ABGENIX INC, 10-K405, 2000-03-28

ABGENIX INC
10-K405, 2000-03-28
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)

<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE YEAR ENDED DECEMBER 31, 1999
OR

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE TRANSITION PERIOD FROM _____________ TO _____________.

COMMISSION FILE NUMBER 000-24207.
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ABGENIX, INC.

(Exact name of registrant as specified in its charter)

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<S> <C>
DELAWARE 94-3248826
(State or other jurisdiction of (IRS employer
incorporation or organization) identification No.)

7601 DUMBARTON CIRCLE, FREMONT, CA 94555
(Address of principal executive office) (Zip Code)
</TABLE>

(510) 608-6500
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) IF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
$0.0001 PAR VALUE
(TITLE OF CLASS)
------------------------

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

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. /X/

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 29, 2000 was $5,153,988,184. The number of shares of
Common Stock, $0.0001 par value, outstanding on February 29, 2000, was
19,979,364.

Documents incorporated by reference: Portions of the Proxy Statement for
Registrant's Annual Meeting of Stockholders to be held May 3, 2000 (the "Proxy
Statement"), are incorporated herein by reference into Part III.

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PART I

ITEM 1. BUSINESS.

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

OVERVIEW

We are a biopharmaceutical company that develops and intends to
commercialize antibody therapeutic products for the treatment of a variety of
disease conditions, including transplant-related diseases, inflammatory and
autoimmune disorders, cardiovascular disease, infectious diseases and cancer. We
have developed XenoMouse technology, a proprietary technology, which we believe
offers many advantages, including rapid generation of highly specific, fully
human antibody product candidates that bind to essentially any disease target
appropriate for antibody therapy. In addition, we believe our technology offers
advantages in product development and flexibility in manufacturing. We intend to
use XenoMouse technology to build and commercialize a large and diversified
product portfolio through the establishment of corporate collaborations and
internal product development programs. We have collaborative arrangements with
multiple pharmaceutical, biotechnology and genomics companies involving our
XenoMouse technology. In addition, we have four proprietary antibody product
candidates that are under development internally, three of which are in human
clinical trials.

OUR XENOMOUSE TECHNOLOGY COLLABORATIONS

We have established collaborative arrangements to use our XenoMouse
technology to produce fully human antibodies for seventeen partners covering
numerous antigen targets. Pursuant to these collaborations, we and our partners
intend to generate antibody product candidates for the treatment of cancer,
inflammation, autoimmune diseases, transplant rejection, cardiovascular disease,
growth factor modulation, neurological diseases and infectious diseases. Our
collaborative partners include Pfizer, Schering-Plough, BASF, Genentech, Amgen,
Millennium, Elan, Chiron, Human Genome Sciences, CuraGen, Centocor/Johnson and
Johnson, Gliatech, Research Corporation Technologies, Japan Tobacco, Cell
Genesys, AVI BioPharma, and the U.S. Army. Of these collaborative partners,
Pfizer, Genentech, Millennium, Cell Genesys, Japan Tobacco and the U.S. Army
have each entered into new or expanded collaborations with us specifying
additional antigens for XenoMouse antibody development.

The financial terms of the XenoMouse technology collaborations typically
include upfront payments, potential license fees and milestone payments payable
to us by the collaborative partner assuming the partner takes the product
candidate into development and ultimately to commercialization. Additionally, if
a product receives marketing approval from the United States Food and Drug
Administration or an equivalent foreign agency, we are entitled to receive
royalties on any future product sales by the collaborative partner.

Our collaborations typically provide our collaborative partners with access
to XenoMouse technology for the purpose of generating fully human antibody
product candidates to one or more specific antigen targets provided by the
collaborative partner. In most cases, we provide our mice to

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collaborative partners who then carry out immunizations with their specific
antigen target. In other cases, we immunize the mice with the collaborative
partner's antigen target for additional compensation. Our collaborative partners
will need to obtain product licenses for any antibody product they wish to
develop and commercialize.

OUR PROPRIETARY PRODUCTS

We also have four antibody product candidates that are under development
internally. Our lead product candidate, ABX-CBL, is an in-licensed mouse
antibody. We completed a multi-center Phase II clinical trial for ABX-CBL for
the treatment of a transplant-related disease known as graft versus host
disease, or GVHD. Following completion of the Phase II trial, we initiated a
Phase III clinical trial in December 1999. Our other three antibody product
candidates were generated using XenoMouse technology. We completed Phase I and
Phase I/II clinical trials for our fully human antibody product candidate in
psoriasis, ABX-IL8. We plan to conduct additional Phase II clinical trials in
2000. We initiated a Phase I clinical trial for ABX-EGF in cancer in 1999 and
patient enrollment is ongoing. We are in preclinical development with one other
fully human antibody product candidate, ABX-RB2, for use in the treatment of
chronic immunological disorders.

RECENT DEVELOPMENTS

In December 1999, we formed collaborations with two leading genomics
companies, Human Genome Sciences and CuraGen. Under these collaborations, our
XenoMouse technology may be used to generate antibody product candidates that
could be developed and commericalized by our partners, ourselves or third
parties.

In December 1999, we completed the acquisition of Japan Tobacco's 50%
interest in the Xenotech joint venture. As a result, we now have full ownership
and control of the XenoMouse technology. In addition, we no longer have royalty
payment obligations with Japan Tobacco or any contractual constraints on the
number of product licenses available for the XenoMouse technology.

BACKGROUND

THE NORMAL ANTIBODY RESPONSE

The human immune system protects the body against a variety of infections
and other illnesses. Specialized cells, which include B cells and T cells, work
in concert with the other components of the immune system to recognize,
neutralize and eliminate from the body numerous foreign substances, infectious
organisms and malignant cells. In particular, B cells generally produce protein
molecules, known as antibodies, which are capable of recognizing substances
potentially harmful to the human body. Such substances are called antigens. Upon
being bound by an antibody, antigens can be neutralized and blocked from
interacting with and causing damage to normal cells. In order to effectively
neutralize or eliminate an antigen without harming normal cells, the immune
system must be able to generate antibodies that bind tightly (i.e., with high
affinity) to one specific antigen (i.e., with specificity).

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

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["ANTIBODY STRUCTURE"

This illustration shows a Y-shaped antibody structure composed of two "Heavy
Chains" and two "Light Chains." The heavy chains form the base and branches of
the "Y," while the shorter light chains only run parallel to the arms of the
"Y." A legend indicates that shaded areas represent "Constant Domain," and
unshaded areas represent "Variable Domain." The top halves of the light chains
are unshaded, while the remainder is shaded. The upper tips of the heavy chains
are unshaded, while the remainder is shaded.]

The base of the "Y," together with the part of each arm immediately next to
the base, is called the constant region because its structure tends to be very
similar across all antibodies. In contrast, the variable regions are at the end
of the two arms and are unique to each antibody with respect to their
three-dimensional structures and protein sequences. Because variable regions
define the specific binding sites for a variety of antigens, there is a need for
significant structural diversity in this portion of the antibody molecule. Such
diversity is achieved in the body primarily through a unique mode of assembly
involving a complex series of recombination steps for various gene segments of
the variable region, including the V, D and J segments (see the diagram
following).

["GENETIC MAKEUP OF XENOMOUSE"

Four gene segments, represented by numerically labeled squares within
rectangles, are labeled "DNA Before Recombination (Heavy Chain)." One arrow from
a particular section of each of the four segments points toward a combined
segment and demonstrates how recombination produces an antibody gene. The
"Antibody Gene Assembled By Recombination" is represented by a rectangle
containing four numerically labeled squares. An arrow leads from this antibody
gene to a Y-shaped antibody, labeled "Antibody Heavy Chain Produced By Gene."]

The human body is repeatedly exposed to a variety of different antigens.
Accordingly, the immune system must be able to generate a diverse repertoire of
antibodies that are capable of recognizing these multiple antigen structures
with a high degree of specificity. The immune system has evolved a two-step
mechanism in order to accomplish this objective. The first step, immune
surveillance, is achieved through the generation of diverse circulating B cells,
each of which assembles different antibody gene segments in a semi-random
fashion to produce and display on its surface a specific antibody. As a result,
a large number of distinct, albeit lower affinity, antibodies are generated in
the circulation so as to recognize essentially any foreign antigen that enters
the body. While capable of recognizing the antigens as foreign, these lower
affinity antibodies are generally incapable of effectively neutralizing them.

This limitation of the immune surveillance process is generally overcome by
the normal immune system in a second step called "affinity maturation."
Triggered by the initial binding to a specific antigen, the small fraction of B
cells that recognize this antigen is then primed by the immune system to
progressively generate antibodies with higher and higher affinity through a
process of repeated mutation and selection. As a result, the reactive antibodies
develop increasingly higher specificity and affinity with the latter being
potentially a hundred to a thousand times higher than those generated in the
previous immune surveillance process. These more specific, higher affinity
antibodies have a greater likelihood of effectively neutralizing or eliminating
the antigen while minimizing the potential of damaging healthy cells.

ANTIBODIES AS PRODUCTS

Recent advances in the technologies for creating and producing antibody
products coupled with a better understanding of how antibodies and the immune
system function in key disease states have led to renewed interest in the
commercial development of antibodies as therapeutic products. According to a
recent survey by the Pharmaceutical Research and Manufacturers of America,
antibodies account for over 20% of all biopharmaceutical products in clinical
development. As of September 30, 1999, we are aware of eight antibody
therapeutic products approved for marketing in the United States. These products
are Orthoclone, ReoPro, Rituxan, Zenapax, Herceptin, Synagis, Remicade and
Simulect. These products are currently being marketed for a wide range of
medical disorders such as transplant rejection, cardiovascular disease, cancer
and infectious diseases.

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

- faster product development;

- fewer unwanted side effects as a result of high specificity for the
disease target;

- greater patient compliance and higher efficacy as a result of favorable
pharmacokinetics;

- delivery of various payloads, including drugs, radiation and toxins, to
specific disease sites; and

- ability to elicit a desired immune response.

LIMITATIONS OF CURRENT APPROACHES TO DEVELOPMENT OF ANTIBODY PRODUCTS

Despite the early recognition of antibodies as promising therapeutic agents,
most approaches thus far to develop them as products have been met with a number
of commercial and technical limitations. Initial efforts were aimed at the
development of hybridoma cells, which are immortalized mouse antibody-secreting
B cells. These hybridoma cells are derived from normal mouse B cells that have
been genetically manipulated so that they are capable of reproducing over an
indefinite period of time. They are then cloned to produce a homogeneous
population of identical cells that produce one single type of mouse antibody
capable of recognizing one specific antigen ("monoclonal antibody").

While mouse monoclonal antibodies can be generated to bind to a number of
antigens, they contain mouse protein sequences and tend to be recognized as
foreign by the human immune system. As a result, they are quickly eliminated by
the human body and have to be administered frequently. When patients are
repeatedly treated with mouse antibodies, they will begin to produce antibodies
that effectively neutralize the mouse antibody, a reaction referred to as a
Human Anti-Mouse Antibody, or HAMA, response. In many cases, the HAMA response
prevents the mouse antibodies from having the desired therapeutic effect and may
cause the patient to have an allergic reaction. The potential use of mouse
antibodies is thus best suited to situations where the patient's immune system
is compromised or where only short-term therapy is required. In such settings,
the patient is often incapable of producing antibodies that neutralize the mouse
antibodies or has insufficient time to do so.

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

Additionally, the humanization process can be expensive and time consuming,
requiring at least two months and sometimes over a year of secondary
manipulation after the initial generation of the mouse antibody. Once the
humanization process is complete, the remodeled antibody gene must then be
expressed in a recombinant cell line appropriate for antibody manufacturing,
adding additional time before the production of preclinical and clinical
material can be initiated. In addition, the combination of mouse and human
antibody gene fragments can result in a final antibody product which is
sufficiently different in structure from the original mouse antibody leading to
a decrease in specificity or a loss of affinity.

["EVOLUTION OF ANTIBODY TECHNOLOGIES"

This diagram depicts four Y-shaped figures, extending horizontally across
the page, which represent antibodies produced by four alternate methods. From
left to right, the figures are labeled "Ordinary Mouse," "Chimeric," "Humanized"
and "XenoMouse," with arrows connecting the labels. A legend indicates that
shaded areas represent mouse protein while unshaded areas represent human

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protein. The left-most Y-shaped figure is entirely shaded and below is labeled
"100% Mouse Protein." The next figure from the left is unshaded with a thick
shaded stripe on each upper arm of the "Y" and below is labeled "34% mouse
protein." The following figure from the left is unshaded with three small shaded
stripes on each upper arm of the "Y" and below is labeled "10% mouse protein."
The right-most figure is completely unshaded and below is labeled "100% Human
Protein."]

HUMAN ANTIBODIES

The HAMA response can potentially be avoided through the generation of
antibody products with fully human protein sequences. Such fully human
antibodies may increase the market acceptance and expand the use of antibody
therapeutics. Several antibody technologies have been developed to produce
antibodies with 100% human protein sequences (see the diagram above). One
approach to generating human antibodies, called "phage display" technology,
involves the cloning of human antibody genes into bacteriophage, viruses that
infect bacteria, in order to display antibody fragments on the surfaces of
bacteriophage particles. This approach attempts to mimic IN VITRO the immune
surveillance and affinity maturation processes that occur in the body. Because
phage display technology cannot take advantage of the naturally occurring IN
VIVO affinity maturation process, the antibody fragments initially isolated by
this approach are typically of moderate affinity. In addition, further genetic
engineering is required to convert the antibody fragments into fully assembled
antibodies and significant manipulation, taking from several months to a year,
may be required to increase their affinities to a level appropriate for human
therapy. Before preclinical or clinical material can be produced, the gene
encoding the antibody derived from phage display technology must, as with a
humanized antibody, be introduced into a recombinant cell line.

Two additional approaches involving the isolation of human immune cells have
been developed to generate human antibodies. One such approach is the
utilization of immunodeficient mice that lack both B and T cells. Human B cells
and other immune tissue are transplanted into these mice which are then
subsequently immunized with target antigens to stimulate the production of human
antibodies. However, this process is generally limited to generating antibodies
only to nonhuman antigens or antigens to which the human B cell donor had
previously responded. Accordingly, this approach may not be suitable for
targeting many key diseases such as cancer, and inflammatory and autoimmune
disorders where antibodies to human antigens may be required for appropriate
therapy. The other approach involves collecting human B cells that have been
producing desired antibodies from patients exposed to a specific virus or
pathogen. As with the previous approach, this process may not be suitable for
targeting diseases where antibodies to human antigens are required, and
therefore is generally limited to infectious disease targets which will be
recognized as foreign by the human immune system.

