------------------- | --------- | ------------------- |  | -------- | ---- | ------ |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                 |  |                     |           |                    
|                 |  | Options Outstanding |           | Options Exercisable
|                 |  |                     |           |                    
|                 |  |                     |           | Weighted            |  |          |      |       
|                 |  | Number              |           | Average             |  | Weighted |      |        |  | Weighted
|                 |  | Outstanding on      |           | Remaining           |  | Average  |      |        |  | Average 
|Range of         |  | December 31,        |           | Contractual         |  | Exercise |      |        |  | Exercise
|Exercise Prices  |  | 2002                |           | Life                |  | Price    |      | Shares |  | Price   
|                 |  |                     |           |                     |  |          |      |        |  |         
|$ 0.30 - $  0.99 |  |                     | 456,592   |                     |  |          | 3.81 |        |  | $        | 0.81  |  |  |  | 453,646   |  |  | $ | 0.81  | 
|$ 1.20 - $  5.70 |  |                     | 2,540,183 |                     |  |          | 9.33 |        |  |          | 5.64  |  |  |  | 363,099   |  |  |   | 5.34  | 
|$ 6.15 - $ 12.69 |  |                     | 2,192,837 |                     |  |          | 7.07 |        |  |          | 9.35  |  |  |  | 1,467,661 |  |  |   | 9.55  | 
|$12.97 - $ 13.45 |  |                     | 1,747,405 |                     |  |          | 8.75 |        |  |          | 13.43 |  |  |  | 1,352,398 |  |  |   | 13.43 | 
|$13.50 - $169.89 |  |                     | 2,719,204 |                     |  |          | 7.34 |        |  |          | 21.24 |  |  |  | 1,875,351 |  |  |   | 22.30 | 
|                 |  |                     |           |                     |  |          |      |        |  |          |       |  |  |  |           |  |  |   |       | 
|$ 0.30 - $169.89 |  |                     | 9,656,221 |                     |  |          | 7.89 |        |  |          | 12.06 |  |  |  | 5,512,155 |  |  |   | 13.84 | 
|                 |  |                     |           |                     |  |          |      |        |  |          |       |  |  |  |           |  |  |   |       | 

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2001 and 2000, we had
4,585,061 and 3,171,982 options exercisable, respectively.

Deferred compensation of approximately
$29.2 million was recorded at December 31, 2000, as a
result of the merger with Coulter, which represented the
difference between the exercise prices of options assumed from
Coulter and their fair market values. Deferred compensation
expense of approximately $1.5 million, $14.7 million
and $895,000 was recognized for the years ended
December 31, 2002, 2001 and 2000, respectively. In 2002 and
2001, approximately $1.9 million and $9.2 million,
respectively of deferred compensation was reversed related to
employees that terminated employment during the year.

Included in options outstanding at
December 31, 2002 are approximately 182,000 options granted
to consultants for services. A reduction to expense of $168,000
was recorded in 2002 related to options granted to consultants
due to the decline in our stock price. Expense of approximately
$444,000 and $678,000 was recorded in 2001 and 2000,
respectively, related to options granted to consultants.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

On July 25, 1997, we adopted the 1997
Employee Stock Purchase Plan, or the Purchase Plan. Effective
June 1, 2001, we amended and restated the Purchase Plan and
redesignated it the 2001 Employee Stock Purchase Plan, or the
2001 ESPP. The amendment provided for an immediate increase in
the shares available for issuance by 375,000 shares to
500,000 shares subject to an annual increase of not more
than 500,000 shares in any calendar year. As of
December 31, 2002, 362,337 shares of common stock were
reserved for issuance under the 2001 ESPP. The 2001 ESPP permits
eligible employees to enroll in a two year offering period with
eight three-month purchase periods and to purchase shares of our
common stock through payroll deductions at a price equal to 85%
of the fair market value of our common stock on the first day of
the applicable two year offering period or the last day of the
date of applicable purchase six-month offering period, whichever
is lower.

The number of authorized shares is subject to
automatic increase on the first trading day of each of the 20
calendar years beginning in 1998 and ending in 2017. If the
number of shares reserved for issuance is less than 1% of the
outstanding common stock, the number of shares reserved for
issuance shall be increased until it equals 1% of the
outstanding common stock (up to a maximum of 500,000 shares
in any calendar year), or such lower amount as determined by the
board of directors. The board of directors has the power to
amend or terminate the 2001 ESPP as long as such action does not
adversely affect any outstanding rights to purchase stock under
the 2001 ESPP. The 2001 ESPP has a 20-year term, unless
terminated earlier.

In 2002, 137,663 shares were issued under the
2001 ESPP at $5.24. In 2001 and 2000, 124,575 shares and 62,969
shares were issued under the 2001 ESPP at prices ranging from
$8.84 to $23.48 and $10.61 to $23.69, respectively.

Pro Forma
Information

Pro forma information regarding net loss and loss
per share required by SFAS 123 as disclosed in Note 1 has been
determined as if we had accounted for our employee stock options
under the fair value method of SFAS 123. The fair value for
these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following
weighted-average assumptions on the option grant date.

|                        |  |                |     |                |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|----------------------- |  | -------------- | --- | -------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|                        |  |                |     |               
|                        |  | Employee Stock |     | Employee Stock
|                        |  | Option         |     | Purchase Plan 
|                        |  |                |     |               
|                        |  | 2002           |     | 2001           |  | 2000 |     | 2002 |  | 2001 |     | 2000
|                        |  |                |     |                |  |      |     |      |  |      |     |     
|Expected life (years)   |  |                | 4   |                |  |      | 4   |      |  |      | 4   |      |  |  | 1   |   |  |  | 1   |   |  |  | 1   |  
|Expected volatility     |  |                | 90  | %              |  |      | 90  | %    |  |      | 80  | %    |  |  | 90  | % |  |  | 90  | % |  |  | 80  | %
|Risk-free interest rate |  |                | 4.0 | %              |  |      | 4.2 | %    |  |      | 5.2 | %    |  |  | 4.0 | % |  |  | 4.2 | % |  |  | 5.2 | %
|Expected dividend yield |  |                | 0.0 | %              |  |      | 0.0 | %    |  |      | 0.0 | %    |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The weighted average fair value of options
granted during 2002, 2001 and 2000 was $4.66, $10.54 and $19.86,
respectively.

Stock
Warrants

We had common stock warrants outstanding to
purchase 2,824,465 shares of common stock as of
December 31, 2002 at a weighted average exercise price of
approximately $8.48 per share, which warrants expire between
2004 and 2010. Included in the total common stock warrants
outstanding at December 31, 2002, are warrants to purchase
75,000 shares of common stock issued in connection with a line
of credit with a weighted average exercise price of $12.80 and
1,244,836 shares of common stock issued in connection with a
private placement to select institutional and other accredited
investors with an exercise price of $6.13. Included in the total
common stock warrants outstanding at December 31, 2002, are
69,424 warrants issued prior to 1997, in connection with certain
collaborative agreements with exercise prices ranging from
$0.0033 to $6.60. Vesting of 68,182 warrants is contingent upon
the achievement of certain scientific milestones.

In addition 25,000 common stock warrants will
become exercisable after December 31, 2003 at an average
price of our common stock fifteen trading days immediately
preceding and succeeding December 31, 2003.

Common Stock
Reserved

Common stock was reserved for the following
purposes at December 31, 2002:

|                                  |       |  |           |            | 
|--------------------------------- | ----- |  | --------- | ---------- | 
|Stock options outstanding         |       |  | 9,656,221 |           
|Warrants to purchase common stock |       |  | 2,824,465 |           
|Employee stock purchase plan      |       |  | 362,337   |           
|Stock options available for grant |       |  | 2,645,681 |           
|Conversion of preferred stock     |       |  | 2,936,577 |           
|                                  |       |  |           |           
|                                  | Total |  |           | 18,425,281 | 
|                                  |       |  |           |           

10.     Income
Taxes

At December 31, 2002 and 2001, we had net
operating loss carryforwards of approximately
$446.5 million and $390.4 million, respectively, and
research and experimentation credit carryforwards of
approximately $20.6 million and $18.5 million,
respectively, which begin to expire in 2009. Utilization of net
operating loss and research and development tax credit
carryforwards is subject to certain limitations under
Section 382 of the Internal Revenue Code, or the Code.
During the period 1995 through 2002, we experienced ownership
changes as defined by the Code. Accordingly, our use of losses
incurred through the date of any ownership changes will be
limited on an annual basis during the carryforward period,
therefore some of the carryforwards will expire without being
fully utilized.

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. We have recognized a valuation
allowance equal to the deferred tax assets due to the
uncertainty of realizing the benefits of the assets. The
valuation allowance for deferred tax assets increased $18.5
million during 2002 and

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$30.1 million during 2001. The effects of
temporary differences and carryforwards that give rise to
deferred tax assets and liabilities are as follows (in
thousands):

|                          |                                                                              |              |         |          |   |   |         |          |  
|------------------------- | ---------------------------------------------------------------------------- | ------------ | ------- | -------- | - | - | ------- | -------- | -
|                          |                                                                              |             
|                          |                                                                              | December 31,
|                          |                                                                              |             
|                          |                                                                              | 2002         |         | 2001    
|                          |                                                                              |              |         |         
|Deferred tax assets:      |                                                                              |              |         |          |   |   |         |         
|                          | Net operating loss carryforwards                                             |              | $       | 151,796  |   |   | $       | 132,722  |  
|                          | Research and experimentation credit and foreign
    tax credit carryforwards |              |         | 21,175   |   |   |         | 18,479   |  
|                          | Deferred revenue                                                             |              |         | 6,865    |   |   |         | 8,889    |  
|                          | Financial statement expenses not deducted on tax
    return                  |              |         | 3,632    |   |   |         | 4,702    |  
|                          |                                                                              |              |         |          |   |   |         |         
|                          |                                                                              |              | 183,468 |          |   |   | 164,792 |         
|Deferred tax liabilities: |                                                                              |              |         |          |   |   |         |         
|                          | Tax return expenses not charged against financial
    statements             |              |         | (496     | ) |   |         | (313     | )
|                          |                                                                              |              |         |          |   |   |         |         
|                          |                                                                              |              | (496    | )        |   |   | (313    | )       
|                          |                                                                              |              |         |          |   |   |         |         
|                          | Net deferred tax assets                                                      |              |         | 182,972  |   |   |         | 164,479  |  
|                          | Less valuation allowance                                                     |              |         | (182,972 | ) |   |         | (164,479 | )
|                          |                                                                              |              |         |          |   |   |         |         
|Net deferred tax assets   |                                                                              | $            |        |          |   | $ |        |         
|                          |                                                                              |              |         |          |   |   |         |         

11.     401(k)
Plan

We have a tax-qualified employee savings and
retirement plan, or the 401(k) Plan, covering all of our
employees. Pursuant to the 401(k) Plan, employees may elect to
reduce their current compensation by up to the statutorily
prescribed annual limit ($11,000 in 2002) and to have the amount
of such reduction contributed to the 401(k) Plan. Effective
January 1, 1998, we implemented a 401(k) matching program
whereby we contribute twenty-five cents for each dollar a
participant contributes, with a maximum contribution of 25% of
the first 8% of a participants earnings not to exceed 25%
of the prescribed annual limit. The 401(k) Plan is intended to
qualify under Section 401 of the Code so that contributions
by employees or by us to the 401(k) Plan, and income earned on
401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by us,
if any, will be deductible by us when made. At the direction of
each participant, we invest the assets of the 401(k) Plan in any
of eleven investment options. Our contributions under the 401(k)
Plan were approximately $500,000 in 2002, $577,000 in 2001 and
$280,000 in 2000.

12.     Sale of
Technology and Other Assets

In May 2002, Medarex purchased our proprietary
UPT technology for creating antibody-toxin conjugates and
certain preclinical product development programs in the field of
oncology and other disease indications. In return, we received
$21 million, which was paid in six equal monthly payments.
These payments have been included in other income in the
accompanying statement of operations. Medarex also purchased
certain equipment to support Medarexs continuing research
efforts from Corixa for an additional $2.5 million. We
recorded a gain on the sale of fixed assets to Medarex of
approximately $1 million in the second quarter of 2002.

In connection with this transaction,
approximately 30 of our scientist based in South San Francisco
joined Medarexs California-based research and development
group. Medarex also agreed to sublease approximately 30,000
square feet of laboratory and office space at our South San
Francisco facility, subject to customary conditions.

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13.     Related-Party
Transactions

Employee loans totaling $112,000 and $830,000
assumed in the Coulter acquisition are included in other assets
on the accompanying balance sheets as of December 31, 2002
and 2001, respectively. The loans are non-interest-bearing with
various terms ranging from four to ten years and are secured by
a second deed of trust on the employees residence. The
forgiven amount and the repaid amount are calculated on a
pro-rata basis over years one through ten of continued
employment. In the event the employee ceases to be employed by
us, the loan becomes interest-bearing and due within a
reasonable period not to exceed three months.

In 2001, we extended loans totaling approximately
$200,000 to executive officers. The loans are secured by a
second deed of trust on the employees residence. Each of
the notes has a term of four years and bears interest at
approximately 5.5%. The balance at December 31, 2002 and
December 31, 2001 was $168,000 and $206,000, respectively.
The outstanding balance and accumulated interest is due in full
at maturity.

14.     Commitments
and Contingencies

On September 10, 2001 IDEC filed a complaint
in the United States District Court, Southern District of
California, against us and the Regents of the University of
Michigan seeking declaratory judgment of non-infringement and
invalidity of certain patents related to IDECs Zevalin
product for the treatment of NHL. On September 12, 2001 we
and GSK filed a lawsuit in the United States District Court,
District of Delaware, alleging that IDECs activities since
the ODACs recommendation for approval of Zevalin infringes
our United States Patent Nos. 5,595,721, 6,015,542, 6,090,365
and 6,287,537. Issued claims in the subject patents cover
imaging, composition of matter and methods-of-use in the
treatment of NHL. Pursuant to our lawsuit against IDEC, we and
GSK are requesting that the court declare that IDEC is willingly
infringing our patents. In addition, we are seeking available
remedies under the patent laws including monetary damages and
permanent injunctive relief. On September 28, 2001, we and
GSK amended the complaint to add the Regents of the University
of Michigan as an additional plaintiff. On February 13,
2002, we, GSK and the Regents of the University of Michigan
filed an answer and counterclaims to IDECs amended
complaint in the United States District Court, Southern District
of California. By way of order of February 25, 2002, the
Delaware District Court has ordered the case transferred to the
United States District Court, Southern District of California.
Litigation is ongoing and we are unable to predict an outcome at
this time. However, an unfavorable outcome of this matter could
have a materially adverse affect our operating results from the
sale of BEXXAR therapy, if BEXXAR therapy is approved.

We are party to routine claims and litigation
incidental to our business. We believe the ultimate resolution
of these routine matters will not have a material adverse effect
on our financial position and results of operations or cash
flows.

15.     Quarterly
Financial Data (Unaudited)

The following table contains selected unaudited
statement of operations information for each quarter of 2002 and
2001. We believe that the following information reflects all
normal recurring adjustments necessary

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CORIXA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for a fair presentation of the information for
the periods presented. The operating results for any quarter are
not necessarily indicative of results of any future period.

Quarterly
Financial Data:

|     |                                             |                                       |   |          |   |    |   |         |   |  |   |         |   |  |   |         |  
|---- | ------------------------------------------- | ------------------------------------- | - | -------- | - | -- | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|     |                                             | Q1                                    |   | Q2       |   | Q3 |   | Q4     
|     |                                             |                                       |   |          |   |    |   |        
|     |                                             |                                      
|     |                                             | (In thousands, except per share data)
|2002 |                                             |                                       |   |          |   |    |   |         |   |  |   |         |   |  |   |        
|     | Revenue                                     |                                       | $ | 15,566   |   |    | $ | 13,886  |   |  | $ | 9,876   |   |  | $ | 9,410   |  
|     | Net income (loss)                           |                                       |   | (176,690 | ) |    |   | 5,331   |   |  |   | (16,581 | ) |  |   | (19,459 | )
|     | Basic net income (loss) per common share    |                                       |   | (4.25    | ) |    |   | 0.13    |   |  |   | (0.37   | ) |  |   | (0.40   | )
|     | Diluted net income (loss) per common share  |                                       |   | (4.25    | ) |    |   | 0.12    |   |  |   | (0.37   | ) |  |   | (0.40   | )
|2001 |                                             |                                       |   |          |   |    |   |         |   |  |   |         |   |  |   |        
|     | Revenue                                     |                                       | $ | 13,501   |   |    | $ | 15,625  |   |  | $ | 14,048  |   |  | $ | 14,891  |  
|     | Net loss                                    |                                       |   | (41,972  | ) |    |   | (31,793 | ) |  |   | (40,027 | ) |  |   | (34,245 | )
|     | Basic and diluted net loss per common share |                                       |   | (1.05    | ) |    |   | (0.79   | ) |  |   | (0.99   | ) |  |   | (0.83   | )

86



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##### Table of Contents






Item 9.     Changes
in and Disagreements with Accountants and Financial
Disclosure

None.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

The information required by this item is
incorporated by reference to the information set forth under the
caption Directors and Executive Officers in our 2003
Proxy Statement to be filed within 120 days after the end
of our fiscal year ended December 31, 2002.




Item 11.Executive
Compensation

The information required by this item is
incorporated by reference to the information set forth under the
caption Compensation of Executive Officers in our
2003 Proxy Statement to be filed within 120 days after the
end of our fiscal year ended December 31, 2002.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by this item is
incorporated by reference to the information set forth under the
caption Common Stock Ownership of Certain Beneficial
Owners and Management in our 2003 Proxy Statement to be
filed within 120 days after the end of our fiscal year
ended December 31, 2002.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated by reference to the information set forth under the
caption Certain Relationships and Related
Transactions in our 2003 Proxy Statement to be filed
within 120 days after the end of our fiscal year ended
December 31, 2002.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Our chief executive officer and our chief
financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) of the Securities Exchange
Act of 1934) as of a date within 90 days before the filing
date of this annual report, have concluded that as of the time
of such evaluation, our disclosure controls and procedures were
effective in ensuring that information required to be disclosed
by us in this annual report is accumulated and communicated by
our management, to allow timely decisions regarding required
disclosure.

There were no significant changes in our internal
controls or other factors that could significantly affect our
disclosure controls and procedures subsequent to the date of
their evaluation and there were no corrective actions with
regard to significant deficiencies and material weaknesses.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K.

(a) The following documents are filed as
part of this report:

(1) Report of Ernst & Young LLP,
Independent Auditors.