THE ABGENIX SOLUTION--XENOMOUSE TECHNOLOGY

Our approach to generating human antibodies with fully human protein
sequences is to use genetically engineered strains of mice in which mouse
antibody gene expression is suppressed and functionally replaced with human
antibody gene expression, while leaving intact the rest of the mouse immune
system. Rather than engineering each antibody product candidate, these
transgenic mice capitalize on the natural power of the mouse immune system in
surveillance and affinity maturation to produce a broad repertoire of high
affinity antibodies. By introducing human antibody genes into the mouse genome,
transgenic mice with such traits can be bred indefinitely. Importantly, these
transgenic mice are capable of generating human antibodies to human antigens
because the only human products expressed in the mice (and therefore recognized
as "self") are the antibodies themselves. Any other human tissue or protein is
thus recognized as a foreign antigen by the mouse and an immune response will be
mounted. Abnormal production of certain human proteins, such as cytokines and
growth factors or their receptors has been implicated in various human diseases.
Neutralization or elimination of these abnormally produced or regulated human
proteins with the use of human antibodies could ameliorate

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or suppress the target disease. Therefore, the ability of these transgenic mice
to generate human antibodies against human antigens could offer an advantage to
drug developers compared with some of the other approaches described previously.
A challenge with this approach, however, has been to introduce enough of the
human antibody genes in appropriate configuration into the mouse genome to
ensure that these mice are capable of recognizing the broad diversity of
antigens relevant for human therapies.

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

Another approach to generating fully human antibodies in mice being pursued
by a competitor is the so called transchromosomic mice. The transchromosomic
mice refers to a strain of mice that is bred with an extra chromosome,
specifically human chromosome 14 that contains all of the antibody genes. The
transchromosomic mice technology is relatively new and it is not yet known how
useful the technology will be.

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XENOMOUSE TECHNOLOGY ADVANTAGES

We believe that our XenoMouse technology offers the following advantages:

PRODUCING ANTIBODIES WITH FULLY HUMAN PROTEIN SEQUENCES. Our XenoMouse
technology, unlike chimeric and humanization technologies, allows the generation
of antibodies with 100% human protein sequences. Antibodies created using
XenoMouse technology are not expected to cause a HAHA or HAMA response even when
administered repeatedly to immunocompetent patients. For this reason, antibodies
produced using XenoMouse technology are expected to offer a better safety
profile and to be eliminated less quickly from the human body, reducing the
frequency of dosing.

GENERATING A DIVERSE ANTIBODY RESPONSE TO ESSENTIALLY ANY DISEASE TARGET
APPROPRIATE FOR ANTIBODY THERAPY. Because a substantial majority of human
antibody genes has been introduced into XenoMouse, the technology has the
potential to generate high affinity antibodies that recognize more antigen
structures than other transgenic technologies. In addition, through immune
surveillance, XenoMouse technology is expected to be capable of generating
antibodies to almost any medically relevant antigen, human or otherwise. For a
given antigen target, having multiple antibodies to choose from could be
important in selecting the optimal antibody product.

GENERATING HIGH AFFINITY ANTIBODIES THAT DO NOT REQUIRE FURTHER
ENGINEERING. XenoMouse technology uses the natural IN VIVO affinity maturation
process to generate antibody product candidates usually in two to four months.
These antibody product candidates may have affinities as much as a hundred to a
thousand times higher than those seen in phage display. In contrast to
antibodies generated using humanization and phage display technology, XenoMouse
antibodies are produced without the need for any subsequent engineering, a
process that at times has proven to be challenging and time consuming. By
avoiding the need to further engineer antibodies, we reduce the risk that an
antibody's structure and therefore functionality will be altered between the
initial antibody selected and the final antibody placed into production.

ENABLING MORE EFFICIENT PRODUCT DEVELOPMENT. In contrast to humanization or
phage display, which require the cloning of an antibody gene and the generation
of a recombinant cell line, the B cells generated in XenoMouse can be turned
directly into hybridoma cell lines for human antibody production. Therefore, a
supply of monoclonal antibodies can be produced quickly to allow the timely
initiation of preclinical and clinical studies. Furthermore, since XenoMouse
technology can potentially produce multiple product candidates more quickly than
humanization and phage display technology, preclinical testing can be conducted
on several antibodies in parallel to identify the optimal product candidate that
will be tested in clinical trials.

PROVIDING FLEXIBILITY IN CHOOSING MANUFACTURING PROCESSES. Once an antibody
with the desired characteristics has been identified, preclinical material can
be produced either directly from hybridomas or from recombinant cell lines.
Humanized and phage display antibodies, having been engineered, cannot be
produced in hybridomas. In addition to potential timesaving, production in
hybridomas avoids the need to license certain third party intellectual property
rights covering the production of antibodies in recombinant cell lines.

ABGENIX STRATEGY

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

BUILDING A LARGE AND DIVERSIFIED PRODUCT PORTFOLIO. Utilizing our XenoMouse
technology, we intend to build a large and diversified product portfolio,
including a mix of out-licensed and internally developed product candidates. We
are targeting serious medical conditions including cancer,

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inflammation, transplant rejection, cardiovascular disease and growth factor
modulation. For our internal programs, we intend to collaborate with leading
academic researchers and companies involved in the identification and
development of novel antigens. Our collaborations with two leading genomics
companies, Human Genome Sciences and CuraGen, could be potential sources of many
novel antigens for our proprietary product programs. We believe the speed and
cost advantages of our technology will enable us to make cost-effective use of
available human and capital resources. We can thus pursue multiple product
candidates in parallel as far as completion of the Phase II clinical stage
before entering into a corporate collaboration to complete clinical and
developmental stages and to bring the product candidate to market. Thus, we
believe we can create a package that includes antigen rights, human antibodies,
and preclinical and clinical data for use by Abgenix or for marketing to
potential collaborative partners.

LEVERAGING XENOMOUSE TECHNOLOGY THROUGH TECHNOLOGY COLLABORATIONS. We
intend to diversify our product portfolio and generate revenues by licensing
XenoMouse technology to numerous pharmaceutical and biotechnology companies
interested in developing antibody-based products. We expect to enter into
multiple XenoMouse technology collaborations each year. These agreements
typically allow our collaborative partner to generate fully human antibodies to
one or more specific antigen targets provided by the collaborative partner. In
most cases, we provide our mice to collaborative partners who then carry out
immunizations with their specific antigen target. In other cases, we immunize
the mice with the collaborative partner's antigen target for additional
compensation. Our collaborative partners will also need to obtain product
licenses for any antibody product they wish to develop and commercialize.

The financial terms of our XenoMouse technology collaborations often include
upfront payments, potential license fees and milestone payments plus royalties
on any future product sales. We have established collaborative arrangements with
seventeen partners covering numerous antigen targets. To date, six of these
collaborative partners have each entered into new or expanded collaborations
specifying additional antigens for XenoMouse antibody development.

ESTABLISHING COLLABORATIONS FOR PROPRIETARY PRODUCT CANDIDATES. We also
intend to build our product portfolio and generate revenues by licensing
proprietary product candidates. These proprietary product collaborations would
involve antibodies made to antigen targets that we source. After generating
antibody product candidates and self-funding clinical activities to determine
preliminary safety and efficacy, we intend to enter into development and
commercialization agreements with collaborative partners for these proprietary
product candidates that we created. For most of our products, we may enter into
proprietary product collaborations before entering the Phase III clinical
development stage allowing the collaborative partner to complete development and
to market the product. For other products, we may develop the product through
clinical trials and license the product candidate to a collaborative partner for
marketing.

Current antibody candidates for potential proprietary product collaborations
include ABX-CBL, ABX-IL8, ABX-EGF and ABX-RB2. The financial terms of these
product collaborations could include license fees upon signing, milestone
payments, and reimbursement for research and development activities that we
perform plus royalties on future product sales, if any. Given our greater
investment in creating a proprietary product candidate, we expect that an
arrangement for these product candidates could afford higher payments and
royalty rates than a typical XenoMouse technology collaboration.

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PROPRIETARY PRODUCT DEVELOPMENT PROGRAMS

We are currently developing antibody therapeutics for a variety of
indications. The table below sets forth the development status of our product
candidates as of December 31, 1999:

<TABLE>
<CAPTION>
PRODUCT
CANDIDATE INDICATION STATUS(1)
- --------- ----------------------- --------------------
<S> <C> <C>
ABX-CBL GVHD Phase III
ABX-IL8 Psoriasis Phase I/II completed
Rheumatoid Arthritis Phase I
ABX-EGF EGF-Dependent Cancers Phase I
ABX-RB2 Transplant Rejection Preclinical
Autoimmune Disease Preclinical
</TABLE>

- ---------

(1) 'Preclinical" indicates that the product candidate selected for development
has met predetermined criteria that we select for potency, specificity,
manufacturability and pharmacologic activity in animal and IN VITRO models.
"Phase I" indicates safety and proof of concept testing in a limited patient
population and toxicology testing in animal models. "Phase II" indicates
safety, dosing and efficacy testing in a limited patient population. "Phase
III" indicates safety and efficacy testing with a larger patient population.

ABX-CBL

The CBL antigen is selectively expressed on activated immune cells including
T cells, B cells and natural killer cells. To accelerate our commercialization
plans, we obtained an exclusive license to ABX-CBL in February 1997. We believe
that a mouse antibody can be utilized to treat GVHD patients because their
immune system is either non-functioning or severely suppressed and, therefore,
no HAMA responses should be generated. We believe ABX-CBL has the ability to
destroy activated immune cells without effecting the rest of the immune system.

GRAFT VERSUS HOST DISEASE. We are developing ABX-CBL to reduce unwanted
immune responses that occur in GVHD. GVHD is a life-threatening complication
that frequently occurs following an allogeneic bone marrow transplant, or BMT.
BMTs are used in the treatment of patients with end stage leukemia, certain
other serious cancers and immune system disorders. An allogeneic BMT procedure
involves transferring marrow, the graft, from a healthy person into an
immunosuppressed patient, the host. The transplant is intended to restore normal
circulating immune cells to a patient whose own immune system is functionally
deficient or has been damaged by the treatment of an underlying disease such as
cancer and therefore does not have the ability to mount a sufficient immune
response. Often a portion of the graft recognizes the host's own cells as
foreign, becomes activated and attacks them, resulting in GVHD. It typically
involves damage to multiple organ systems, including the skin, liver and
intestines. GVHD causes extreme suffering and is the primary cause of death in
allogeneic BMT patients. It is estimated that approximately 12,000 allogeneic
BMTs were performed worldwide in 1998, and this number has been growing at about
15% per year. GVHD occurs in approximately 50% of allogeneic BMTs and the
treatment costs for GVHD in the United States are estimated to be about $80,000
per patient. Based on a published clinical study, it is estimated that roughly
50% of patients with GVHD fail to respond to current treatments, which consist
of steroid and other drug treatments to suppress the grafted immune cells. Less
than 15% of steroid-resistant GVHD sufferers survive for more than one year. We
believe that a safer and more effective treatment for GVHD could result in
increased use of BMTs.

CLINICAL STATUS. We completed a multi-center Phase II clinical trial for
ABX-CBL for the treatment of steroid-resistant, grade II to IV GVHD. Data from
27 patients included in the Phase II Study was submitted to the FDA. As an
extension to the original Phase II trial protocol, we have

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enrolled an additional 32 patients. The trial studied four escalating
intravenous dose regimens. It was conducted at nine sites and involved 59
patients evaluated for safety, 51 of which were evaluable for response of GVHD.
A clinical response was defined as a two-grade improvement in the International
Bone Marrow Transplant Registry GVHD Severity Scale. GVHD is graded based on
clinical symptoms from grade I, which is the mildest form, to grade IV, which is
the most severe form. Three of eight patients responded in the lowest dose
cohort. Twenty-three of 43 patients responded among the three highest doses.

In December 1999 we reported additional data from this trial regarding
survival. Among patients in the three higher dose cohorts, 52% (26 of 50)
survived at least 100 days from the start of treatment with ABX-CBL. This
compared to a 22% (2 of 9) survival rate in the low dose cohort.

In December 1999 we initiated a Phase III clinical trial with ABX-CBL. The
results of the Phase III trial may not be favorable or may not extend the
findings of the original Phase II study. The FDA may view the result of our
Phase III trial as insufficient and may require additional clinical trials.
There are several issues that could adversely affect the clinical trial results,
including the lack of a standard therapy for GVHD patients in the control group,
unforeseen side effects, variability in the number and types of patients in the
study, and response rates required to achieve statistical significance in the
study. In addition, our clinical trials are being conducted with patients who
have failed conventional treatments and who are in the most advanced stages of
GVHD. During the course of treatment, these patients can die or suffer adverse
medical effects for reasons that may not be related to ABX-CBL. These adverse
effects may affect the interpretation of clinical trial results. There can be no
assurance that the FDA will accept the results of the Phase III study or other
elements of the product license application as being sufficient for approval to
market. Additional clinical trials will be extensive, expensive and
time-consuming.

In four separate clinical studies conducted prior to Abgenix obtaining an
exclusive license to ABX-CBL, a total of 25 patients with GVHD were treated with
the antibody. One such trial, which has been published, was conducted on eleven
patients at St. Jude Hospital in Memphis, Tennessee. In this trial, ten patients
with steroid-resistant, Grade III to IV GVHD were treated with daily doses of
ABX-CBL for up to six weeks. The publication reported that five of ten patients
had a complete remission of GVHD, while four of ten had at least a two-grade
improvement in their GVHD score. Only one patient did not respond to the
therapy. Another patient who was treated at St. Jude Hospital after publication
of the study experienced a two-grade improvement in the patient's GVHD score
without adverse side effects. Six additional patients with GVHD were treated at
the University of Wisconsin and Cook-Ft. Worth Hospital. The reports from these
sites indicated that these patients showed similar results to those described in
the published trial conducted at St. Jude Hospital, with four of the six
patients showing at least a two-grade improvement in their GVHD score. In
addition, eight other GVHD patients received treatment at Stanford University
and four of the patients were noted to have some improvement in their GVHD
score, despite using a dose of less than one-tenth of that employed at the other
sites. Immune reaction to the mouse antibody was assessed in several patients
and no HAMA response was detected clinically. Furthermore, no adverse clinical
responses consistent with an antibody-induced allergic reaction were observed.
In addition, a number of patients were followed after the conclusion of the
study for as long as one year and no adverse ABX-CBL events were observed. There
can be no assurance that the results of our ABX-CBL clinical trials will
demonstrate the same levels of safety and efficacy as those shown by the
clinical trials completed prior to Abgenix obtaining an exclusive license to
ABX-CBL.