Consolidated Balance Sheets as of
December 31, 2002 and 2001.

Consolidated Statements of Operations 
Years Ended December 31, 2002, 2001 and 2000.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Consolidated Statements of Stockholders
    Equity  Years Ended December 31, 2002, 2001 and 2000.

87



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##### Table of Contents



Consolidated Statements of Cash Flows 
Years Ended December 31, 2002, 2001 and 2000.

Notes to Consolidated Financial Statements.

(2) Financial Statement Schedules

All schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.

(3) Index to Exhibits filed in response to
Item 601 of Regulation S-K is set forth below.




EXHIBIT INDEX

|        |    |                     |  |                                                                                                                                                                                                                                                                                      |  |  |     | 
|------- | -- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | --- | 
|Exhibit |    |                     |  |                                                                                                                                                                                                                                                                                     
|Number  |    | Exhibit Description |  | Page                                                                                                                                                                                                                                                                                
|        |    |                     |  |                                                                                                                                                                                                                                                                                     
|        | 3  | .1                  |  | Amended and Restated Certificate of Incorporation
    of Corixa Corporation                                                                                                                                                                                                          |  |  | (A) | 
|        | 3  | .2                  |  | Certificate of Designation of Series A
    Preferred Stock                                                                                                                                                                                                                           |  |  | (D) | 
|        | 3  | .3                  |  | Certificate of Designation of Series B
    Preferred Stock                                                                                                                                                                                                                           |  |  | (E) | 
|        | 3  | .4                  |  | Bylaws of Corixa Corporation                                                                                                                                                                                                                                                         |  |  | (T) | 
|        | 4  | .1                  |  | Amended and Restated Investors Rights
    Agreement dated as of May 10, 1996 between Corixa
    Corporation and certain holders of its capital stock                                                                                                                                |  |  | (A) | 
|        | 10 | .1                  |  | 2001 Stock Incentive Plan                                                                                                                                                                                                                                                            |  |  | (L) | 
|        | 10 | .2                  |  | 1997 Directors Stock Option Plan and form
    of stock option agreement                                                                                                                                                                                                             |  |  | (A) | 
|        | 10 | .3                  |  | 2001 Employee Stock Purchase Plan and form of
    subscription agreement                                                                                                                                                                                                             |  |  | (M) | 
|        | 10 | .4                  |  | Corixa Corporation 401(k) Savings &
    Retirement Plan                                                                                                                                                                                                                              |  |  | (A) | 
|        | 10 | .5                  |  | Form of Indemnification Agreement between Corixa
    Corporation and each director and officer of Corixa Corporation                                                                                                                                                                 |  |  | (A) | 
|        | 10 | .6                  |  | Columbia Building Lease dated October 28,
    1994 and Columbia Building Lease First Amendment dated
    December 29, 1995, each between Corixa Corporation and Fred
    Hutchinson Cancer Research Center                                                                           |  |  | (A) | 
|        | 10 | .7                  |  | Second Amendment to Columbia Building Lease dated
    as of September 25, 1998, between Corixa Corporation and
    Alexandria Real Estate Equities, Inc., successor in interest to
    Fred Hutchinson Cancer Research Center                                                        |  |  | (B) | 
|        | 10 | .8                  |  | Lease dated May 31, 1996 between Corixa
    Corporation and Health Science Properties, Inc.                                                                                                                                                                                          |  |  | (A) | 
|        | 10 | .9                  |  | First Amendment to Lease dated January 31,
    1997 between Corixa Corporation and Health Science Properties,
    Inc.                                                                                                                                                               |  |  | (S) | 
|        | 10 | .10                 |  | Second Amendment to Lease dated June 30,
    1997 between Corixa Corporation and Alexandria Real Estate
    Equities, Inc., formerly known as Health Science Properties, Inc.                                                                                                        |  |  | (S) | 
|        | 10 | .11                 |  | Third Amendment to Lease dated November 1,
    1998 between Corixa Corporation and Alexandria Real Estate
    Equities, Inc., formerly known as Health Science Properties, Inc.                                                                                                      |  |  | (S) | 
|        | 10 | .12+                |  | Multi-Field Vaccine Discovery Collaboration and
    License Agreement between Corixa Corporation and SmithKline
    Beecham plc, dated September 1, 1998                                                                                                                             |  |  | (C) | 
|        | 10 | .13+                |  | Amendment No. 1, dated May 25, 2000, to
    the Multi-Field Vaccine Discovery Collaboration and License
    Agreement, dated October 28, 1998, by and between Corixa
    Corporation and SmithKline Beecham plc                                                                      |  |  | (K) | 
|        | 10 | .14+                |  | Letter Agreement, dated as of August 16,
    2001, between Corixa Corporation and SmithKline Beecham plc,
    regarding the Multi-Field Vaccine Discovery Collaboration and
    License Agreement between Corixa Corporation and SmithKline
    Beecham plc, dated September 1, 1998 |  |  | (R) | 
|        | 10 | .15*                |  | Amendment No. 2, dated as of
    January 28, 2003, to the Multi-Field Vaccine Discovery
    Collaboration and License Agreement, dated October 28,
    1998, between Corixa Corporation and SmithKline Beecham plc                                                                   |  |  |    | 

88



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|        |    |                     |  |                                                                                                                                                                                                                                   |  |  |     | 
|------- | -- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Exhibit |    |                     |  |                                                                                                                                                                                                                                  
|Number  |    | Exhibit Description |  | Page                                                                                                                                                                                                                             
|        |    |                     |  |                                                                                                                                                                                                                                  
|        | 10 | .16*                |  | Collaboration and License Agreement, dated as of
    January 28, 2003, between Corixa Corporation, SmithKline
    Beecham plc                                                                                                     |  |  |    | 
|        | 10 | .17*                |  | Corixa License Agreement, dated as of
    January 28, 2003, between Corixa Corporation and SmithKline
    Beecham plc                                                                                                             |  |  |    | 
|        | 10 | .18+                |  | Equity Line of Credit and Securities Purchase
    Agreement between Corixa Corporation and Castle Gate, L.L.C.,
    dated April 8, 1999                                                                                           |  |  | (D) | 
|        | 10 | .19+                |  | Registration Rights Agreement between Corixa
    Corporation and Castle Gate, L.L.C., dated April 8, 1999                                                                                                                         |  |  | (D) | 
|        | 10 | .20+                |  | Standstill Agreement between Corixa Corporation
    and Castle Gate, L.L.C., dated April 8, 1999                                                                                                                                  |  |  | (D) | 
|        | 10 | .21+                |  | Warrant Number CG-1 issued by Corixa Corporation
    to Castle Gate, L.L.C. on April 8, 1999                                                                                                                                      |  |  | (D) | 
|        | 10 | .22+                |  | Warrant Number CG-2 issued by Corixa Corporation
    to Castle Gate, L.L.C. on April 8, 1999                                                                                                                                      |  |  | (D) | 
|        | 10 | .23+                |  | Form of Warrant Number CG-3 to be issued by
    Corixa Corporation to Castle Gate, L.L.C. on the occurrence of
    certain events in accordance with the terms of the Equity Line
    of Credit and Securities Purchase Agreement |  |  | (D) | 
|        | 10 | .24+                |  | Form of Warrant Number CG-4 to be issued by
    Corixa Corporation to Castle Gate, L.L.C. on the occurrence of
    certain events in accordance with the terms of the Equity Line
    of Credit and Securities Purchase Agreement |  |  | (D) | 
|        | 10 | .25+                |  | Amendment No. 1, dated December 21,
    2000, to the Equity Line of Credit and Securities Purchase
    Agreement, dated April 8, 1999, by and between Corixa
    Corporation and Castle Gate, L.L.C.                              |  |  | (E) | 
|        | 10 | .26+                |  | Amendment No. 2, dated December 29,
    2000, to the Equity Line of Credit and Securities Purchase
    Agreement, dated April 8, 1999, by and between Corixa
    Corporation and Castle Gate, L.L.C.                              |  |  | (E) | 
|        | 10 | .27+                |  | Warrant Number CG-5 issued by Corixa Corporation
    to Castle Gate on December 29, 2000                                                                                                                                          |  |  | (E) | 
|        | 10 | .28+                |  | Development, Commercialization and License
    Agreement, dated August 15, 2000 by and between Corixa
    Corporation and Medicis Pharmaceutical Corporation                                                                      |  |  | (K) | 
|        | 10 | .29                 |  | Coulter Pharmaceutical, Inc. 1996 Employee Stock
    Purchase Plan                                                                                                                                                                |  |  | (F) | 
|        | 10 | .30                 |  | Coulter Pharmaceutical, Inc. 1995 Equity
    Incentive Plan                                                                                                                                                                       |  |  | (F) | 
|        | 10 | .31                 |  | Coulter Pharmaceutical, Inc. 1996 Equity
    Incentive Plan                                                                                                                                                                       |  |  | (F) | 
|        | 10 | .32                 |  | Assignment Agreement between Coulter
    Pharmaceutical, Inc., Beckman Coulter and certain investors,
    dated February 24, 1995                                                                                                 |  |  | (G) | 
|        | 10 | .33+                |  | Development Agreement between Coulter
    Pharmaceutical, Inc. and MDS Nordion Inc., successor in interest
    to Nordion International, Inc. dated November 15, 1995                                                             |  |  | (G) | 
|        | 10 | .34+                |  | Contract Research and Development Agreement, by
    and between Coulter Pharmaceutical, Inc. and Dr. Karl
    Thomas GmbH, dated October 22, 1997                                                                                 |  |  | (H) | 
|        | 10 | .35+                |  | Supply Agreement between Coulter Pharmaceutical,
    Inc. and MDS Nordion Inc., dated August 31, 1998                                                                                                                             |  |  | (I) | 
|        | 10 | .36+                |  | Facilities Agreement between Coulter
    Pharmaceutical, Inc. and MDS Nordion Inc., dated August 31,
    1998                                                                                                                     |  |  | (I) | 
|        | 10 | .37+                |  | Security Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998                                                                                                        |  |  | (J) | 
|        | 10 | .38+                |  | Grant of Security Interest between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998                                                                                                |  |  | (J) | 
|        | 10 | .39+                |  | Loan Agreement between Coulter Pharmaceutical,
    Inc. and SmithKline Beecham Corporation, dated October 23,
    1998                                                                                                            |  |  | (J) | 