ABX-IL8

IL-8, an important inflammatory cytokine produced at sites of inflammation,
attracts and activates white blood cells that mediate the inflammation process.
A number of preclinical studies suggest that excess IL-8 may contribute to the
pathology and clinical symptoms associated with certain inflammatory

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disorders. Clinical studies have demonstrated significantly increased levels of
IL-8 in tissues or body fluids of patients with certain inflammatory diseases,
including psoriasis, rheumatoid arthritis, reperfusion injury and inflammatory
bowel disease. Antibodies to IL-8 have been shown to block immune cell
infiltration and the associated pathology in animal models of several of these
diseases. Using our XenoMouse technology, we have generated ABX-IL8, a
proprietary fully human monoclonal antibody that binds to IL-8 with high
affinity. We in-licensed ABX-IL8 from Xenotech in March 1996. In exchange for a
license fee and royalty payments on future product sales, we received an
exclusive license to ABX-IL8 within the United States, its territories and
possessions, Canada and Mexico and a co-exclusive license (subsequently
broadened to be an exclusive license) in the rest of the world, excluding Japan,
Taiwan and South Korea. In December 1999, Japan Tobacco terminated its interest
in this agreement and Abgenix and Xenotech now have worldwide rights to ABX-IL8.
We are evaluating ABX-IL8 for possible use in the treatment of psoriasis and
rheumatoid arthritis.

PSORIASIS. Psoriasis is a chronic disease that results in plaques, a
thickening and scaling of the skin accompanied by local inflammation. The
disease effects approximately four to five million patients in the United States
and can be debilitating in its most severe form. Approximately 500,000 psoriasis
patients suffer from a severe enough form of the disease to require systemic
therapy with immune suppressants and ultraviolet phototherapy. The risk of
serious adverse side effects associated with these therapies often requires the
patients to alternate these various therapeutic modalities as a precautionary
measure.

Scientific studies have shown that IL-8 concentrations can be elevated by a
factor of 150 in psoriatic plaques when compared to normal tissue. We believe
that IL-8 may promote psoriasis by contributing to three distinct
disease-associated processes. First, IL-8 is produced by a type of skin cell
called keratinocytes, and is a potent growth factor for these skin cells. It may
therefore contribute to the abnormal keratinocyte proliferation in psoriatic
plaques. Second, IL-8 attracts and activates immune cells that contribute to the
inflammation of the psoriatic plaque. Finally, IL-8 promotes angiogenesis that
augments the blood supply necessary for growth of the psoriatic plaque.

CLINICAL STATUS. We have completed a Phase I dose-escalating human clinical
trial examining the safety of administering a single intravenous infusion of
five different doses of ABX-IL8 to patients with moderate to severe psoriasis.
In October 1999, we completed a Phase I/II multi-center, multi-dose, dose
escalating, placebo-controlled clinical trial with ABX-IL8 including 45 patients
with moderate to severe psoriasis. Extensive additional clinical trials will be
required to establish efficacy. We plan to conduct additional Phase II trials in
2000.

RHEUMATOID ARTHRITIS. Rheumatoid arthritis is a chronic disease marked by
inflammation and pain in joints throughout the body. The disease effects over
two million people in the United States. Elevated levels of IL-8 in the synovial
fluid of rheumatoid arthritis patients have been reported to correlate with the
number of infiltrating immune cells. Third-party published studies have reported
that the injection of non-human antibodies to IL-8 into a rabbit model of
rheumatoid arthritis blocked immune cell infiltration and synovial membrane
damage.

CLINICAL STATUS. Because of the similarity in the histopathology of the
inflamed joint and that of the psoriatic plaque, we entered a Phase I clinical
trial for ABX-IL8 in rheumatoid arthritis in January 1999. ABX-IL8 will be
administered by injection to the inflamed knee joints of arthritis patients who
have undergone a pre-dose biopsy and a high-resolution ultrasound scan.

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ABX-EGF

Tumor cells that overexpress epidermal growth factor receptors ("EGFr") on
their surface often depend on EGFr's activation for growth. EGFr is
overexpressed in a variety of cancers including lung, breast, ovarian, bladder,
prostate, colorectal, kidney and head and neck. This activation is triggered by
the binding to EGFr by EGF or Transforming Growth Factor alpha ("TGFa"), both of
which are expressed by the tumor or by neighboring cells. We believe that
blocking the ability of EGF and TGFa to bind with EGFr may offer a treatment for
certain cancers. ABX-EGF, a fully human monoclonal antibody generated using
XenoMouse technology, binds to EGFr with high affinity and has been shown to
inhibit tumor cell proliferation IN VIVO and cause eradication of EGF dependent
human tumors established in mouse models. We in-licensed ABX-EGF from Xenotech
in November 1997, on an exclusive worldwide basis. We are conducting preclinical
studies and assessing which tumor types to pursue as possible targets for
treatment with ABX-EGF. Published studies have shown that ABX-EGF can inhibit
growth of EGF-dependent human tumors cells in mouse models. ABX-EGF has also
demonstrated the ability to reverse cancer cell growth and cause eradication of
established tumors in mice even when administered after significant tumor growth
has occurred. Furthermore, in these models where tumors were eradicated, no
relapse of the tumor was observed after discontinuation of the antibody
treatment.

CLINICAL STATUS. In November 1999, we initiated a Phase I dose-escalating
human clinical trial examining the safety of administering a single intravenous
infusion of seven different doses of ABX-EGF in the treatment of a variety of
cancers, and patient enrollment is ongoing.

ABX-RB2

In certain immunological diseases where chronic administration of a drug
targeting the CBL antigen is desirable, it may be important to use a fully human
antibody to avoid the risk of a HAMA response. Such diseases include organ
transplant rejection, primarily kidney and corneal transplant rejection, as well
as autoimmune disorders.

Using our XenoMouse technology, we have generated ABX-RB2, a fully human
antibody that targets the CBL antigen, and we are conducting preclinical studies
on this product candidate. While no human data are available on ABX-RB2, several
clinical trials have been performed using ABX-CBL prior to Abgenix obtaining an
exclusive license to ABX-CBL, the first generation mouse antibody to the CBL
antigen, for the treatment of kidney and corneal transplant rejection. Although
there can be no assurance that the data observed with ABX-RB2 in these
indications will demonstrate the same degree of efficacy as the data observed
with ABX-CBL, we believe the ABX-CBL studies may assist in the design of
preclinical and clinical protocols for future development of ABX-RB2.

ORGAN TRANSPLANT REJECTION. Each year there are approximately 11,000 kidney
transplants in the United States. Depending upon a variety of patient risk
factors, many of these procedures result in the patient's immune system
rejecting the organ. Current therapy for kidney transplant rejection involves
administering steroids or other immune system modulators to suppress the immune
system. These therapies suffer from suboptimal efficacy profiles or dose
limiting toxicities.

Prior to Abgenix obtaining an exclusive license to ABX-CBL, three clinical
trials had been conducted using ABX-CBL for the treatment of kidney transplant
rejection. In two trials conducted at Sendai Shakai Hoken Hospital in Japan,
ABX-CBL was administered intravenously daily for nine days to 41 patients whose
kidney transplant rejections were resistant to steroid therapy. In the first
trial, organ rejection was reversed in 17 of 19 patients. In the second trial,
organ rejection was reversed in a dose-dependent fashion in 18 of the 22
patients treated. A third clinical trial was conducted at the University of
California at Los Angeles. In this study, 13 of the 18 patients had cadaveric
donor transplants. This more refractory population responded to nine days of
ABX-CBL treatment with an overall response rate of 50%. Subset analysis
indicated that of the patients treated prior to severe renal

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failure, as many as 75% experienced reversal of the kidney rejections. No
serious treatment-related side effects were observed in any of the patients in
these three trials.

In addition to the use of ABX-RB2 in kidney transplant rejection, we are
also exploring its potential use in corneal transplantation. In a clinical trial
conducted at the University of California at San Diego prior to Abgenix
obtaining an exclusive license to ABX-CBL, six patients were treated with
ABX-CBL after the onset of rejection and four showed graft preservation. No
serious adverse side effects related to the infusion of ABX-CBL or to an immune
response were observed in any of the six patients.

AUTOIMMUNE DISEASE. In autoimmune disease, a subset of the patient's immune
cells react abnormally to a natural component of the patient's own tissue.
Because the CBL antigen is selectively expressed on activated immune cells
including T cells, B cells and natural killer cells, we believe that ABX-RB2 may
be effective in treating autoimmune disease. We intend to conduct preclinical
studies in a series of animal models of autoimmune disease, including rheumatoid
arthritis, lupus, multiple sclerosis, and diabetes.

XENOMOUSE TECHNOLOGY COLLABORATIONS

We have entered into multiple XenoMouse technology collaborations with
pharmaceutical and biotechnology companies. To date, we have collaborative
arrangements with seventeen companies covering numerous antigen targets. These
collaborations typically provide our collaborative partners with access to
XenoMouse technology for the purpose of generating fully human antibody product
candidates to one specific antigen target provided by the collaborative partner.
Some of these agreements involve multiple antigen targets. In most cases, we
provide our mice to collaborative partners who carry out immunizations with
their specific antigen target. In other cases, we perform the immunizations for
the collaborative partner and receive additional compensation.

The structure of many of our XenoMouse technology collaborations is similar.
Generally, our collaborative partner first enters into a research collaboration
agreement. This agreement permits our collaborative partner to conduct limited
research on a specific antigen using our XenoMouse technology. Our collaborative
partner may then elect to enter into a research license and option agreement,
although in some cases our collaborative partners may enter into this agreement
without first entering into a research collaboration agreement. If entered into,
this agreement allows our collaborative partner to conduct additional research
to develop antibody product candidates to a specific antigen target. Generally,
a research license and option agreement does not allow our collaborative partner
to initiate clinical trials with antibody product candidates. To initiate
clinical trials with antibody product candidates to a specific antigen target,
our collaborative partner must exercise the option to obtain a product license.
In most cases, this requires a collaborative partner to enter into a separate
product license agreement. If our collaborative partner exercises its product
license option, it has the right to conduct all clinical trials and
commercialize antibody product candidates. To date, only three of our
collaborative partners have exercised their option to obtain a product license.

The financial terms of our XenoMouse technology collaborations often include
upfront payments, potential license fee and milestone payments. Based upon our
current collaborative agreements, these fees and payments would average $8.0 to
$10.0 million per antigen target, if our collaborative partner takes the
antibody product candidate into development and ultimately to commercialization.
If not, such payments would be less. In certain instances, the collaborative
partner could make reimbursement payments to Abgenix for research that we
conduct on behalf of such partner. Additionally, if a product receives marketing
approval from the FDA or an equivalent foreign agency, we are entitled to
receive royalties on future product sales by the collaborative partner, if any.
Generally, the collaborative partner is responsible for and bears the costs of
product development, worldwide manufacturing and marketing of product candidates
generated under these collaborations.

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

Of our collaborative partners, Pfizer, Genentech, Millennium, Cell Genesys,
Japan Tobacco and the U.S. Army have each entered into new or expanded
collaborations specifying additional antigens for XenoMouse antibody
development. The following table lists our collaborations as of March 6, 2000:

<TABLE>
<CAPTION>
PARTNER FIELD DATE
- -------------------------------- -------------------------------- ---------
<S> <C> <C>
Amgen........................... Undisclosed Apr 1999
AVI BioPharma................... Cancer Jan 1999
BASF............................ Undisclosed Mar 1999
Cell Genesys.................... Gene Therapy Nov 1997
Centocor/Johnson and Johnson.... Cardiovascular Disease Dec 1998
Chiron.......................... Autoimmune Diseases Dec 1999
CuraGen......................... Various Dec 1999
Elan............................ Neurological Diseases Jan 2000
Genentech....................... Multiple Targets Jan 1999
Growth Factor Modulation Jun 1998*
Cardiovascular Disease Apr 1998*
Gliatech........................ Cardiovascular Disease Jan 2000
Human Genome Sciences........... Various Dec 1999
Japan Tobacco................... Various Jul 1999
Millennium BioTherapeutics...... Inflammation Sep 1998
Inflammation Jul 1998
Various Mar 2000
Pfizer.......................... Cancer Nov 1999
Cancer Oct 1998
Cancer Dec 1997
Research Corporation Transplant Rejection Dec 1998
Technologies..................
Schering-Plough................. Inflammation Jan 1998
U.S. Army....................... Poxviruses Oct 1999
Filoviruses Jul 1999
</TABLE>

- ---------

* These agreements were superseded by the January 1999 multi-antigen
agreement.

AMGEN: In April 1999, we entered into a research collaboration with Amgen,
Inc., to generate fully human antibodies to an undisclosed antigen target. Under
this agreement, Amgen is paying us to perform the immunizations and certain
research activities.

AVI BIOPHARMA: In January 1999, we entered into a research license and
option agreement with AVI to generate fully human antibodies to human chronic
gonadotropin (hCG) for the treatment of various cancers. AVI has reported that a
therapeutic vaccine based on hCG has shown promise in Phase II clinical trials.

BASF: In March 1999, we entered into a research collaboration agreement
with BASF Bioresearch Corporation to generate fully human antibodies to an
undisclosed antigen target.

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CELL GENESYS: In November 1997, we entered into the gene therapy rights
agreement (the "GTRA") with Cell Genesys. Cell Genesys received certain rights
to commercialize products based on antibodies generated with XenoMouse
technology in the field of gene therapy.

CENTOCOR/JOHNSON AND JOHNSON: In December 1998, we entered into a research
collaboration agreement with Centocor to generate fully human antibodies to an
undisclosed Centocor antigen in the cardiovascular field.

CHIRON: In December 1999, we entered into a research license and option
agreement with Chiron to generate fully human antibodies to an undisclosed
antigen in the field of autoimmune diseases. Under a separate research
collaboration agreement, Chiron may use XenoMouse to generate fully human
antibodies to up to four cancer targets.

CURAGEN: In December 1999, we entered into a broad collaboration with
CuraGen, Inc. to make fully human antibodies to genomics-based antigen targets.
Under the collaboration, CuraGen will supply a large number of antigen targets
to us and we will be responsible for generating fully human antibodies to them.
We will share responsibility for evaluation of the antibodies product candidates
generated. Each of us will be able to select antibody product candidates from
the pool generated in the course of the collaboration. The party selecting a
product candidate will pay to the other, for rights to develop and commercialize
such product, license fees, milestone payments and royalty payment on any
eventual product sales.

ELAN: In January 2000, we entered into a research license and option
agreement with Elan to generate fully human antibodies to an undisclosed antigen
in the field of neurological diseases.

GENENTECH: In April 1998, we entered into a research license and option
agreement with Genentech to produce fully human antibodies to an antigen target
in the field of growth factor modulation. In June 1998 Genentech expanded its
research collaboration with us to include a second antigen target in the field
of cardiovascular disease.

In January 1999, we entered into a multi-antigen research license and option
agreement with Genentech. Under the agreement, we granted Genentech a license to
utilize XenoMouse technology in its antibody product research efforts and an
option to obtain product licenses for up to ten antigen targets, but not more
than two in any one year, over the agreement's six year term. Included in the
ten are the two previously identified antigen targets under the now superseded
research license and option agreement at the new option, license fee and
milestone payment levels. The agreement can be renewed by Genentech for up to an
additional four targets over a subsequent three year period. Genentech acquired
495,356 shares of our common stock for an aggregate purchase price of $8.0
million. To renew the agreement at the end of the sixth year, Genentech must
purchase an additional $2.5 million of our common stock at a 50% premium to the
then current market price.

GLIATECH: In January 2000, we entered into a research license and option
agreement with Gliatech to generate fully human antibodies to the complement
protein properdin for use in the fields of cardiovascular and inflammatory
diseases.

HUMAN GENOME SCIENCES: In December 1999, we entered into a broad
collaboration with Human Genome Sciences, Inc. to generate fully human
antibodies to genomics-based antigen targets. Under the collaboration, Human
Genome Sciences has the right to use XenoMouse technology for research purposes
and to take out options and/or licenses on a pre-set number of antigen targets.
We also may collaborate with Human Genome Sciences on a pre-set number of
antigen targets to which we will generate fully human antibodies. The companies
will then jointly develop and commercialize these products. We also are able to
select antigen targets from the Human Genome Sciences database to make
antibodies against and will have an option to license a pre-set number of such
antigen targets for our inhouse development and commercialization. If we enter
into a license to Human Genome

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Science's antigen target we would pay them license fees milestone and royalties
equivalent to what they pay us for licenses to XenoMouse technology.

JAPAN TOBACCO: In December 1999, we entered into a collaboration with Japan
Tobacco allowing it to use XenoMouse for research purposes and to obtain options
and/or product licenses for a limited number of specific antigen targets each
year. This collaboration superceded our prior collaboration agreement with Japan
Tobacco.

MILLENNIUM: In July 1998, we entered into a research collaboration
agreement with Millennium BioTherapeutics to generate fully human antibodies to
an antigen target in the field of inflammation. In October 1998, we entered into
a research, license and option agreement with Millennium BioTherapeutics
covering the same antigen target. In September 1998, we entered into a second
research collaboration agreement with Millennium covering a second antigen
target in the field of inflammation. In March 2000, we entered into a broad
collaboration agreement with Millennium. Under the agreement, Millennium
receives a license to use XenoMouse technology for research purposes and a group
of product licenses for a certain number of antigens. For additional future
payments, Millennium may renew its research license and buy additional groups of
product licenses.

PFIZER: In December 1997, we entered into a research collaboration
agreement with Pfizer to generate fully human antibodies to an antigen target in
the cancer field. In October 1998, Pfizer exercised its option to expand its
research collaboration with us to include a second antigen target in the field
of cancer. In November 1999, Pfizer exercised its option to expand its research
collaboration with us to include a third antigen target in the field of cancer.
Pfizer is paying us to perform the immunizations and to undertake certain
research activities. As part of this arrangement, in January 1998 Pfizer
purchased 160,000 shares of our series C preferred stock for $1.3 million and
received an option to collaborate with us on up to three antigen targets. These
shares converted into 160,000 shares of common stock upon our initial public
offering.

RESEARCH CORPORATION TECHNOLOGIES: In December 1998, we entered into a
binding memorandum of understanding for a research collaboration agreement with
RCT to generate fully human antibodies to CD45rb. Resultant antibody product
candidates could potentially be used in treating organ transplant rejection and
autoimmune disorders.

SCHERING-PLOUGH: In January 1998, we entered into a research collaboration
agreement with Schering-Plough to generate fully human antibodies to an antigen
target in the field of inflammation. Under this agreement, Schering-Plough is
paying us to perform the immunizations and certain research activities. In
September 1999, Schering-Plough exercised its option for a product license.

U.S. ARMY: In July 1999, we entered into a collaboration with the U.S. Army
to generate fully human antibodies to filoviruses. In October 1999, the U.S.
Army expanded the collaboration to include poxviruses.

JOINT VENTURE WITH JAPAN TOBACCO

XENOTECH

In June 1991, Cell Genesys entered into several agreements with Japan
Tobacco for the purpose of forming an equally owned limited partnership named
Xenotech. In connection with the formation of Xenotech, both Cell Genesys and
Japan Tobacco contributed cash, and Cell Genesys contributed the exclusive right
to certain of its technology for the research and development of genetically
modified strains of mice that can produce fully human antibodies. Cell Genesys
assigned its rights in Xenotech to Abgenix in connection with the formation of
Abgenix. As part of the Xenotech relationship, Abgenix provided research and
development on behalf of Xenotech in exchange for cash payments. As of December
31, 1999, Abgenix had made capital contributions to Xenotech of approximately
$18.6

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<PAGE>
million and had received approximately $42.9 million in funding for research
related to the development of XenoMouse technology.

On December 20, 1999, we executed several agreements with Japan Tobacco that
became effective December 31, 1999 under which we acquired Japan Tobacco's
interest in the XenoMouse. Under the agreements, Abgenix paid $47.0 million in
cash to Japan Tobacco for its 50% interest in the Xenotech joint venture under
which the XenoMouse technology was developed. Under the agreements, the Company
also made a non-recurring payment of $10.0 million to Japan Tobacco to terminate
rights to the current XenoMouse technology. Additionally, Japan Tobacco paid
$4.0 million to the Company for a license to use the existing XenoMouse
technology on a more limited basis than previously, and to use future XenoMouse
technology in development at Abgenix. Japan Tobacco will also make royalty
payments on any future sales of antibody products generated using XenoMouse.
Lastly, under the December agreements, the Company granted to Japan Tobacco a
license for certain new technology related to the generation of mouse models of
certain human diseases. In return for this license, Japan Tobacco paid Abgenix
$6.0 million, which was recorded in contract revenue. See Note 2 to the
Consolidated Financial Statements.

GENE THERAPY RIGHTS AGREEMENT WITH CELL GENESYS

The GTRA provides Cell Genesys with certain rights to commercialize products
based on antibodies generated with XenoMouse technology in the field of gene
therapy. Under the GTRA, Cell Genesys has certain rights to direct us to make
antibodies to two antigens per year. In addition, Cell Genesys has an option to
enter into a license to commercialize antibodies binding to such antigens in the
field of gene therapy. Cell Genesys is obligated to make certain payments to us
for these rights including reimbursement of license fees and royalties on future
product sales. The GTRA also prohibits us from granting any third-party licenses
for antibody products based on antigens nominated by us for our own purposes
where the primary field of use is gene therapy. In the case of third-party
licenses granted by us where gene therapy is a secondary field, we are obligated
to share with Cell Genesys a portion of the cash milestone payments and
royalties resulting from any products in the field of gene therapy.

INTELLECTUAL PROPERTY

We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets. We
solely own one issued patent in the U.S., one granted patent in Europe and have
several pending patent applications in the U.S. and abroad relating to XenoMouse
technology. Our wholly owned subsidiary Xenotech owns two issued U.S. patents,
one Australian patent and several pending U.S. and foreign pending patent
applications related to methods of treatment of bone disease in cancer patients.
In addition, we have four issued U.S. patents and several pending patent
applications in the U.S. and abroad that are jointly owned with Japan Tobacco
relating to antibody technology or genetic manipulation. We try to protect our
proprietary position by filing United States and foreign patent applications
related to our proprietary technology, inventions and improvements that are
important to the development of our business. The patent position of
biopharmaceutical companies involves complex legal and factual questions and,
therefore, enforceability cannot be predicted with certainty. Patents, if
issued, may be challenged, invalidated or circumvented. Thus, any patents that
we own or license from third parties may not provide any protection against
competitors. Our pending patent applications, those we may file in the future,
or those we may license from third parties, may not result in patents being
issued. Also, patent rights may not provide us with adequate proprietary
protection or competitive advantages against competitors with similar
technology. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States.

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

Research has been conducted for many years in the antibody field. This has
resulted in a substantial number of issued patents and an even larger number of
still-pending patent applications. Patent applications in the United States are,
in most cases, maintained in secrecy until patents issue. The publication of
discoveries in the scientific or patent literature frequently occurs
substantially later than the date on which the underlying discoveries were made.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. Our
technologies may unintentionally infringe the patents or violate other
proprietary rights of third parties. In the event of such infringement or
violation, Abgenix and our collaborative partners may be prevented from pursuing
product development or commercialization. Such a result will materially
adversely affect our business, financial condition and results of operations.

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

We are aware of one company with an issued patent containing a claim to the
use of antibodies to the EGF receptor in combination with chemotherapy. There is
one additional company that has filed a patent application containing a similar
claim. We believe that our antibody product candidate targeting the EGF
receptor, ABX-EGF, may be effective alone, and may be used without chemotherapy.
We believe use of ABX-EGF alone is not covered by claims in these or other
companies' patents. If clinical trials demonstrate that combination therapy is
preferable or necessary in the treatment of patients, we may desire to or be
required to obtain a license under the other companies' patents in order to
commercialize ABX-EGF. Any license under these other patents may not be
available on commercially reasonable terms, if at all.

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

- enforce patents that we own or license;

- protect trade secrets or know-how that we own or license; or

- determine the enforceability, scope and validity of the proprietary rights
of others.

If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts of
our technical and management personnel will be significantly diverted. An
adverse determination may subject us to loss of our proprietary position or to
significant liabilities, or require us to seek licenses that may not be
available from third parties. We may be restricted or prevented from
manufacturing and selling our products, if any, in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses. Costs associated with such arrangements may be substantial
and may include ongoing royalties. Furthermore, we may not be able to obtain the
necessary licenses on satisfactory terms, if at all. These outcomes will
materially adversely affect our business, financial condition and results of
operations.

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<PAGE>
PATENT CROSS-LICENSE AND SETTLEMENT AGREEMENT WITH GENPHARM

In 1994 Cell Genesys and GenPharm and, beginning in 1996, Abgenix became
involved in litigation primarily related to intellectual property rights
associated with a method for inactivating a mouse's antibody genes and
technology pertaining to transgenic mice capable of producing fully human
antibodies. Rather than endure the cost and business interruption of protracted
litigation, in March 1997 Cell Genesys, along with Abgenix, Xenotech and Japan
Tobacco, signed a comprehensive patent cross-license and settlement agreement
with GenPharm that resolved all related litigation and claims between the
parties. Under the cross-license and settlement agreement, Abgenix has licensed
on a non-exclusive basis certain patents, patent applications, third-party
licenses and inventions pertaining to the development and use of certain
transgenic rodents including mice that produce fully human antibodies. We use
our XenoMouse technology to generate fully human antibody products and have not
licensed the use of, and do not use, any transgenic rodents developed or used by
GenPharm. As initial consideration for the cross-license and settlement
agreement, Cell Genesys issued a note to GenPharm for $15 million, which was
paid in full September 30, 1998. Of this note, approximately $3.8 million
satisfied certain of Xenotech's obligations under the agreement. Japan Tobacco
also made an initial payment. During 1997 GenPharm achieved two patent
milestones, and Xenotech was obligated to pay $7.5 million for each milestone.
No additional payments will accrue under this agreement. In 1997, we recognized,
as a non-recurring charge for cross-license and settlement, a total of $22.5
million. We concluded that the cost of the cross-license and settlement
agreement was properly expensed under Statement of Financial Accounting
Standards No. 2, "Accounting for Research and Development Costs" because the
cross-license received by us from GenPharm is non-exclusive and has no alternate
future uses for us. We also concluded that the $11.3 million was properly
allocated from Cell Genesys because it related to the technology Cell Genesys
contributed to Abgenix upon our organization. We do not have any future
financial obligations under the cross-license and settlement agreement.

GOVERNMENT REGULATION

Abgenix believes its antibody products will be classified by the FDA as
"biologic products" as opposed to "drug products". The steps ordinarily required
before a biological product may be marketed in the United States include:

- preclinical testing;

- the submission to the FDA of an investigational new drug application
("IND"), which must become effective before clinical trials may commence;

- adequate and well-controlled clinical trials to establish the safety and
efficacy of the biologic;

- the submission to the FDA of a Biologics License Application; and

- FDA approval of the application, including approval of all product
labeling.

Preclinical testing includes laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding good laboratory
practices. The results of the preclinical tests together with manufacturing
information and analytical data are submitted to the FDA as part of the IND and
are reviewed by the FDA before the commencement of clinical trials. Unless the
FDA objects to an IND, the IND will become effective 30

20
<PAGE>
days following its receipt by the FDA. If we submit an IND, our submission may
not result in FDA authorization to commence clinical trials. Also, the lack of
an objection by the FDA does not mean it will ultimately approve an application
for marketing approval. Furthermore, we may encounter problems in clinical
trials that cause us or the FDA to delay, suspend or terminate our trials.

Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with Good Clinical Practices under
protocols submitted to the FDA as part of the IND. In addition, each clinical
trial must be approved and conducted under the auspices of an Institutional
Review Board ("IRB") and with patient informed consent. The IRB will consider,
among other things, ethical factors, the safety of human subjects and the
possibility of liability of the institution conducting the trial.