89



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|        |    |                     |  |                                                                                                                                                                                                                                                                       |  |  |      | 
|------- | -- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit |    |                     |  |                                                                                                                                                                                                                                                                      
|Number  |    | Exhibit Description |  | Page                                                                                                                                                                                                                                                                 
|        |    |                     |  |                                                                                                                                                                                                                                                                      
|        | 10 | .40                 |  | First Amendment dated June 28, 2002 to Loan
    Agreement dated as of October 23, 1998, between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation                                                                                                   |  |  | (W)  | 
|        | 10 | .41+                |  | Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998                                                                                                                                       |  |  | (J)  | 
|        | 10 | .42+                |  | Amendment No. 1, dated November 30,
    1998, to the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham, dated
    October 23, 1998                                                                                              |  |  | (J)  | 
|        | 10 | .43+                |  | Letter Agreement between Coulter Pharmaceutical,
    Inc. and SmithKline Beecham Corporation, dated April 20,
    2000, regarding the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998 |  |  | (R)  | 
|        | 10 | .44+                |  | Letter Agreement between Corixa Corporation and
    SmithKline Beecham Corporation, dated February 12, 2001,
    regarding the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998        |  |  | (R)  | 
|        | 10 | .45+                |  | Letter Agreement between Corixa Corporation and
    SmithKline Beecham Corporation, dated October 18, 2001,
    regarding the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998         |  |  | (R)  | 
|        | 10 | .46+                |  | Supply Agreement between Coulter Pharmaceutical,
    Inc. and Boehringer Ingelheim Pharma KG, dated November 3,
    1998                                                                                                                                              |  |  | (J)  | 
|        | 10 | .47                 |  | Satisfaction Agreement, dated June 28, 2001
    between Michael F. Bigham and Corixa Corporation                                                                                                                                                                      |  |  | (N)  | 
|        | 10 | .48                 |  | Form of Bexxar Stock Award Agreement, dated
    October 15, 2000 between Corixa Corporation and certain
    directors and officers of Corixa Corporation                                                                                                              |  |  | (N)  | 
|        | 10 | .49                 |  | Schedule of officers and directors of Corixa
    Corporation party to Bexxar Stock Award Agreement                                                                                                                                                                    |  |  | (N)  | 
|        | 10 | .50                 |  | Form of Corixa Corporation Executive Employment
    Agreement                                                                                                                                                                                                         |  |  | (N)  | 
|        | 10 | .51                 |  | Schedule of officers party to Corixa Corporation
    Executive Employment Agreement                                                                                                                                                                                   |  |  |     | 
|        | 10 | .52+                |  | Development, Commercialization and License
    Agreement dated October 29, 2001 between Corixa Corporation
    and Amersham PLC                                                                                                                                       |  |  | (Y)  | 
|        | 10 | .53+                |  | Manufacturing and Supply Agreement dated
    October 29, 2001 between Corixa Corporation and Amersham PLC                                                                                                                                                             |  |  | (Z)  | 
|        | 10 | .54+                |  | Stock Purchase Agreement dated October 29,
    2001 between Corixa Corporation and Amersham Health, Inc.                                                                                                                                                              |  |  | (CC) | 
|        | 10 | .55                 |  | Private Equity Line Financing Agreement dated
    December 3, 2001 between Corixa Corporation and BNY Capital
    Markets, Inc.                                                                                                                                       |  |  | (O)  | 
|        | 10 | .56                 |  | Registration Rights Agreement dated
    December 3, 2001 between Corixa Corporation and BNY Capital
    Markets, Inc.                                                                                                                                                 |  |  | (O)  | 
|        | 10 | .57                 |  | Form of warrant issued by Corixa Corporation to
    employees of Shoreline Pacific, LLC on December 3, 2001                                                                                                                                                           |  |  | (O)  | 
|        | 10 | .58                 |  | Secured Promissory Note by Steven G. Reed, Ph.D.
    and Marianne T. Reed in favor of Corixa Corporation, dated
    December 31, 2001                                                                                                                                 |  |  | (S)  | 
|        | 10 | .59                 |  | Secured Promissory Note by Kenneth A. Grabstein,
    Ph.D. and Teresa A. Grabstein in favor of Corixa Corporation,
    dated December 31, 2001                                                                                                                        |  |  | (S)  | 
|        | 10 | .60                 |  | Loan Agreement between Corixa Corporation and BNP
    Paribas, dated as of August 3, 2001                                                                                                                                                                             |  |  | (S)  | 

90



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|        |    |                     |  |                                                                                                                                                                                                                                             |  |  |      | 
|------- | -- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit |    |                     |  |                                                                                                                                                                                                                                            
|Number  |    | Exhibit Description |  | Page                                                                                                                                                                                                                                       
|        |    |                     |  |                                                                                                                                                                                                                                            
|        | 10 | .61+                |  | Collaboration Agreement dated May 21, 1999
    between Corixa Corporation and Inpharzam International                                                                                                                                       |  |  | (Q)  | 
|        | 10 | .62*                |  | Letter Agreement dated November 19, 2001
    between Corixa Corporation and Inpharzam International,
    regarding the Collaboration Agreement dated May 21, 1999
    between Corixa Corporation and Inpharzam International                |  |  |     | 
|        | 10 | .63*                |  | Letter Agreement dated November 15, 2002
    between Corixa Corporation and Inpharzam International,
    regarding the Collaboration Agreement dated May 21, 1999
    between Corixa Corporation and Inpharzam International                |  |  |     | 
|        | 10 | .64+                |  | License and Collaborative Research Agreement
    dated June 15, 1999 between Corixa Corporation and Japan
    Tobacco Inc.                                                                                                                  |  |  | (Q)  | 
|        | 10 | .65+                |  | Research Agreement dated March 26, 1999
    between Corixa Corporation and the Infectious Disease Research
    Institute                                                                                                                    |  |  | (P)  | 
|        | 10 | .66+                |  | Development and License Agreement dated
    August 16, 1999 between Zenyaku Kogyo Co., Ltd. and Corixa
    Corporation                                                                                                                      |  |  | (R)  | 
|        | 10 | .67                 |  | First Amendment dated February 28, 2002 to
    Private Equity Line Financing Agreement dated as of
    December 3, 2001, between Corixa Corporation and BNY
    Capital Markets, Inc.                                                       |  |  | (S)  | 
|        | 10 | .68                 |  | First Amendment dated February 28, 2002 to
    Registration Rights Agreement dated as of December 3, 2001,
    between Corixa Corporation and BNY Capital Markets, Inc.                                                                     |  |  | (S)  | 
|        | 10 | .69+                |  | Second Amendment, dated April 17, 2002, to
    Private Equity Line Financing Agreement dated as of
    December 3, 2001, between Corixa Corporation and BNY
    Capital Markets, Inc.                                                       |  |  | (BB) | 
|        | 10 | .70+                |  | Letter Agreement between Corixa Corporation and
    Zenyaku Kogyo Co., Ltd, dated August 6, 2001, regarding the
    Development and License Agreement between Corixa Corporation and
    Zenyaku Kogyo Co., dated August 16, 1999           |  |  | (R)  | 
|        | 10 | .71*                |  | Letter Agreement between Corixa Corporation and
    Japan Tobacco Inc., dated September 28, 2001, regarding the
    License and Collaborative Research Agreement between Corixa
    Corporation and Japan Tobacco Inc., dated June 15, 1999 |  |  | (R)  | 
|        | 10 | .72+                |  | Lease dated November 7, 1997 between HMS
    Gateway Office L.P. and Coulter Pharmaceutical                                                                                                                                                 |  |  | (M)  | 
|        | 10 | .73+                |  | First Amendment to Lease dated November 10,
    1998 between HMS Gateway Office L.P. and Coulter Pharmaceutical,
    Inc.                                                                                                                   |  |  | (J)  | 
|        | 10 | .74                 |  | Second Amendment to Lease dated May 19, 2000
    between HMS Gateway Office L.P. and Coulter Pharmaceutical, Inc.                                                                                                                           |  |  | (S)  | 
|        | 10 | .75+                |  | Lease dated May 19, 2000 between HMS Gateway
    Office L.P. and Coulter Pharmaceutical                                                                                                                                                     |  |  | (R)  | 
|        | 10 | .76*                |  | First Amendment to Lease dated January 15,
    2002 between HMS Gateway Office L.P. and Coulter Pharmaceutical,
    Inc.                                                                                                                    |  |  |     | 
|        | 10 | .77                 |  | Master Security Agreement by and between Corixa
    Corporation and General Electric Capital Corporation, dated
    February 25, 2002, as amended                                                                                           |  |  | (AA) | 
|        | 10 | .78+                |  | Asset Purchase Agreement, dated May 23,
    2002, by and among Corixa Corporation, Coulter Pharmaceutical,
    Inc., Corixa Belgium, S.A., Medarex, Inc. and Medarex Belgium                                                                |  |  | (X)  | 
|        | 10 | .79                 |  | Securities Purchase Agreement dated as of
    August 9, 2002, among Corixa Corporation and the purchasers
    named therein                                                                                                                 |  |  | (U)  | 
|        | 10 | .80                 |  | Registration Rights Agreement dated as of
    August 9, 2002, among Corixa Corporation and the investors
    named therein                                                                                                                  |  |  | (U)  | 
|        | 10 | .81+                |  | Lease Agreement dated October 15, 2002,
    between Corixa Corporation and Life Sciences Building, LLC                                                                                                                                      |  |  | (T)  | 