Clinical trials are conducted in three sequential phases that may overlap.
Phase I clinical trials may be performed in healthy human subjects or, depending
on the disease, in patients. The goal of a Phase I clinical trial is to
establish initial data about safety and tolerance of the biologic agent in
humans. In Phase II clinical trials, evidence is sought about the desired
therapeutic efficacy of a biologic agent in limited studies of patients with the
target disease. Efforts are made to evaluate the effects of various dosages and
to establish an optimal dosage level and dosage schedule. Additional safety data
are also gathered from these studies. The Phase III clinical trial program
consists of expanded, large-scale, multi-center studies of persons who are
susceptible to or have developed the disease. The goal of these studies is to
obtain definitive statistical evidence of the efficacy and safety of the
proposed product and dosage regimen.

Historically, the results from preclinical testing and early clinical trials
have often not been predictive of results obtained in later clinical trials. A
number of new drugs and biologics have shown promising results in clinical
trials, but subsequently failed to establish sufficient safety and efficacy data
to obtain necessary regulatory approvals. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. In addition, delays or rejections
by regulatory authorities may be encountered as a result of many factors,
including changes in regulatory policy during the period of product development.

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

Our other product candidates are still in preclinical development, and we
have not submitted INDs or begun clinical trials for these product candidates.
Our preclinical or clinical development efforts may not be successfully
completed. Further INDs may not be filed. Clinical trials may not commence as
planned.

Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity, novelty
and intended use of the product candidate. Our commencement and rate of
completion of clinical trials may be delayed by many factors, including:

- inability to manufacture sufficient quantities of materials for use in
clinical trials;

- slower than expected rate of patient recruitment;

- inability to adequately follow patients after treatment;

- unforeseen safety issues;

- lack of efficacy during the clinical trials; or

21
<PAGE>
- government or regulatory delays.

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

Our product candidates may fail to demonstrate safety and efficacy in
clinical trials. Such failure may delay development of other product candidates,
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of such failures, we may also be unable to obtain additional
financing. Our business, financial condition and results of operations will be
materially adversely affected by any delays in, or termination of, our clinical
trials.

Abgenix and our contract manufacturer also are required to comply with the
applicable FDA current good manufacturing practice ("cGMP") regulations. cGMP
regulations include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and documentation.
Manufacturing facilities are subject to inspection by the FDA. The facilities
must be approved before they can be used in commercial manufacturing of our
products. Abgenix or our contract manufacturer may not be able to comply with
the applicable cGMP requirements and other FDA regulatory requirements. If
Abgenix or our contract manufacturer fails to comply, our business, financial
condition and results of operations will be materially adversely affected.

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

COMPETITION

The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. We are aware of several
pharmaceutical and biotechnology companies that are actively engaged in research
and development in areas related to antibody therapy. These companies have
commenced clinical trials of antibody products or have successfully
commercialized antibody products. Many of these companies are addressing the
same diseases and disease indications as Abgenix or our collaborative partners.
Also, we compete with companies that offer antibody generation services to
companies that have antigens. These competitors have specific expertise or
technology related to antibody development. These companies include Medarex,
Medarex's joint venture partner, Kirin Brewing Co., Ltd, Cambridge Antibody
Technology Group plc, Protein Design Labs, Inc. and MorphoSys AG.

Some of our competitors have received regulatory approval or are developing
or testing product candidates that may compete directly with our product
candidates. For example, SangStat Medical Corp. and Protein Design Labs market
organ transplant rejection products that may compete with ABX-CBL, which is in
clinical trials. In addition, MedImmune, Inc. has a potential antibody product
candidate in clinical trials for graft versus host disease. We are also aware
that several companies, including Genentech, Inc., have potential product
candidates that may compete with ABX-IL8. Furthermore, we are aware that ImClone
Systems, Inc., Medarex, AstraZeneca and OSI Pharmaceuticals, Inc. in
collaboration with Pfizer, have potential antibody and small molecule product
candidates already in clinical development that may compete with ABX-EGF.

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

- developing products;

- undertaking preclinical testing and human clinical trials;

22
<PAGE>
- obtaining FDA and other regulatory approvals of products; and

- manufacturing and marketing products.

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

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

- other drug development technologies and methods of preventing or reducing
the incidence of disease;

- new small molecules; or

- other classes of therapeutic agents.

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

PHARMACEUTICAL PRICING AND REIMBURSEMENT

In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Third-party payors include government health administration authorities, managed
care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. These studies may require us to provide
a significant amount of resources. Our product candidates may not be considered
cost-effective. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. Domestic and foreign governments
continue to propose and pass legislation designed to reduce the cost of
healthcare. Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals may change before our proposed products are approved for
marketing. Adoption of such legislation could further limit reimbursement for
pharmaceuticals. If the government and third party payors fail to provide
adequate coverage and reimbursement rates for our product candidates, the market
acceptance of our products may be adversely affected. If our products do not
receive market acceptance, our business, financial condition and results of
operations will be materially adversely affected.

MANUFACTURING

23
<PAGE>
antibody products will also need to be manufactured in a facility and by a
process which complies with FDA and other regulations. It may take a substantial
period of time to begin producing antibodies in compliance with such
regulations. If we are unable to establish and maintain such manufacturing
facility within our planned time and costs parameters, the development and sales
of our products and our financial performance may be adversely affected.

We currently rely, and will continue to rely for at least the next two
years, on a sole source contract manufacturer to produce ABX-CBL, ABX-IL8 and
ABX-EGF under good manufacturing practice regulations, for use in our clinical
trials. Our contract manufacturer has a limited number of facilities in which
our product candidates can be produced. Our contract manufacturer has limited
experience in manufacturing ABX-CBL, ABX-IL8 and ABX-EGF in quantities
sufficient for conducting clinical trials or for commercialization. We currently
rely on our contract manufacturer to produce our product candidates under good
manufacturing practice regulations, which meet acceptable standards for our
clinical trials.

Contract manufacturers often encounter difficulties in scaling up
production, including problems involving production yields, quality control and
assurance, shortage of qualified personnel, compliance with FDA regulations,
production costs, and development of advanced manufacturing techniques and
process controls. Our contract manufacturer may not perform as agreed or may not
remain in the contract manufacturing business for the time required by us to
successfully produce and market our product candidates. If our contract
manufacturer fails to deliver the required quantities of our product candidates
for clinical use on a timely basis and at commercially reasonable prices, and we
fail to find a replacement manufacturer or develop our own manufacturing
capabilities, our business, financial condition and results of operations will
be materially and adversely affected.

EMPLOYEES

As of December 31, 1999, we employed 73 persons, of whom 20 hold Ph.D. or
M.D. degrees and 32 hold other advanced degrees. Approximately 60 employees are
engaged in research and development, and 13 support administration, finance,
management information systems and human resources.

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

MANAGEMENT

The following table sets forth certain information as of December 31, 1999,
with respect to our executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
R. Scott Greer............................ 41 President, Chief Executive Officer and Chairman
of the Board
C. Geoffrey Davis, Ph.D................... 48 Chief Scientific Officer
Kurt W. Leutzinger........................ 48 Chief Financial Officer
Gisela M. Schwab, M.D..................... 43 Vice President, Clinical Development
Raymond M. Withy, Ph.D.................... 44 Chief Business Officer
</TABLE>

R. SCOTT GREER, has served as our President and Chief Executive Officer and
as one of our directors since June 1996. In March 2000, Mr Greer was elected to
the additional position of Chairman of the Board of directors of Abgenix Inc.
From July 1994 to July 1996, Mr. Greer was Senior Vice President of Corporate
Development at Cell Genesys. From April 1991 to July 1994, Mr. Greer was Vice
President of Corporate Development and from April 1991 to September 1993 was
Chief Financial Officer of Cell Genesys. From 1986 to 1991, Mr. Greer held
various positions at Genetics Institute, Inc., a biotechnology company,
including Director, Corporate Development. Mr. Greer received a BA

24
<PAGE>
in economics from Whitman College and an MBA from Harvard University and is a
certified public accountant.

C. GEOFFREY DAVIS, PH.D., has served as our Vice President, Research since
June 1996 and Chief Scientific Officer since January 2000. From January 1995 to
June 1996, Dr. Davis was Director of Immunology at the Xenotech Division of Cell
Genesys. From November 1991 to December 1994, he served at Repligen Corporation,
a biotechnology company, first as Principal Investigator and then as Director of
Immunology. Dr. Davis received a BA from Swarthmore College and a Ph.D. in
immunology from the University of California, San Francisco.

KURT W. LEUTZINGER, has served as our Chief Financial Officer since July
1997. From June 1987 to July 1997, Mr. Leutzinger was a Vice-President of
General Electric Investments and a portfolio manager of the $27 billion General
Electric Pension Fund. There, he was responsible for private equity investments
with a focus on medical technology. Mr. Leutzinger received a BA in economics
from Fairleigh Dickinson University and an MBA in finance from New York
University and is a certified public accountant.

GISELA M. SCHWAB, M.D., joined Abgenix as the Vice President, Clinical
Development in November 1999. From September 1992 to October 1999, Dr. Schwab
held various positions at Amgen, Inc., a biotechnology company, most recently as
Director, Clinical Research and Therapeutic Area Team Leader for
Oncology/Hematology. Dr. Schwab received an M.D. from the University of
Heidelberg in Germany. She is board certified in Hematology and Oncology and has
performed research in molecular biology at the National Cancer Institute in
Bethesda, Maryland, and at the French National Institute for Health and Research
in Paris.

RAYMOND M. WITHY, PH.D., has served as our Vice President, Corporate
Development since June 1996 and Chief Business Officer since January 2000. From
May 1993 to June 1996, Dr. Withy served in various positions at Cell Genesys,
most recently as Director of Business Development. From 1991 to May 1993, Dr.
Withy was a private consultant to the biotechnology industry in areas of
strategic planning, business development and licensing. From 1984 to 1991, Dr.
Withy was an Associate Director and Senior Scientist at Genzyme Corporation, a
biotechnology company. Dr. Withy received a B.Sc. in chemistry and biochemistry
and a Ph.D. in biochemistry, both from the University of Nottingham.

SCIENTIFIC ADVISORY BOARD

We have established a Scientific Advisory Board to provide specific
expertise in areas of research and development relevant to our business. The
Scientific Advisory Board meets periodically with our scientific and development
personnel and management to discuss our present and long-term research and
development activities. Scientific Advisory Board members include:

<TABLE>
<S> <C>
Anthony DeFranco, M.D., Ph.D................. Professor, Biochemistry and Biophysics
University of California, San Francisco
John Gallin, M.D............................. Director
Warren Grant Magnusen Clinical Center,
National Institute of Health
Raju S. Kucherlapati, Ph.D................... Professor and Chair, Molecular Genetics
Albert Einstein College of Medicine
Michel Nussenzweig, M.D., Ph.D............... Professor, Molecular Immunology
The Rockefeller University
Greg Went.................................... President and CEO, Kira Pharmaceuticals
</TABLE>

25
<PAGE>
ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS

OUR XENOMOUSE TECHNOLOGY MAY NOT PRODUCE SAFE, EFFICACIOUS OR COMMERCIALLY
VIABLE PRODUCTS.

Our XenoMouse technology is a new approach to the generation of antibody
therapeutic products. We have not commercialized any antibody products based on
XenoMouse technology. We are not aware of any commercialized, fully human
antibody therapeutic products that have been generated from any technologies
similar to ours. Our antibody product candidates are still at a very early stage
of development. We have begun clinical trials with respect to only two fully
human antibody product candidates, ABX-IL8 and ABX-EGF. We cannot be certain
that XenoMouse technology will generate antibodies against all the antigens to
which it is exposed in an efficient and timely manner, if at all. Furthermore,
XenoMouse technology may not result in any meaningful benefits to our current or
potential collaborative partners or be safe and efficacious for patients. If
XenoMouse technology fails to generate antibody product candidates that lead to
the successful development and commercialization of products, our business,
financial condition and results of operations will be materially and adversely
affected.

CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES WILL BE EXPENSIVE AND THEIR OUTCOME
IS UNCERTAIN.

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

Historically, the results from preclinical testing and early clinical trials
have often not been predictive of results obtained in later clinical trials. A
number of new drugs and biologics have shown promising results in clinical
trials, but subsequently failed to establish sufficient safety and efficacy data
to obtain necessary regulatory approvals. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations, which may delay,
limit or prevent regulatory approval. In addition, regulatory delays or
rejections may be encountered as a result of many factors, including changes in
regulatory policy during the period of product development.

As of December 31, 1999, three of our product candidates, ABX-CBL, ABX-IL8
and ABX-EGF, were in clinical trials. Patient follow-up for these clinical
trials has been limited. To date, data obtained from these clinical trials has
been insufficient to demonstrate safety and efficacy under applicable FDA
guidelines. As a result, this data will not support an application for
regulatory approval without further clinical trials. Clinical trials conducted
by us or by third parties on our behalf may not demonstrate sufficient safety
and efficacy to obtain the requisite regulatory approvals for ABX-CBL, ABX-IL8,
ABX-EGF and or any other potential product candidates. Regulatory authorities
may not permit us to undertake any additional clinical trials for our product
candidates.

In addition, our other product candidate is in preclinical development, but
we have not submitted investigational new drug applications nor begun clinical
trials for this product candidate. Our preclinical or clinical development
efforts may not be successfully completed. We may not file further
investigational new drug applications. Our clinical trials may not commence as
planned.

- inability to manufacture sufficient quantities of materials for use in
clinical trials;

- slower than expected rate of patient recruitment;

26
<PAGE>
- inability to adequately follow patients after treatment;

- unforeseen safety issues;

- lack of efficacy during the clinical trials; or

- government or regulatory delays.

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

Our product candidates may fail to demonstrate safety and efficacy in
clinical trials. This failure may delay development of other product candidates,
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of these failures, we may also be unable to obtain
additional financing. Any delays in, or termination of, our clinical trials will
materially and adversely affect our business, financial condition and results of
operations.

THE CLINICAL SUCCESS OF ABX-CBL IS UNCERTAIN.

We recently completed a multi-center Phase II trial for the treatment graft
versus host disease, or GVHD, with our mouse antibody, ABX-CBL.

As of December 31, 1999, ABX-CBL had been administered to a total of only
162 patients for GVHD and organ transplant rejection indications. ABX-CBL was
administered to a total of 85 of these 162 patients by third parties prior to
Abgenix obtaining an exclusive license to ABX-CBL. We cannot rely on data
obtained from patients studied prior to our obtaining an exclusive license to
ABX-CBL to support the efficacy of ABX-CBL in an application for regulatory
approval.

Data from 27 patients included in the Phase II study was submitted to the
FDA. As an extension to the original Phase II trial protocol, we have enrolled
an additional 32 patients. In December 1999, we initiated a Phase III clinical
trial with ABX-CBL. The results of the Phase III trial may not be favorable or
may not extend the findings of the original Phase II study. The FDA may view the
result of our Phase III trial as insufficient and may require additional
clinical trials. There are several issues that could adversely affect the
clinical trial results, including the lack of a standard therapy for GVHD
patients in the control group, unforeseen side effects, variability in the
number and types of patients in the study, and response rates required to
achieve statistical significance in the study. In addition, our clinical trials
are being conducted with patients who have failed conventional treatments and
who are in the most advanced stages of GVHD. During the course of treatment,
these patients can die or suffer adverse medical effects for reasons that may
not be related to ABX-CBL. These adverse effects may affect the interpretation
of clinical trial results. There can be no assurance that the FDA will accept
the results of the Phase III study or other elements of the product license
application as being sufficient for approval to market. Additional clinical
trials will be extensive, expensive and time-consuming. If ABX-CBL fails to
receive regulatory approval, our business, financial condition and results of
operations may be materially and adversely affected.

SUCCESSFUL DEVELOPMENT OF OUR PRODUCTS IS UNCERTAIN.

Our development of current and future product candidates is subject to the
risks of failure inherent in the development of new pharmaceutical products and
products based on new technologies. These risks include:

- delays in product development, clinical testing or manufacturing;

- unplanned expenditures in product development, clinical testing or
manufacturing;

27
<PAGE>
- failure in clinical trials or failure to receive regulatory approvals;

- emergence of superior or equivalent products;

- inability to manufacture on our own, or through others, product candidates
on a commercial scale;

- inability to market products due to third-party proprietary rights;

- election by our collaborative partners not to pursue product development;

- failure by our collaborative partners to successfully develop products;
and

- failure to achieve market acceptance.

Because of these risks, our research and development efforts or those of our
collaborative partners may not result in any commercially viable products. To
date, only three of our collaborative partners have exercised their right to
obtain a product license. If a significant portion of these development efforts
is not successfully completed, required regulatory approvals are not obtained,
or any approved products are not commercially successful, our business,
financial condition and results of operations will be materially and adversely
affected.

OUR OWN ABILITY TO MANUFACTURE IS UNCERTAIN.

We are in the planning stages of establishing our own pilot scale
manufacturing facility for the manufacture of products for Phase I and Phase II
clinical trials, in compliance with FDA good manufacturing practices. In
February of 2000, we entered into a long term lease for this facility. The
construction schedules may take longer than expected, and the planned and actual
construction costs of building and qualifying the facility for regulatory
compliance may be higher than expected. The process of manufacturing antibody
products is complex. We have no experience in clinical or commercial scale
manufacture of ABX-CBL, ABX-IL8 and ABX-EGF, or any other antibody products.
Such antibody products will also need to be manufactured in a facility and by a
process which complies with FDA and other regulations. It may take a substantial
period of time to begin producing antibodies in compliance with such
regulations. If we are unable to establish and maintain a manufacturing facility
within our planned time and costs parameters, the development and sales of our
products and our financial performance may be adversely affected.

We also may encounter problems with the following:

- production yields;

- quality control and assurance;

- shortages of qualified personnel;

- compliance with FDA regulations;

- production costs; and

- development of advanced manufacturing techniques and process controls.

For Phase III clinical trials and commercial production of our antibody
products we are currently evaluating our options, which include use of third
party contract manufacturers, establishing or expanding our own commercial scale
manufacturing facility, as applicable, or entering into a manufacturing joint
venture relationship with a third party. We are aware of only a limited number
of companies on a worldwide basis who operate manufacturing facilities in which
our product candidates can be manufactured under good manufacturing practice
regulations, a requirement for all pharmaceutical products. It would take a
substantial period of time for a contract facility which has not been producing
antibodies to begin producing antibodies under good manufacturing practice

28
<PAGE>
regulations. We cannot assure you that we will be able to contract with any of
these companies on acceptable terms, if at all.

In addition, we and any third-party manufacturer will be required to
register manufacturing facilities with the FDA and other regulatory authorities.
The facilities will then be subject to inspections confirming compliance with
FDA good manufacturing practice or other regulations. If we or our third-party
manufacturer fail to maintain regulatory compliance, our business, financial
condition and results of operations will be materially and adversely affected.

WE CURRENTLY RELY ON A SOLE SOURCE THIRD-PARTY MANUFACTURER.

WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY EMPLOYEES
AND CONSULTANTS.

We are highly dependent on the principal members of our scientific and
management staff. For us to pursue product development, marketing and
commercialization plans, we will need to hire additional qualified scientific
personnel to perform research and development. We will also need to hire
personnel with expertise in clinical testing, government regulation,
manufacturing, marketing and finance. Attracting and retaining qualified
personnel will be critical to our success. We may not be able to attract and
retain personnel on acceptable terms given the competition for such personnel
among biotechnology, pharmaceutical and healthcare companies, universities and
non-profit research institutions. If we lose any of these persons, or are unable
to attract and retain qualified personnel, our business, financial condition and
results of operations may be materially and adversely affected.

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

WE ARE AN EARLY STAGE COMPANY.

You must evaluate us in light of the uncertainties and complexities present
in an early stage biopharmaceutical company. Our product candidates are in early
stages of development. We will

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require significant additional investment in research and development,
preclinical testing and clinical trials, regulatory and sales and marketing
activities to commercialize current and future product candidates. Our product
candidates, if successfully developed, may not generate sufficient or
sustainable revenues to enable us to be profitable.

WE HAVE A HISTORY OF LOSSES.

We have incurred net losses in each of the last four years of operation,
including net losses of approximately $20.5 million in 1999, $16.8 million in
1998, $35.9 million in 1997, $7.1 million in 1996, and $8.3 million in 1995. As
of December 31, 1999, our accumulated deficit was approximately $89.8 million.
Our losses to date have resulted principally from:

- research and development costs relating to the development of our
XenoMouse technology and antibody product candidates;

- costs related to a cross-license and settlement agreement relating to our
intellectual property portfolio; and

- general and administrative costs relating to our operations.

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

OUR FUTURE PROFITABILITY IS UNCERTAIN.

Prior to June 1996 our business was owned by Cell Genesys and operated as a
business unit. Since that time, we have funded our research and development
activities primarily from:

- initial contributions from Cell Genesys;

- private placements of our capital stock;

- the initial public offering of our common stock;

- the follow-on public offerings of our common stock;

- revenues generated from our collaborative arrangements;

- equipment leaseline financings; and

- loan facilities.

We expect that substantially all of our revenues for the foreseeable future
will result from payments under collaborative arrangements. To date, these
payments have been in the form of upfront payments, reimbursement for research
and development expenses, license fees and milestone payments. Payments under
our existing and any future collaborative arrangements will be subject to
significant fluctuation in both timing and amount. Our revenues may not be
indicative of our future performance or of our ability to continue to achieve
such milestones. Our revenues and results of operations for any period may also
not be comparable to the revenues or results of operations for any other period.
We may not be able to:

- enter into further collaborative arrangements;

- successfully complete preclinical or clinical trials;

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- obtain required regulatory approvals;

- successfully develop, manufacture and market product candidates; or

- generate additional revenues or profitability.

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

WE WILL NEED TO FIND COLLABORATIVE PARTNERS TO DEVELOP MANY OF OUR PRODUCT
CANDIDATES.

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

- access proprietary antigens for which we can generate fully human antibody
products;

- fund our research and development activities;

- fund preclinical testing, clinical trials and manufacturing;

- seek and obtain regulatory approvals; and

- successfully commercialize existing and future product candidates.

Only a limited number of fully human antibody product candidates have been
generated pursuant to our collaborations. None of these collaborative product
candidates has entered clinical testing. We cannot assure you that any of them
will result in commercially successful products. Current or future collaborative
arrangements may not be successful. If we fail to maintain our existing
collaborative arrangements or to enter into additional collaborative
arrangements, our business, financial condition and results of operations will
be materially and adversely affected.

Our dependence on collaborative arrangements with third parties subjects us
to a number of risks. These collaborative arrangements may not be on terms
favorable to us. Agreements with collaborative partners typically allow partners
significant discretion in electing whether to pursue any of the planned
activities. We cannot control the amount and timing of resources our
collaborative partners may devote to the product candidates. Our partners may
not perform their obligations as expected. Business combinations or significant
changes in a collaborative partner's business strategy may adversely affect a
partner's willingness or ability to complete its obligations under the
arrangement. Even if we fulfill our obligations under a collaborative agreement,
our partner can terminate the agreement at any time following proper written
notice. If any collaborative partner were to terminate or breach our agreement
with it, or otherwise fail to complete its obligations in a timely manner, our
business, financial condition and results of operations may be materially and
adversely affected. If we are not able to establish further collaborative
arrangements or any or all of our existing collaborative arrangements are
terminated, we may be required to seek new collaborative arrangements or to
undertake product development and commercialization at our own expense. Such an
undertaking may:

- limit the number of product candidates that we will be able to develop and
commercialize;

- reduce the likelihood of successful product introduction;

- significantly increase our capital requirements; and

- place additional strain on management's time.

Existing or future collaborative partners may pursue alternative
technologies, including those of our competitors. Disputes may arise with
respect to the ownership of rights to any technology or

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products developed with any current or future collaborative partner. Lengthy
negotiations with potential new collaborative partners or disagreements between
us and our collaborative partners may lead to delays or termination in the
research, development or commercialization of product candidates or result in
time consuming and expensive litigation or arbitration. If our collaborative
partners pursue alternative technologies or fail to develop or commercialize
successfully any product candidate to which they have obtained rights from us,
our business, financial condition and results of operations may be materially
and adversely affected.

WE FACE INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE.

The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. We are aware of several
pharmaceutical and biotechnology companies that are actively engaged in research
and development in areas related to antibody therapy. These companies have
commenced clinical trials of antibody products or have successfully
commercialized antibody products. Many of these companies are addressing the
same diseases and disease indications as Abgenix or our collaborative partners.
Also, we compete with companies that offer antibody generation services to
companies that have antigens. These competitors have specific expertise or
technology related to antibody development. These companies include GenPharm
International, Inc., a wholly-owned subsidiary of Medarex, Inc., Medarex's joint
venture partner, Kirin Brewing Co., Ltd., Cambridge Antibody Technology Group
plc, Protein Design Labs, Inc. and MorphoSys AG.

Some of our competitors have received regulatory approval or are developing
or testing product candidates that may compete directly with our product
candidates. For example, SangStat Medical Corp. and Protein Design Labs market
organ transplant rejection products that may compete with ABX-CBL, which is in
clinical trials. In addition, MedImmune, Inc. has a potential antibody product
candidate in clinical trials for graft versus host disease that may compete with
ABX-CBL. We are also aware that several companies, including Genentech, Inc.,
have potential product candidates that may compete with ABX-IL8, which is in
clinical trials. Furthermore, we are aware that ImClone Systems, Inc., Medarex,
AstraZeneca and Pfizer, in collaboration with OSI Pharmaceuticals, Inc., have
potential antibody and small molecule product candidates in clinical development
that may compete with ABX-EGF, which is also in clinical trials.

- developing products;

- undertaking preclinical testing and human clinical trials;

- obtaining FDA and other regulatory approvals of products; and

- manufacturing and marketing products.

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candidate that we successfully develop may compete with existing therapies that
have long histories of safe and effective use. Competition may also arise from:

- other drug development technologies and methods of preventing or reducing
the incidence of disease;

- new small molecules; or

- other classes of therapeutic agents.

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

MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN.

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

- establishment and demonstration of clinical efficacy and safety;

- cost-effectiveness of our product candidates;

- their potential advantage over alternative treatment methods;

- reimbursement policies of government and third-party payors; and

- marketing and distribution support for our product candidates.

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

OUR PATENT POSITION IS UNCERTAIN AND OUR SUCCESS DEPENDS ON OUR PROPRIETARY
RIGHTS.

Our success depends in part on our ability to:

- obtain patents;

- protect trade secrets;

- operate without infringing upon the proprietary rights of others; and

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- prevent others from infringing on our proprietary rights.

We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets. We
solely own one issued patent in the U.S., one granted patent in Europe and have
several pending patent applications in the U.S. and abroad relating to XenoMouse
technology. Our wholly owned subsidiary Xenotech owns two issued U.S. patents,
one Australian patent and several pending U.S. and foreign pending patent
applications related to methods of treatment of bone disease in cancer patients.
In addition, we have four issued U.S. patents and several pending patent
applications in the U.S. and abroad that are jointly owned with Japan Tobacco
relating to antibody technology or genetic manipulation. We try to protect our
proprietary position by filing United States and foreign patent applications
related to our proprietary technology, inventions and improvements that are
important to the development of our business. The patent position of
biopharmaceutical companies involves complex legal and factual questions and,
therefore, enforceability cannot be predicted with certainty. Patents, if
issued, may be challenged, invalidated or circumvented. Thus, any patents that
we own or license from third parties may not provide any protection against
competitors. Our pending patent applications, those we may file in the future,
or those we may license from third parties, may not result in patents being
issued. Also, patent rights may not provide us with adequate proprietary
protection or competitive advantages against competitors with similar
technologies. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States.

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

WE MAY FACE CHALLENGES FROM THIRD PARTIES REGARDING THE VALIDITY OF OUR PATENTS
AND PROPRIETARY RIGHTS.

Research has been conducted for many years in the antibody field. This has
resulted in a substantial number of issued patents and an even larger number of
still-pending patent applications. Patent applications in the United States are,
in most cases, maintained in secrecy until patents issue. The publication of
discoveries in the scientific or patent literature frequently occurs
substantially later than the date on which the underlying discoveries were made.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. Our
technologies may unintentionally infringe the patents or violate other
proprietary rights of third parties. In the event of such infringement or
violation, we and our collaborative partners may be prevented from pursuing
product development or commercialization. Such a result will materially and
adversely affect our business, financial condition and results of operations.