91



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|        |    |                     |  |                                                                                                                                                                                                                                  |  |  |      | 
|------- | -- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit |    |                     |  |                                                                                                                                                                                                                                 
|Number  |    | Exhibit Description |  | Page                                                                                                                                                                                                                            
|        |    |                     |  |                                                                                                                                                                                                                                 
|        | 10 | .82+                |  | License Development and Commercialization
    Agreement dated as of November 27, 2002 between Corixa
    Corporation and Kirin Brewery Company, Ltd.                                                                             |  |  | (U)  | 
|        | 10 | .83*                |  | Amended and Restated License and Collaborative
    Research Agreement dated as of December 19, 2002, between Corixa
    Corporation and Japan Tobacco Inc.                                                                       |  |  |     | 
|        | 10 | .84*                |  | Agreement dated as of April 1, 1994 by and
    between Coulter Corporation, as successor in interest to Coulter
    Electronics, Inc., and Dana-Farber Cancer Institute, Inc.                                                    |  |  |     | 
|        | 10 | .85*                |  | Agreement Regarding Sublicenses dated as of
    December 2, 1998 between Coulter Pharmaceutical, Inc. and
    Dana-Farber Cancer Institute, Inc.                                                                                 |  |  |     | 
|        | 10 | .86*                |  | Commercialization Agreement dated as of
    November 1, 1994 between Coulter Corporation and the
    Regents of the University of Michigan                                                                                       |  |  |     | 
|        | 10 | .87*                |  | Assignment of Commercialization Agreement dated
    as of April 1, 1995 among Coulter Pharmaceutical, Inc.,
    Coulter Corporation and the Regents of the University of Michigan                                                |  |  |     | 
|        | 10 | .88*                |  | Amendment to Commercialization Agreement dated
    June 1, 1997 between the Regents of the University of
    Michigan and Coulter Pharmaceutical, Inc. amending the
    Commercialization Agreement dated as of November 1, 1994 |  |  |     | 
|        | 10 | .89                 |  | Amendment No. 1 to the Research Agreement,
    dated March 31, 2002, between Infectious Disease Research
    Institute and Corixa Corporation, amending the Research
    Agreement dated March 26, 1999                          |  |  |     | 
|        | 21 | .1                  |  | Subsidiaries of Corixa Corporation                                                                                                                                                                                               |  |  |     | 
|        | 23 | .1                  |  | Consent of Ernst and Young, LLP, Independent
    Auditors                                                                                                                                                                        |  |  |     | 
|        | 24 | .1                  |  | Power of Attorney                                                                                                                                                                                                                |  |  | (DD) | 
|        | 99 | .1                  |  | Certification of Financial Statements by Chief
    Executive Officer and Chief Financial Officer of Corixa
    Corporation pursuant to 18 U.S.C. Section 1350                                                                    |  |  |     | 



---



|    |  |                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | Incorporated herein by reference Corixas
    Form S-1, as amended, (File No. 333-32147), filed with the
    Commission on September 30, 1997.                                                      
|   
|(B) |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 333-32147), filed with the Commission
    on November 12, 1998.                                                                
|   
|(C) |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 0-22891), filed with the Commission
    on November 10, 1998.                                                                   
|   
|(D) |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 0-22891), filed with the Commission
    on April 23, 1999.                                                                      
|   
|(E) |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 0-22891), filed with the Commission
    on January 4, 2001.                                                                     
|   
|(F) |  | Incorporated herein by reference to Corixas
    Registration Statement on Form S-8 (File
    No. 333-52968), filed with the Commission on
    December 29, 2000.                                   
|   
|(G) |  | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Registration Statement on
    Form S-1 (File No. 333-17661), as amended, filed with
    the Commission on September 29, 1997.
|   
|(H) |  | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Form 10-K (File No. 000-21905),
    filed with the Commission on March 27, 1998.                                             
|   
|(I) |  | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Form 10-Q (File No. 000-21905),
    filed with the Commission on November 13, 1998.                                          
|   
|(J) |  | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Form 10-K, (File
    No. 000-21905), filed with the Commission on March 30,
    1999.                                        
|   
|(K) |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on November 6, 2000.                                                                 
|   
|(L) |  | Incorporated herein by reference to Corixas
    Registration Statement on Form S-8 (File
    No. 333-65394), filed with the Commission on July 18,
    2001.                                       

92



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|     |  |                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(M)  |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on August 10, 2001 [November 13, 2001].
|    
|(N)  |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on November 13, 2001.                  
|    
|(O)  |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    December 17, 2001.                   
|    
|(P)  |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on May 6, 1999.                        
|    
|(Q)  |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on August 9, 1999.                     
|    
|(R)  |  | Incorporated herein by reference to Corixas
    Form 10-K/ A (File No. 000-22891), filed with the
    Commission on June 24, 2002.                   
|    
|(S)  |  | Incorporated herein by reference to Corixas
    Form 10-K (File No. 000-22891), filed with the Commission
    on March 1, 2002.                      
|    
|(T)  |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    October 21, 2002.                    
|    
|(U)  |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    December 5, 2002.                    
|    
|(V)  |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    August 13, 2002.                     
|    
|(W)  |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on August 13, 2002.                    
|    
|(X)  |  | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    June 3, 2002.                        
|    
|(Y)  |  | Incorporated herein by reference to Corixas
    Form 8-K/ A (File No. 000-22891), filed with the Commission
    on May 29, 2002.                     
|    
|(Z)  |  | Incorporated herein by reference to Corixas
    Form 8-K/ A (File No. 000-22891), filed with the Commission
    on May 16, 2002.                     
|    
|(AA) |  | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on May 15, 2002.                       
|    
|(BB) |  | Incorporated herein by reference to Corixas
    Form S-3/ A (File No. 333-75282), filed with the Commission
    on May 6, 2002.                      
|    
|(CC) |  | Incorporated herein by reference to Corixas
    Form 8-K/ A (File No. 000-22891), filed with the Commission
    on April 12, 2002.                   
|    
|(DD) |  | Incorporated herein by reference to the
    Power of Attorney granted below in this report on
    Form 10-K.                                        
|    
|+    |  | Confidential treatment granted by order of the
    SEC.                                                                                               
|    
|*    |  | Confidential treatment sought by Corixa
    Corporation from the SEC.                                                                                 
|    
|    |  | Filed herewith.                                                                                                                                       

(b) Reports on Form 8-K

On October 21, 2002, Corixa filed a Current
Report on Form 8-K stating under Item 5. Other
Events that on October 15, 2002, Corixa entered into
a lease agreement with Life Sciences Building, LLC to house
Corixas headquarters at the Ninth and Stewart Lifesciences
Building in Seattle, Washington.

On December 5, 2002 Corixa filed a Current
Report on Form 8-K stating under Item 5. Other
Events that on December 2, 2002, Corixa and
GlaxoSmithKline announced that the United States Food and Drug
Administration confirmed that additional BEXXAR therapy data
constituted a complete response to the March 12, 2002
complete review letter and the BEXXAR therapy BLA was returned
to active review status.

93



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##### Table of Contents



On December 5, 2002 Corixa filed a Current
Report on Form 8-K stating under Item 5. Other
Events that on December 4, 2002 Corixa sold 636,173
shares of Corixa common stock to Amersham Health for a total
purchase price of $5 million on cash.

On December 5, 2002 Corixa filed a Current
Report on Form 8-K stating under Item 5. Other
Events that on December 4, 2002 Corixa and Kirin
Brewery Company, Ltd. announced that they entered into a
development and commercialization agreement.

On December 18, 2002 Corixa filed a Current
Report on Form 8-K stating under Item 5. Other
Events that on December 17, 2002 Corixa and
GlaxoSmithKline announced that ODAC recommended BEXXAR therapy
for approval.