In March 1997, we entered into a cross-license and settlement agreement with
GenPharm International Inc. to avoid protracted litigation. Under the
cross-license, we licensed on a non-exclusive basis certain patents, patent
applications, third-party licenses, and inventions pertaining to the development
and use of certain transgenic rodents, including mice, that produce fully human
antibodies that are integral to our products and business. Our business,
financial condition and results of operations will be materially and adversely
affected if any of the parties breaches the cross-license agreement. We have one
granted European patent relating to XenoMouse technology that is currently
undergoing opposition proceedings within the European Patent Office and the
outcome of this opposition is uncertain.

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We are aware of at least two companies that each have a patent claiming the
use of antibodies to the EGF receptor in combination with chemotherapy. We
believe that our antibody product candidate targeting the EGF receptor, ABX-EGF,
may be effective alone, and may be used without chemotherapy. We believe use of
ABX-EGF alone is not covered by claims in these other companies' patents. If
clinical trials demonstrate that combination therapy is preferable or necessary
in the treatment of patients, we may desire to, or be required to, obtain a
license under the other companies' patents in order to commercialize ABX-EGF.
Any license under these other patents may not be available on commercially
reasonable terms, if at all.

- enforce patents that we own or license;

- protect trade secrets or know-how that we own or license; or

- determine the enforceability, scope and validity of the proprietary rights
of others.

If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts of
our technical and management personnel will be significantly diverted. An
adverse determination may subject us to loss of our proprietary position or to
significant liabilities, or require us to seek licenses that may not be
available from third parties. We may be restricted or prevented from
manufacturing and selling our products, if any, in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses. Costs associated with these arrangements may be substantial
and may include ongoing royalties. Furthermore, we may not be able to obtain the
necessary licenses on satisfactory terms, if at all. These outcomes will
materially and adversely affect our business, financial condition and results of
operations.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS.

Our product candidates under development are subject to extensive and
rigorous domestic government regulation. The FDA regulates, among other things,
the development, testing, manufacture, safety, efficacy, record-keeping,
labeling, storage, approval, advertising, promotion, sale and distribution of
biopharmaceutical products. If our products are marketed abroad, they also are
subject to extensive regulation by foreign governments. None of our product
candidates has been approved for sale in the United States or any foreign
market. The regulatory review and approval process, which includes preclinical
studies and clinical trials of each product candidate, is lengthy, expensive and
uncertain. Securing FDA approval requires the submission of extensive
preclinical and clinical data and supporting information to the FDA for each
indication to establish the product candidates' safety and efficacy. The
approval process takes many years, requires the expenditure of substantial
resources, involves post-marketing surveillance, and may involve ongoing
requirements for post-marketing studies. Delays in obtaining regulatory
approvals may:

- adversely affect the successful commercialization of any drugs that we or
our collaborative partners develop;

- impose costly procedures on us or our collaborative partners;

- diminish any competitive advantages that we or our collaborative partners
may attain; and

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- adversely affect our receipt of revenues or royalties.

Certain material changes to an approved product such as manufacturing
changes or additional labeling claims are subject to further FDA review and
approval. Any required approvals, once obtained, may be withdrawn. Compliance
with other regulatory requirements may not be maintained. Further, if we fail to
comply with applicable FDA and other regulatory requirements at any stage during
the regulatory process, we or our contract manufacturers may be subject to
sanctions, including:

- delays;

- warning letters;

- fines;

- product recalls or seizures;

- injunctions;

- refusal of the FDA to review pending market approval applications or
supplements to approval applications;

- total or partial suspension of production;

- civil penalties;

- withdrawals of previously approved marketing applications; and

- criminal prosecutions.

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

We and our contract manufacturers also are required to comply with the
applicable FDA current good manufacturing practice regulations. Good
manufacturing practice regulations include requirements relating to quality
control and quality assurance as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to inspection by
the FDA. These facilities must be approved before we can use them in commercial
manufacturing of our products. We or our contract manufacturers may not be able
to comply with the applicable good manufacturing practice requirements and other
FDA regulatory requirements. If we or our contract manufacturers fail to comply,
our business, financial condition and results of operations will be materially
and adversely affected.

WE DO NOT HAVE MARKETING AND SALES EXPERIENCE.

We do not have a marketing, sales or distribution capability. For certain
products, we may establish an internal marketing and sales force. We intend to
enter into arrangements with third parties to market and sell most of our
products. We may not be able to enter into marketing and sales arrangements with
others on acceptable terms, if at all. To the extent that we enter into
marketing and sales arrangements with other companies, our revenues, if any,
will depend on the efforts of others. These efforts may not be successful. If we
are unable to enter into third-party arrangements, then we must develop a
marketing and sales force, which may need to be substantial in size, in order to
achieve commercial success for any product candidate approved by the FDA. We may
not successfully develop

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marketing and sales experience or have sufficient resources to do so. If we do
develop such capabilities, we will compete with other companies that have
experienced and well-funded marketing and sales operations. If we fail to
establish successful marketing and sales capabilities or fail to enter into
successful marketing arrangements with third parties, our business, financial
condition and results of operations will be materially and adversely affected.

DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED ENTITIES
OWN A SIGNIFICANT PERCENTAGE OF OUR CAPITAL STOCK.

As of February 29, 2000, our directors, executive officers, principal
stockholders and affiliated entities beneficially owned, in the aggregate,
approximately 15.6% of our outstanding common stock. These stockholders, if
acting together, will be able to significantly influence all matters requiring
approval by our stockholders. These matters include the election of directors
and the approval of mergers or other business combination transactions. We may
be adversely impacted by the control that such stockholders will have with
respect to matters affecting us.

WE MAY REQUIRE ADDITIONAL FINANCING.

We will continue to expend substantial resources for the expansion of
research and development, including costs associated with conducting preclinical
testing and clinical trials. We will be required to expend substantial funds in
the course of completing required additional development, preclinical testing
and clinical trials of and regulatory approval for product candidates. Our
future liquidity and capital requirements will depend on many factors,
including:

- the scope and results of preclinical testing and clinical trials;

- the retention of existing and establishment of further collaborative
arrangements, if any;

- continued scientific progress in our research and development programs;

- the size and complexity of these programs;

- the cost of establishing manufacturing capabilities and conducting
commercialization activities and arrangements;

- the time and expense involved in obtaining regulatory approvals, if any;

- competing technological and market developments;

- the time and expense of filing and prosecuting patent applications and
enforcing patent claims;

- investment in, or acquisition of, other companies;

- product in-licensing; and

- other factors not within our control.

We believe that with the net proceeds from our February 2000 offering, our
cash balances, cash equivalents, short-term investments and cash generated from
our collaborative arrangements will be sufficient to meet our operating and
capital requirements until the company is generating positive cash flow.
However, we may need additional financing within this timeframe. We may need to
raise additional funds through public or private financings, collaborative
arrangements or other arrangements. Additional funding may not be available to
us on favorable terms, if at all. Furthermore, any additional equity financing
would be dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements may require us to relinquish
our rights to certain of our technologies, product candidates or marketing
territories. If we fail to raise additional funds when needed, our business,
financial condition and results of operations will be materially and adversely
affected.

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CELL GENESYS EXERCISES SIGNIFICANT INFLUENCE OVER US.

As of February 29, 2000, Cell Genesys beneficially owned approximately 12.1%
of our outstanding common stock. We may be adversely impacted by the significant
influence that Cell Genesys will have with respect to matters affecting us.

WE FACE UNCERTAINTY OVER REIMBURSEMENT AND HEALTHCARE REFORM.

In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Such third-party payors include government health administration authorities,
managed care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the cost
effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. Such studies may require us to provide a
significant amount of resources. Our product candidates may not be considered
cost-effective. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. Domestic and foreign governments
continue to propose and pass legislation designed to reduce the cost of
healthcare. Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals may change before our proposed products are approved for
marketing. Adoption of such legislation could further limit reimbursement for
pharmaceuticals. If the government and third-party payors fail to provide
adequate coverage and reimbursement rates for our product candidates, the market
acceptance of our products may be adversely affected. If our products do not
receive market acceptance, our business, financial condition and results of
operations will be materially and adversely affected.

WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE
INSURANCE.

The use of any of our product candidates in clinical trials, and the sale of
any approved products, may expose us to liability claims resulting from such use
or sale of our products. These claims might be made directly by consumers,
healthcare providers or by pharmaceutical companies or others selling such
products. We may experience financial losses in the future due to product
liability claims. We have obtained limited product liability insurance coverage
for our clinical trials. Our insurance coverage limits are $5.0 million per
occurrence and $5.0 million in the aggregate. We intend to expand our insurance
coverage to include the sale of commercial products if marketing approval is
obtained for product candidates in development. We may not be able to maintain
insurance coverage at a reasonable cost or in sufficient amounts to protect us
against losses. If a successful product liability claim or series of claims is
brought against us for uninsured liabilities or in excess of insured
liabilities, our business, financial condition and results of operations may be
materially and adversely affected.

OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS.

Our research and manufacturing activities involve the controlled use of
hazardous materials. We cannot eliminate the risk of accidental contamination or
injury from these materials. In the event of an accident or environmental
discharge, we may be held liable for any resulting damages, which may exceed our
financial resources and may materially and adversely affect our business,
financial condition and results of operations.

OUR STOCK PRICE IS HIGHLY VOLATILE.

The market price of our common stock has been highly volatile and is likely
to continue to be volatile. This may impact your decision to buy or sell your
common stock. The market price and trading volume of shares of our common stock
are volatile, and we expect them to continue to be volatile for the foreseeable
future. For example, during the period between February 28, 1999 and

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February 29, 2000, our common stock closed as high as $322.125 per share and as
low as $13.25 per share. Factors affecting our stock price include:

- fluctuations in our operating results;

- announcements of technological innovations or new commercial therapeutic
products by us or our competitors;

- published reports by securities analysts;

- progress with clinical trials;

- government regulation;

- changes in reimbursement policies;

- developments in patent or other proprietary rights;

- developments in our relationship with collaborative partners;

- public concern as to the safety and efficacy of our products; and

- general market conditions.

WE FACE UNCERTAINTY WITH YEAR 2000 COMPLIANCE.

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. Products containing this capability
are generally considered to be "Year 2000 compliant." As a result, computer
systems and/or software products used by many companies may need to be upgraded
to be Year 2000 compliant. We may be exposed to a loss of revenues and our
operating expenses could increase if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include our products, products purchased from or manufactured by third
parties, and our internal management information systems. Although we have
expended resources to review our products and our internal management
information systems to remedy those systems that are not Year 2000 compliant,
there can be no assurance that the modifications we made were successful. To
date, we are not aware of any major Year 2000 compliance problems impacting our
business, but there can be no assurance that there will be no Year 2000
compliance disruptions in the coming months. If our systems are not Year 2000
compliant, our business could be harmed.

In addition, although all of our significant suppliers, our significant
service providers and our sole manufacturer indicated that they were or expected
to be Year 2000 compliant by December 31, 1999, and although as of the date of
this Annual Report on Form 10-K we are not aware of any material Year 2000
compliance problems with these third parties' systems, we cannot be certain that
the representations of these third parties were accurate or that their systems
are or will continue to be Year 2000 compliant. If any of our significant
suppliers, our significant service providers or our sole manufacturer experience
Year 2000 compliance problems and we are unable to replace them with alternate
sources, our business would be harmed.

WE HAVE IMPLEMENTED A STOCKHOLDER RIGHTS PLAN AND ARE SUBJECT TO OTHER
ANTI-TAKEOVER PROVISIONS.

In June 1999, our board of directors adopted a stockholder rights plan,
which was amended in November 1999. The stockholder rights plan provides for a
dividend distribution of one preferred share purchase right on each outstanding
share of our common stock. Each right entitles stockholders to buy 1/1000th of a
share of our Series A participating preferred stock at an exercise price of
$120.00. Each right will become exercisable following the tenth day after a
person or group, other than Cell Genesys or its affiliates, successors or
assigns, announces an acquisition of 15% or more of our common stock, or
announces commencement of a tender offer, the consummation of which would result
in ownership

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by the person or group of 15% or more of our common stock. In the case of Cell
Genesys, or its affiliates, successors or assigns, which beneficially owned
approximately 19.6% of our outstanding common stock as of December 31, 1999,
each right will become exercisable following the tenth day after it announces
the acquisition of more than 25% of our common stock, or announces commencement
of a tender offer, the consummation of which would result in ownership by Cell
Genesys, or its affiliates, successors or assigns, of more than 25% of our
common stock. We will be entitled to redeem the rights at $0.01 per right at any
time on or before the close of business on the tenth day following acquisition
by a person or group of 15% or more, or in the case of Cell Genesys, or its
affiliates, successors or assigns, more than 25%, of our common stock.

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

- specify procedures for director nominations by stockholders and submission
of other proposals for consideration at stockholder meetings; and

- eliminate cumulative voting in the election of directors.

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

WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK.

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

ITEM 2. PROPERTIES

We lease 52,400 square feet of office and laboratory facilities in Fremont,
California. This lease expires in the year 2007, with options to extend.
Additionally, in February 2000, we signed a lease for 100,100 square feet, also
in Fremont California, to be used primarily as a pilot scale manufacturing
facility. This lease expires in the year 2018, with options to extend. We
believe that our current facilities are adequate for our needs for the
foreseeable future and that, should it be needed, suitable additional space will
be available to accommodate expansion of our operations on commercially
reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

No matters were submitted to a vote of the Company's stockholders during the
quarter ended December 31, 1999.

40
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

Our common stock began trading publicly on the Nasdaq National Market on
July 2, 1998, under the symbol "ABGX." The following table lists quarterly
information on the price range of our common stock based on the high and low
reported closing prices for our common stock as reported on the Nasdaq National
Market for the periods indicated below. These prices do not include retail
markups, markdowns or commissions.

<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1998:
Third Quarter........................................... $ 9.25 $ 5.38
Fourth Quarter.......................................... 18.00 6.00
FISCAL 1999:
First Quarter........................................... $ 18.13 $ 13.25
Second Quarter.......................................... 19.88 13.25
Third Quarter........................................... 47.63 18.88
Fourth Quarter.......................................... 132.50 37.25
FISCAL 2000:
First Quarter (through March 22, 2000).................. $413.00 $112.00
</TABLE>

As of March 22, 2000, there were approximately 228 holders of record of the
common stock. On March 22, 2000, the closing price on the Nasdaq National Market
for the common stock was $215.02.

RECENT SALES OF UNREGISTERED SECURITIES

During the fouth quarter ended December 31, 1999, we issued the following
unregistered securities:

- On November 19, 1999, we issued 1,778,000 shares of common stock to
qualified institutional and other accredited investors at a per share
purchase price of $42.00.