94



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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                   
| | ------------------
| | CORIXA CORPORATION



| |     |                    
| | --- | -------------------
| | By: | /s/ MICHELLE BURRIS

| |                                               
| | ----------------------------------------------
| |                                               
| | Michelle Burris                               
| | Vice President and Chief Financial
    Officer

Date: February 25, 2003

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Steve Gillis and Michelle Burris, jointly and severally, his or
her attorneys-in-fact, each with the power of substitution, for
him or her in any and all capacities, to sign any amendments to
this Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, hereby ratifying
and confirming all that each of said attorneys-in-fact, or his
or her substitute or substitutes may do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, the following persons on behalf of the
registrant and in the capacities and on the dates indicated have
signed this report below.

|                                       |  |                                                                                                        |  |                  
|-------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | -----------------
|Signature                              |  | Title                                                                                                  |  | Date             
|                                       |  |                                                                                                        |  |                  
|/s/ STEVEN GILLISSteven Gillis         |  | Chairman and Chief Executive Officer
    (Principal Executive Officer)                                 |  | February 25, 2003
|                                      
|/s/ MICHELLE BURRISMichelle Burris     |  | Senior Vice President and Chief
    Financial Officer (Principal Financial
    and Accounting Officer) |  | February 25, 2003
|                                      
|/s/ MARK MCDADEMark McDade             |  | Director                                                                                               |  | February 25, 2003
|                                      
|/s/ MICHAEL F. BIGHAMMichael F. Bigham |  | Director                                                                                               |  | February 25, 2003
|                                      
|/s/ JOSEPH L. LACOBJoseph L. Lacob     |  | Director                                                                                               |  | February 25, 2003
|                                      
|/s/ ARNOLD ORONSKYArnold Oronsky       |  | Director                                                                                               |  | February 25, 2003
|                                      
|/s/ JAMES YOUNGJames Young             |  | Director                                                                                               |  | February 25, 2003

95



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|                                 |  |          |  |                  
|-------------------------------- |  | -------- |  | -----------------
|Signature                        |  | Title    |  | Date             
|                                 |  |          |  |                  
|                                
|/s/ ROBERT MOMSENRobert Momsen   |  | Director |  | February 25, 2003
|                                
|/s/ SAMUEL R. SAKSSamuel R. Saks |  | Director |  | February 25, 2003

96



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##### Table of Contents



CERTIFICATIONS

I, Steven Gillis, Ph.D., certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Corixa Corporation;                                                                                                                                                                                                                                                                      
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of registrants board of
    directors (or persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officer and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.



| |                                     
| | ------------------------------------
| | /s/ STEVEN GILLIS                   
| |                                     
| | Steven Gillis, Ph.D.                
| | Chairman and Chief Executive Officer

Date: February 25, 2003

97



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##### Table of Contents



I, Michelle Burris, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Corixa Corporation;                                                                                                                                                                                                                                                                      
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of registrants board of
    directors (or persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.



| |                                                      
| | -----------------------------------------------------
| | /s/ MICHELLE BURRIS                                  
| |                                                      
| | Michelle Burris                                      
| | Senior Vice President and Chief Financial
    Officer

Date: February 25, 2003

98



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EXHIBIT INDEX

|        |        |                     |  |                                                                                                                                                                                                                                                                                      |  |  |     | 
|------- | ------ | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | --- | 
|Exhibit |        |                     |  |                                                                                                                                                                                                                                                                                     
|Number  |        | Exhibit Description |  | Page                                                                                                                                                                                                                                                                                
|        |        |                     |  |                                                                                                                                                                                                                                                                                     
|        | 3.1    |                     |  | Amended and Restated Certificate of Incorporation
    of Corixa Corporation                                                                                                                                                                                                          |  |  | (A) | 
|        | 3.2    |                     |  | Certificate of Designation of Series A
    Preferred Stock                                                                                                                                                                                                                           |  |  | (D) | 
|        | 3.3    |                     |  | Certificate of Designation of Series B
    Preferred Stock                                                                                                                                                                                                                           |  |  | (E) | 
|        | 3.4    |                     |  | Bylaws of Corixa Corporation                                                                                                                                                                                                                                                         |  |  | (T) | 
|        | 4.1    |                     |  | Amended and Restated Investors Rights
    Agreement dated as of May 10, 1996 between Corixa
    Corporation and certain holders of its capital stock                                                                                                                                |  |  | (A) | 
|        | 10.1   |                     |  | 2001 Stock Incentive Plan                                                                                                                                                                                                                                                            |  |  | (L) | 
|        | 10.2   |                     |  | 1997 Directors Stock Option Plan and form
    of stock option agreement                                                                                                                                                                                                             |  |  | (A) | 
|        | 10.3   |                     |  | 2001 Employee Stock Purchase Plan and form of
    subscription agreement                                                                                                                                                                                                             |  |  | (M) | 
|        | 10.4   |                     |  | Corixa Corporation 401(k) Savings &
    Retirement Plan                                                                                                                                                                                                                              |  |  | (A) | 
|        | 10.5   |                     |  | Form of Indemnification Agreement between Corixa
    Corporation and each director and officer of Corixa Corporation                                                                                                                                                                 |  |  | (A) | 
|        | 10.6   |                     |  | Columbia Building Lease dated October 28,
    1994 and Columbia Building Lease First Amendment dated
    December 29, 1995, each between Corixa Corporation and Fred
    Hutchinson Cancer Research Center                                                                           |  |  | (A) | 
|        | 10.7   |                     |  | Second Amendment to Columbia Building Lease dated
    as of September 25, 1998, between Corixa Corporation and
    Alexandria Real Estate Equities, Inc., successor in interest to
    Fred Hutchinson Cancer Research Center                                                        |  |  | (B) | 
|        | 10.8   |                     |  | Lease dated May 31, 1996 between Corixa
    Corporation and Health Science Properties, Inc.                                                                                                                                                                                          |  |  | (A) | 
|        | 10.9   |                     |  | First Amendment to Lease dated January 31,
    1997 between Corixa Corporation and Health Science Properties,
    Inc.                                                                                                                                                               |  |  | (S) | 
|        | 10.10  |                     |  | Second Amendment to Lease dated June 30,
    1997 between Corixa Corporation and Alexandria Real Estate
    Equities, Inc., formerly known as Health Science Properties, Inc.                                                                                                        |  |  | (S) | 
|        | 10.11  |                     |  | Third Amendment to Lease dated November 1,
    1998 between Corixa Corporation and Alexandria Real Estate
    Equities, Inc., formerly known as Health Science Properties, Inc.                                                                                                      |  |  | (S) | 
|        | 10.12+ |                     |  | Multi-Field Vaccine Discovery Collaboration and
    License Agreement between Corixa Corporation and SmithKline
    Beecham plc, dated September 1, 1998                                                                                                                             |  |  | (C) | 
|        | 10.13+ |                     |  | Amendment No. 1, dated May 25, 2000, to
    the Multi-Field Vaccine Discovery Collaboration and License
    Agreement, dated October 28, 1998, by and between Corixa
    Corporation and SmithKline Beecham plc                                                                      |  |  | (K) | 
|        | 10.14+ |                     |  | Letter Agreement, dated as of August 16,
    2001, between Corixa Corporation and SmithKline Beecham plc,
    regarding the Multi-Field Vaccine Discovery Collaboration and
    License Agreement between Corixa Corporation and SmithKline
    Beecham plc, dated September 1, 1998 |  |  | (R) | 
|        | 10.15* |                     |  | Amendment No. 2, dated as of
    January 28, 2003, to the Multi-Field Vaccine Discovery
    Collaboration and License Agreement, dated October 28,
    1998, between Corixa Corporation and SmithKline Beecham plc                                                                   |  |  |    | 
|        | 10.16* |                     |  | Collaboration and License Agreement, dated as of
    January 28, 2003, between Corixa Corporation, SmithKline
    Beecham plc                                                                                                                                                        |  |  |    | 
|        | 10.17* |                     |  | Corixa License Agreement, dated as of
    January 28, 2003, between Corixa Corporation and SmithKline
    Beecham plc                                                                                                                                                                |  |  |    | 
|        | 10.18+ |                     |  | Equity Line of Credit and Securities Purchase
    Agreement between Corixa Corporation and Castle Gate, L.L.C.,
    dated April 8, 1999                                                                                                                                              |  |  | (D) | 
|        | 10.19+ |                     |  | Registration Rights Agreement between Corixa
    Corporation and Castle Gate, L.L.C., dated April 8, 1999                                                                                                                                                                            |  |  | (D) | 

99



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|        |        |                     |  |                                                                                                                                                                                                                                   |  |  |     | 
|------- | ------ | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Exhibit |        |                     |  |                                                                                                                                                                                                                                  
|Number  |        | Exhibit Description |  | Page                                                                                                                                                                                                                             
|        |        |                     |  |                                                                                                                                                                                                                                  
|        | 10.20+ |                     |  | Standstill Agreement between Corixa Corporation
    and Castle Gate, L.L.C., dated April 8, 1999                                                                                                                                  |  |  | (D) | 
|        | 10.21+ |                     |  | Warrant Number CG-1 issued by Corixa Corporation
    to Castle Gate, L.L.C. on April 8, 1999                                                                                                                                      |  |  | (D) | 
|        | 10.22+ |                     |  | Warrant Number CG-2 issued by Corixa Corporation
    to Castle Gate, L.L.C. on April 8, 1999                                                                                                                                      |  |  | (D) | 
|        | 10.23+ |                     |  | Form of Warrant Number CG-3 to be issued by
    Corixa Corporation to Castle Gate, L.L.C. on the occurrence of
    certain events in accordance with the terms of the Equity Line
    of Credit and Securities Purchase Agreement |  |  | (D) | 
|        | 10.24+ |                     |  | Form of Warrant Number CG-4 to be issued by
    Corixa Corporation to Castle Gate, L.L.C. on the occurrence of
    certain events in accordance with the terms of the Equity Line
    of Credit and Securities Purchase Agreement |  |  | (D) | 
|        | 10.25+ |                     |  | Amendment No. 1, dated December 21,
    2000, to the Equity Line of Credit and Securities Purchase
    Agreement, dated April 8, 1999, by and between Corixa
    Corporation and Castle Gate, L.L.C.                              |  |  | (E) | 
|        | 10.26+ |                     |  | Amendment No. 2, dated December 29,
    2000, to the Equity Line of Credit and Securities Purchase
    Agreement, dated April 8, 1999, by and between Corixa
    Corporation and Castle Gate, L.L.C.                              |  |  | (E) | 
|        | 10.27+ |                     |  | Warrant Number CG-5 issued by Corixa Corporation
    to Castle Gate on December 29, 2000                                                                                                                                          |  |  | (E) | 
|        | 10.28+ |                     |  | Development, Commercialization and License
    Agreement, dated August 15, 2000 by and between Corixa
    Corporation and Medicis Pharmaceutical Corporation                                                                      |  |  | (K) | 
|        | 10.29  |                     |  | Coulter Pharmaceutical, Inc. 1996 Employee Stock
    Purchase Plan                                                                                                                                                                |  |  | (F) | 
|        | 10.30  |                     |  | Coulter Pharmaceutical, Inc. 1995 Equity
    Incentive Plan                                                                                                                                                                       |  |  | (F) | 
|        | 10.31  |                     |  | Coulter Pharmaceutical, Inc. 1996 Equity
    Incentive Plan                                                                                                                                                                       |  |  | (F) | 
|        | 10.32  |                     |  | Assignment Agreement between Coulter
    Pharmaceutical, Inc., Beckman Coulter and certain investors,
    dated February 24, 1995                                                                                                 |  |  | (G) | 
|        | 10.33+ |                     |  | Development Agreement between Coulter
    Pharmaceutical, Inc. and MDS Nordion Inc., successor in interest
    to Nordion International, Inc. dated November 15, 1995                                                             |  |  | (G) | 
|        | 10.34+ |                     |  | Contract Research and Development Agreement, by
    and between Coulter Pharmaceutical, Inc. and Dr. Karl
    Thomas GmbH, dated October 22, 1997                                                                                 |  |  | (H) | 
|        | 10.35+ |                     |  | Supply Agreement between Coulter Pharmaceutical,
    Inc. and MDS Nordion Inc., dated August 31, 1998                                                                                                                             |  |  | (I) | 
|        | 10.36+ |                     |  | Facilities Agreement between Coulter
    Pharmaceutical, Inc. and MDS Nordion Inc., dated August 31,
    1998                                                                                                                     |  |  | (I) | 
|        | 10.37+ |                     |  | Security Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998                                                                                                        |  |  | (J) | 
|        | 10.38+ |                     |  | Grant of Security Interest between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998                                                                                                |  |  | (J) | 
|        | 10.39+ |                     |  | Loan Agreement between Coulter Pharmaceutical,
    Inc. and SmithKline Beecham Corporation, dated October 23,
    1998                                                                                                            |  |  | (J) | 
|        | 10.40  |                     |  | First Amendment dated June 28, 2002 to Loan
    Agreement dated as of October 23, 1998, between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation.                                                              |  |  | (W) | 
|        | 10.41+ |                     |  | Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998                                                                                                   |  |  | (J) | 
|        | 10.42+ |                     |  | Amendment No. 1, dated November 30,
    1998, to the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham, dated
    October 23, 1998                                                          |  |  | (J) | 

100



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|        |        |                     |  |                                                                                                                                                                                                                                                                       |  |  |      | 
|------- | ------ | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit |        |                     |  |                                                                                                                                                                                                                                                                      
|Number  |        | Exhibit Description |  | Page                                                                                                                                                                                                                                                                 
|        |        |                     |  |                                                                                                                                                                                                                                                                      
|        | 10.43+ |                     |  | Letter Agreement between Coulter Pharmaceutical,
    Inc. and SmithKline Beecham Corporation, dated April 20,
    2000, regarding the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998 |  |  | (R)  | 
|        | 10.44+ |                     |  | Letter Agreement between Corixa Corporation and
    SmithKline Beecham Corporation, dated February 12, 2001,
    regarding the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998        |  |  | (R)  | 
|        | 10.45+ |                     |  | Letter Agreement between Corixa Corporation and
    SmithKline Beecham Corporation, dated October 18, 2001,
    regarding the Collaboration Agreement between Coulter
    Pharmaceutical, Inc. and SmithKline Beecham Corporation, dated
    October 23, 1998         |  |  | (R)  | 
|        | 10.46+ |                     |  | Supply Agreement between Coulter Pharmaceutical,
    Inc. and Boehringer Ingelheim Pharma KG, dated November 3,
    1998                                                                                                                                              |  |  | (J)  | 
|        | 10.47  |                     |  | Satisfaction Agreement, dated June 28, 2001
    between Michael F. Bigham and Corixa Corporation                                                                                                                                                                      |  |  | (N)  | 
|        | 10.48  |                     |  | Form of Bexxar Stock Award Agreement, dated
    October 15, 2000 between Corixa Corporation and certain
    directors and officers of Corixa Corporation                                                                                                              |  |  | (N)  | 
|        | 10.49  |                     |  | Schedule of officers and directors of Corixa
    Corporation party to Bexxar Stock Award Agreement                                                                                                                                                                    |  |  | (N)  | 
|        | 10.50  |                     |  | Form of Corixa Corporation Executive Employment
    Agreement                                                                                                                                                                                                         |  |  | (N)  | 
|        | 10.51  |                     |  | Schedule of officers party to Corixa Corporation
    Executive Employment Agreement                                                                                                                                                                                   |  |  |     | 
|        | 10.52+ |                     |  | Development, Commercialization and License
    Agreement dated October 29, 2001 between Corixa Corporation
    and Amersham PLC                                                                                                                                       |  |  | (Y)  | 
|        | 10.53+ |                     |  | Manufacturing and Supply Agreement dated
    October 29, 2001 between Corixa Corporation and Amersham PLC                                                                                                                                                             |  |  | (Z)  | 
|        | 10.54+ |                     |  | Stock Purchase Agreement dated October 29,
    2001 between Corixa Corporation and Amersham Health, Inc.                                                                                                                                                              |  |  | (CC) | 
|        | 10.55  |                     |  | Private Equity Line Financing Agreement dated
    December 3, 2001 between Corixa Corporation and BNY Capital
    Markets, Inc.                                                                                                                                       |  |  | (O)  | 
|        | 10.56  |                     |  | Registration Rights Agreement dated
    December 3, 2001 between Corixa Corporation and BNY Capital
    Markets, Inc.                                                                                                                                                 |  |  | (O)  | 
|        | 10.57  |                     |  | Form of warrant issued by Corixa Corporation to
    employees of Shoreline Pacific, LLC on December 3, 2001                                                                                                                                                           |  |  | (O)  | 
|        | 10.58  |                     |  | Secured Promissory Note by Steven G. Reed, Ph.D.
    and Marianne T. Reed in favor of Corixa Corporation, dated
    December 31, 2001                                                                                                                                 |  |  | (S)  | 
|        | 10.59  |                     |  | Secured Promissory Note by Kenneth A. Grabstein,
    Ph.D. and Teresa A. Grabstein in favor of Corixa Corporation,
    dated December 31, 2001                                                                                                                        |  |  | (S)  | 
|        | 10.60  |                     |  | Loan Agreement between Corixa Corporation and BNP
    Paribas, dated as of August 3, 2001                                                                                                                                                                             |  |  | (S)  | 
|        | 10.61+ |                     |  | Collaboration Agreement dated May 21, 1999
    between Corixa Corporation and Inpharzam International                                                                                                                                                                 |  |  | (Q)  | 
|        | 10.62* |                     |  | Letter Agreement dated November 19, 2001
    between Corixa Corporation and Inpharzam International,
    regarding the Collaboration Agreement dated May 21, 1999
    between Corixa Corporation and Inpharzam International                                          |  |  |     | 
|        | 10.63* |                     |  | Letter Agreement dated November 15, 2002
    between Corixa Corporation and Inpharzam International,
    regarding the Collaboration Agreement dated May 21, 1999
    between Corixa Corporation and Inpharzam International                                          |  |  |     | 
|        | 10.64+ |                     |  | License and Collaborative Research Agreement
    dated June 15, 1999 between Corixa Corporation and Japan
    Tobacco Inc.                                                                                                                                            |  |  | (Q)  | 

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|        |        |                     |  |                                                                                                                                                                                                                                             |  |  |      | 
|------- | ------ | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit |        |                     |  |                                                                                                                                                                                                                                            
|Number  |        | Exhibit Description |  | Page                                                                                                                                                                                                                                       
|        |        |                     |  |                                                                                                                                                                                                                                            
|        | 10.65+ |                     |  | Research Agreement dated March 26, 1999
    between Corixa Corporation and the Infectious Disease Research
    Institute                                                                                                                    |  |  | (P)  | 
|        | 10.66+ |                     |  | Development and License Agreement dated
    August 16, 1999 between Zenyaku Kogyo Co., Ltd. and Corixa
    Corporation                                                                                                                      |  |  | (R)  | 
|        | 10.67  |                     |  | First Amendment dated February 28, 2002 to
    Private Equity Line Financing Agreement dated as of
    December 3, 2001, between Corixa Corporation and BNY
    Capital Markets, Inc.                                                       |  |  | (S)  | 
|        | 10.68  |                     |  | First Amendment dated February 28, 2002 to
    Registration Rights Agreement dated as of December 3, 2001,
    between Corixa Corporation and BNY Capital Markets, Inc.                                                                     |  |  | (S)  | 
|        | 10.69+ |                     |  | Second Amendment, dated April 17, 2002, to
    Private Equity Line Financing Agreement dated as of
    December 3, 2001, between Corixa Corporation and BNY
    Capital Markets, Inc.                                                       |  |  | (BB) | 
|        | 10.70+ |                     |  | Letter Agreement between Corixa Corporation and
    Zenyaku Kogyo Co., Ltd, dated August 6, 2001, regarding the
    Development and License Agreement between Corixa Corporation and
    Zenyaku Kogyo Co., dated August 16, 1999           |  |  | (R)  | 
|        | 10.71* |                     |  | Letter Agreement between Corixa Corporation and
    Japan Tobacco Inc., dated September 28, 2001, regarding the
    License and Collaborative Research Agreement between Corixa
    Corporation and Japan Tobacco Inc., dated June 15, 1999 |  |  | (R)  | 
|        | 10.72+ |                     |  | Lease dated November 7, 1997 between HMS
    Gateway Office L.P. and Coulter Pharmaceutical                                                                                                                                                 |  |  | (M)  | 
|        | 10.73+ |                     |  | First Amendment to Lease dated November 10,
    1998 between HMS Gateway Office L.P. and Coulter Pharmaceutical,
    Inc.                                                                                                                   |  |  | (J)  | 
|        | 10.74  |                     |  | Second Amendment to Lease dated May 19, 2000
    between HMS Gateway Office L.P. and Coulter Pharmaceutical, Inc.                                                                                                                           |  |  | (S)  | 
|        | 10.75+ |                     |  | Lease dated May 19, 2000 between HMS Gateway
    Office L.P. and Coulter Pharmaceutical                                                                                                                                                     |  |  | (R)  | 
|        | 10.76* |                     |  | First Amendment to Lease dated January 15,
    2002 between HMS Gateway Office L.P. and Coulter Pharmaceutical,
    Inc.                                                                                                                    |  |  |     | 
|        | 10.77  |                     |  | Master Security Agreement by and between Corixa
    Corporation and General Electric Capital Corporation, dated
    February 25, 2002, as amended                                                                                           |  |  | (AA) | 
|        | 10.78+ |                     |  | Asset Purchase Agreement, dated May 23,
    2002, by and among Corixa Corporation, Coulter Pharmaceutical,
    Inc., Corixa Belgium, S.A., Medarex, Inc. and Medarex Belgium                                                                |  |  | (X)  | 
|        | 10.79  |                     |  | Securities Purchase Agreement dated as of
    August 9, 2002, among Corixa Corporation and the purchasers
    named therein                                                                                                                 |  |  | (U)  | 
|        | 10.80  |                     |  | Registration Rights Agreement dated as of
    August 9, 2002, among Corixa Corporation and the investors
    named therein                                                                                                                  |  |  | (U)  | 
|        | 10.81+ |                     |  | Lease Agreement dated October 15, 2002,
    between Corixa Corporation and Life Sciences Building, LLC                                                                                                                                      |  |  | (T)  | 
|        | 10.82+ |                     |  | License Development and Commercialization
    Agreement dated as of November 27, 2002 between Corixa
    Corporation and Kirin Brewery Company, Ltd.                                                                                        |  |  | (U)  | 
|        | 10.83* |                     |  | Amended and Restated License and Collaborative
    Research Agreement dated as of December 19, 2002, between Corixa
    Corporation and Japan Tobacco Inc.                                                                                  |  |  |     | 
|        | 10.84* |                     |  | Agreement dated as of April 1, 1994 by and
    between Coulter Corporation, as successor in interest to Coulter
    Electronics, Inc., and Dana-Farber Cancer Institute, Inc.                                                               |  |  |     | 
|        | 10.85* |                     |  | Agreement Regarding Sublicenses dated as of
    December 2, 1998 between Coulter Pharmaceutical, Inc. and
    Dana-Farber Cancer Institute, Inc.                                                                                            |  |  |     | 
|        | 10.86* |                     |  | Commercialization Agreement dated as of
    November 1, 1994 between Coulter Corporation and the
    Regents of the University of Michigan                                                                                                  |  |  |     | 

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|        |        |                     |  |                                                                                                                                                                                                                                  |  |  |      | 
|------- | ------ | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit |        |                     |  |                                                                                                                                                                                                                                 
|Number  |        | Exhibit Description |  | Page                                                                                                                                                                                                                            
|        |        |                     |  |                                                                                                                                                                                                                                 
|        | 10.87* |                     |  | Assignment of Commercialization Agreement dated
    as of April 1, 1995 among Coulter Pharmaceutical, Inc.,
    Coulter Corporation and the Regents of the University of Michigan                                                |  |  |     | 
|        | 10.88* |                     |  | Amendment to Commercialization Agreement dated
    June 1, 1997 between the Regents of the University of
    Michigan and Coulter Pharmaceutical, Inc. amending the
    Commercialization Agreement dated as of November 1, 1994 |  |  |     | 
|        | 10.89  |                     |  | Amendment No. 1 to the Research Agreement,
    dated March 31, 2002, between Infectious Disease Research
    Institute and Corixa Corporation, amending the Research
    Agreement dated March 26, 1999                          |  |  |     | 
|        | 21.1   |                     |  | Subsidiaries of Corixa Corporation                                                                                                                                                                                               |  |  |     | 
|        | 23.1   |                     |  | Consent of Ernst and Young, LLP, Independent
    Auditors                                                                                                                                                                        |  |  |     | 
|        | 24.1   |                     |  | Power of Attorney                                                                                                                                                                                                                |  |  | (DD) | 
|        | 99.1   |                     |  | Certification of Financial Statements by Chief
    Executive Officer and Chief Financial Officer of Corixa
    Corporation pursuant to 18 U.S.C. Section 1350                                                                    |  |  |     | 



---



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Incorporated herein by reference Corixas
    Form S-1, as amended, (File No. 333-32147), filed with the
    Commission on September 30, 1997.                                                      
|   
|(B) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 333-32147), filed with the Commission
    on November 12, 1998.                                                                
|   
|(C) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 0-22891), filed with the Commission
    on November 10, 1998.                                                                   
|   
|(D) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 0-22891), filed with the Commission
    on April 23, 1999.                                                                      
|   
|(E) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 0-22891), filed with the Commission
    on January 4, 2001.                                                                     
|   
|(F) | Incorporated herein by reference to Corixas
    Registration Statement on Form S-8 (File
    No. 333-52968), filed with the Commission on
    December 29, 2000.                                   
|   
|(G) | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Registration Statement on
    Form S-1 (File No. 333-17661), as amended, filed with
    the Commission on September 29, 1997.
|   
|(H) | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Form 10-K (File No. 000-21905),
    filed with the Commission on March 27, 1998.                                             
|   
|(I) | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Form 10-Q (File No. 000-21905),
    filed with the Commission on November 13, 1998.                                          
|   
|(J) | Incorporated herein by reference to Coulter
    Pharmaceutical, Inc.s Form 10-K, (File
    No. 000-21905), filed with the Commission on March 30,
    1999.                                        
|   
|(K) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on November 6, 2000.                                                                 
|   
|(L) | Incorporated herein by reference to Corixas
    Registration Statement on Form S-8 (File
    No. 333-65394), filed with the Commission on July 18,
    2001.                                       
|   
|(M) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on August 10, 2001.                                                                  
|   
|(N) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on November 13, 2001                                                                 
|   
|(O) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    December 17, 2001.                                                                 
|   
|(P) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on May 6, 1999.                                                                      

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##### Table of Contents





|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(Q) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on August 9, 1999.  
|   
|(R) | Incorporated herein by reference to Corixas
    Form 10-K/ A (File No. 000-22891), filed with the
    Commission on June 24, 2002.
|   
|(S) | Incorporated herein by reference to Corixas
    Form 10-K (File No. 000-22891), filed with the Commission
    on March 1, 2002.   
|   
|(T) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    October 21, 2002. 
|   
|(U) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    December 5, 2002. 
|   
|(V) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    August 13, 2002.  
|   
|(W) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on August 13, 2002. 
|   
|(X) | Incorporated herein by reference to Corixas
    Form 8-K (File No. 000-22891), filed with the Commission on
    June 3, 2002.     
|   
|(Y) | Incorporated herein by reference to Corixas
    Form 8-K/ A (File No. 000-22891), filed with the Commission
    on May 29, 2002.  
|   
|(Z) | Incorporated herein by reference to Corixas
    Form 8-K/ A (File No. 000-22891), filed with the Commission
    on May 16, 2002.  



|     |                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------
|(AA) | Incorporated herein by reference to Corixas
    Form 10-Q (File No. 000-22891), filed with the Commission
    on May 15, 2002.    
|    
|(BB) | Incorporated herein by reference to Corixas
    Form S-3/ A (File No. 333-75282), filed with the Commission
    on May 6, 2002.   
|    
|(CC) | Incorporated herein by reference to Corixas
    Form 8-K/ A (File No. 000-22891), filed with the Commission
    on April 12, 2002.



|     |                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------
|(DD) | Incorporated herein by reference to the
    Power of Attorney granted below in this report on
    Form 10-K.



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| | + | Confidential treatment granted by order of the
    SEC.              
|
| | * | Confidential treatment sought by Corixa
    Corporation from the SEC.
|
| |  | Filed herewith.                                                      

104