The sales and issuances of securities in the transaction described above was
deemed to be exempt from registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act, Regulation D promulgated thereunder, as a
transaction by an issuer not involving any public offering. The recipients of
securities in this transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
securities issued in this transaction. All recipients had adequate access,
through their relationship with Abgenix, to information about Abgenix.

There were no underwritten offerings employed in connection with the
transaction set forth above.

ITEM 6. SELECTED FINANCIAL DATA

You should read the following selected financial data in conjunction with
our Financial Statements and Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Annual
Report on Form 10-K. The statement of operations data for the years ended
December 31, 1999, 1998, and 1997 and the balance sheet data as of December 31,
1999 and 1998 are derived from our Financial Statements that are included
elsewhere in this Annual Report on Form 10-K. The balance sheet data at
December 31, 1997 and 1996 and the statement of

41
<PAGE>
operations data for the years ended December 31, 1996 and 1995 are derived from
our Financial Statements that are not included in this Annual Report on
Form 10-K.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Contract revenue.......................... $ 12,285 $ 2,498 $ 611 $ -- $ --
Revenue under collaborative agreements
from related parties.................... -- 1,344 1,343 4,719 6,200
---------- --------- ---------- ----------- -------
Total revenues(1)....................... 12,285 3,842 1,954 4,719 6,200
Operating expenses:
Research and development.................. 21,106 17,588 11,405 9,433 11,879
General and administrative................ 5,164 3,405 3,525 2,565 2,603
Charge for cross-license and settlement-
amount allocated from Cell Genesys(2)... -- -- 11,250 -- --
Equity in (income) losses from the
Xenotech joint venture (charge for
cross-license and settlement in
1997)(2)................................ (546) 107 11,250 -- --
Non-recurring termination fee(3).......... 8,667 -- -- -- --
---------- --------- ---------- ----------- -------
Total operating expenses................ 34,391 21,100 37,430 11,998 14,482
---------- --------- ---------- ----------- -------
Operating loss.............................. (22,106) (17,258) (35,476) (7,279) (8,282)
Interest (income) expense, net.............. (2,607) (431) 404 (179) --
---------- --------- ---------- ----------- -------
Loss before tax............................. (19,499) (16,827) (35,880) (7,100) (8,282)
Foreign income tax expense................ 1,000 -- -- -- --
---------- --------- ---------- ----------- -------
Net loss.................................... $ (20,499) $ (16,827) $ (35,880) $ (7,100) $(8,282)
========== ========= ========== =========== =======
Net loss per share(4)....................... $ (1.41) $ (3.00) $(1,032.70) $(46,710.53)
========== ========= ========== ===========
Shares used in computing net loss per
share(4).................................. 14,536,727 5,602,963 34,744 152
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 58,012 $ 16,744 $ 15,321
Working capital............................................. 56,113 13,101 6,637
Total assets................................................ 148,541 24,220 22,084
Long-term debt, less current portion........................ 421 2,180 3,979
Redeemable convertible preferred stock(5)................... -- -- 31,189
Accumulated deficit......................................... (89,800) (69,301) (52,474)
Total stockholders' equity (net capital deficiency)......... 137,060 16,959 (22,318)
</TABLE>

- ---------

(1) The statement of operations includes our revenues and expenses as a business
unit within Cell Genesys prior to July 15, 1996. During the years ended
December 31, 1996, 1995, and 1994, our revenues were derived principally
from Xenotech for the development of XenoMouse technology, which was
essentially completed in 1996.

(2) In 1997, we incurred a non-recurring charge for cross-license and settlement
of $22.5 million. This amount represents an allocation from Cell Genesys of
$11.25 million and an entry of $11.25

42
<PAGE>
million to record the equity in the losses of Xenotech, which was our 50%
owned joint venture. See Note 6 to Consolidated Financial Statements.

(3) In 1999 we incurred a net non-recurring fee related to the termination of
certain rights licensed by Japan Tobacco from Xenotech. See Note 2 of Notes
to Consolidated Financial Statements.

(4) Net loss per share data has not been presented for 1996 as there were no
equity securities outstanding prior to that date.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT
EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS ANNUAL
REPORT ON FORM 10-K, THE WORDS "INTEND," "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"PLAN" AND "EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO ABGENIX ARE
INCLUDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS AND THE
TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND UNDER "ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS" SET
FORTH IN ITEM 1 OF PART I OF THIS ANNUAL REPORT ON FORM 10-K AND ELSEWHERE IN
THIS ANNUAL REPORT ON FORM 10-K.

OVERVIEW

As of December 31, 1999, we have established collaborative arrangements to
use XenoMouse technology to produce fully human antibodies with fifteen partners
covering numerous antigen targets. Pursuant to these collaborations, we and our
partners intend to generate antibody product candidates for the treatment of
cancer, inflammation, auto immune diseases, transplant rejection, cardiovascular
disease, growth factor modulation, and infectious disease. Our collaborative
partners include Cell Genesys, Pfizer, Schering-Plough Research Institute,
Genentech, Millennium, Research Corporation Technologies, AVI BioPharma, BASF
Bioresearch Corporation, Amgen, Japan Tobacco, Chiron, Human Genome Sciences,
CuraGen, Centocor/Johnson and Johnson, and the U. S. Army. Of these
collaborative partners, Pfizer, Genentech, Millennium, Cell Genesys, Japan
Tobacco and the U. S. Army have each entered into new or expanded collaborations
with us specifying additional antigens for XenoMouse antibody development. We
expect that substantially all of our revenues for the foreseeable future will
result from payments under collaborative arrangements. The terms of the
collaborative arrangements vary, reflecting the value we add to the development
of any particular product candidate. These collaborations typically provide our
collaborative partners with access to XenoMouse technology for the purpose of
generating fully human antibody product candidates to one or more specific
antigen targets provided by the collaborative partner. In most cases, we provide
our mice to collaborative partners who then carry out immunizations with their
specific antigen target. In other cases, we immunize the mice with the
collaborative partner's antigen target for additional compensation. Our
collaborative partners will need to obtain product licenses for any antibody
product they wish to develop and commercialize.

The financial terms of our existing collaborations often include upfront
payments, potential license fees and potential milestone payments paid to us by
the collaborative partner. Based on our

43
<PAGE>
collaborative agreements, these payments and fees would average $8.0 to $10.0
million per antigen target if our collaborative partner takes the antibody
product candidate into development and ultimately to commercialization. If not,
such payments and fees will be less. In certain instances, the collaborative
partner could make reimbursement payments to us for research that we conduct on
its behalf. Additionally, if a product receives marketing approval from the FDA
or an equivalent foreign agency, we are entitled to receive royalties on any
future product sales by the collaborative partner. Furthermore, the
collaborative partner will be responsible for worldwide manufacturing, product
development and marketing of any product developed through the collaboration.

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

We will expend significant capital to conduct clinical trials for these
products. We believe that more extensive clinical data will enable us to enter
into additional collaborative arrangements. We expect that this will
substantially increase our capital needs over the next few years and increase
operating losses. However, we believe that we will be able to receive more
favorable fees and payments from our collaborative partners if we have completed
significant development of these products.

In December 1999, we paid $47.0 million to purchase Japan Tobacco's interest
in the Xenotech joint venture, and a non-recurring payment of $10.0 million to
terminate rights to the current XenoMouse technology. Additionally, Japan
Tobacco paid us $6.0 million to acquire a license to new technology, and
$4.0 million to acquire a research license and commercialization rights under
existing and future XenoMouse technology on a more limited basis than it did
under our prior collaboration with Japan Tobacco. See Note 2 of Notes to
Consolidated Financial Statements.

In connection with the grant of stock options since our organization on
July 15, 1996, we have recorded aggregate deferred compensation of approximately
$2.3 million through December 31, 1999, representing the difference between the
deemed fair value of the common stock for accounting purposes and the option
exercise price at the date of grant. These amounts are presented as a reduction
of stockholders' equity and are amortized ratably over the vesting period of the
applicable options, generally four years. These valuations resulted in charges
to operations of $500,000, $598,000 and $528,000 in the years ended
December 31, 1999, 1998 and 1997, respectively.

44
<PAGE>
RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

Revenues increased to $12.3 million in 1999 from $3.8 million in 1998. The
increase relates primarily to revenues of $8.3 million from Japan Tobacco Inc.
as follows: $6.0 million for the license of certain technology in
December 1999; and $1.3 million in fees for the reimbursement of clinical trial
costs and certain joint interest rights in the data from the ABX-IL8 clinical
trials. Additionally, revenues in 1999 included non-refundable license and
option fees in connection with the execution of collaborative agreements, fees
for the achievement of research milestones, and licensing fees for three antigen
targets under existing collaborations.

Revenues increased to $3.8 million in 1998 from $2.0 million in 1997. The
increase was primarily from the increase in fees under collaborative agreements
including nonrefundable license fees and fees paid for the achievement of
research milestones. During 1998 we also derived revenues from performing
research for Xenotech, which, up until December 1999 when we acquired 100% of
Xenotech, was an equally owned joint venture with JT America. Revenues from the
joint venture were recognized when earned, net of our cash contributions to
Xenotech, under the terms of the related agreements. Revenues from Xenotech were
$1.3 million in 1997, $1.3 million in 1998 and none in 1999 as Xenotech's
research related to developing XenoMouse technology was essentially completed in
1996 with limited research activities in 1997 and 1998. Research and development
funding received in advance under these agreements was recorded as deferred
revenue.

Research and development expenses increased to $21.1 million in 1999 from
$17.6 million in 1998 and from $11.4 million in 1997. The increase in 1999
reflects primarily costs associated with increased personnel, the clinical
trials of ABX-CBL, ABX-IL8 and the initiation of the ABX-EGF clinical trial, the
valuation of stock options awarded to certain consultants and lab supplies. The
increase in 1998 reflects primarily costs associated with the initiation of
clinical trials of ABX-CBL and ABX-IL8. We anticipate that research and
development expenses will increase in future periods as we expand research and
development efforts and clinical trials.

General and administrative expenses increased to $5.2 million in 1999 from
$3.4 million in 1998 and $3.5 million in 1997. The increase in 1999 was in part
due to costs associated with increased personnel, including recruiting costs and
incentive compensation (which is based on our meeting certain annual
objectives). Additionally the increase was due to having become a publicly
traded company and the costs associated with investor relations and to increased
financing activities related to our follow-on public offering in March 1999 and
our private offering in November 1999.

Equity in income from the Xenotech joint venture in 1999 reflects our
percentage ownership in the net income from the joint venture, prior to our
acquisition of 100% of the joint venture in December 1999. In 1999, prior to our
acquisition, the joint venture recorded net income primarily from the sale of
licenses to Abgenix and our partner, JT America, Inc. In 1998, the joint venture
incurred losses and our equity in those losses was in part netted against our
revenues from the joint venture.

The non-recurring termination fee in 1999 is a one-time net charge of
$8.7 million related to the termination of certain rights licensed by Japan
Tobacco from Xenotech. See Note 2 of Notes to Financial Statements. The
aggregate non-recurring charge for cross-license and settlement of
$22.5 million in 1997 resulted from the execution of the comprehensive patent
cross-license and settlement agreement with GenPharm. See Note 6 of Consolidated
Notes to Financial Statements.

Interest income increased in 1999 and 1998 due to higher average balances of
marketable securities and cash equivalents due to our initial and follow-on
public offerings and our November 1999 private placement. Interest expense
declined in 1999 and 1998 due to the continued pay down of debt on our equipment
leaseline financing and loan facility.

45
<PAGE>
Foreign income tax in 1999 reflects the withholding income tax imposed by
Japan on certain transactions with Japan Tobacco.

LIQUIDITY AND CAPITAL RESOURCES

Since formation, we have financed our operations primarily through:

- initial capital contributions by, and borrowings from, Cell Genesys;

- private placements of our capital stock;

- an initial public offering of common stock in 1998;

- a follow-on public offering of common stock in March 1999;

- revenue from collaborative arrangements;

- equipment leaseline financings; and

- loan facilities.

During the twelve months ended December 31, 1999, we received net cash
proceeds of $125.4 million principally from the following financing activities:

- $44.5 million from the sale of 3,208,000 shares of common stock in a
follow-on public offering in March 1999;

- $8.0 million from the sale of 495,356 shares of common stock to Genentech
in January 1999;

- $71.1 million from the sale of 1,778,000 shares of our common stock in a
private placement in November 1999; and

- $1.8 million from the issuance of common stock pursuant to the exercise of
stock options and the employee stock purchase plan.

Subsequent to December 31, 1999, we completed the following significant
financing transaction:

- In February 2000, we sold 2,484,000 shares of our common stock in another
follow-on public offering with net proceeds to us of $496.5 million.

Significant investing activities during 1999 included the following:

- In December 1999, we purchased 418,995 shares of common stock of CuraGen
for $15.0 million; and

- In December 1999, we purchased Japan Tobacco's 50% interest in the
Xenotech joint venture for $47.0 million.

We have incurred operating losses in each of the last three years of
operation, including net losses of approximately $20.5 million in 1999, $16.8
million in 1998, $35.9 million in 1997 and $7.1 million in 1996. As of
December 31, 1999, we had an accumulated deficit of approximately $89.8 million.
Our losses have resulted principally from costs incurred in performing research
and development for our XenoMouse technology and antibody product candidates,
from the non-recurring cross-license and settlement charge and from general and
administrative costs associated with our operations. We expect to incur
additional losses for the foreseeable future as a result of our expenditures for
research and product development, including costs associated with conducting
preclinical testing and clinical trials, and charges related to purchases of
technology or other assets. We intend to invest significantly in our products
prior to entering into collaborative arrangements. This will increase our need
for capital and may result in substantial losses for several years. We expect
the amount of such losses will fluctuate significantly from quarter to quarter
as a result of increases or decreases in our research and

46
<PAGE>
development efforts, the execution or termination of collaborative arrangements,
or the initiation, success or failure of clinical trials.

Our net cash used in operating activities was $20.2 million, $20.0 million
and $10.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The cash used for operations was primarily to fund research and
development expenses and manufacturing costs related to the development of new
products.

As of December 31, 1999, we had cash, cash equivalents and marketable
securities of $58.0 million. Additionally, we received net proceeds of $496.5
million in February 2000 from our follow-on public offering. We have invested
the net proceeds of our financings in highly liquid, interest bearing,
investment grade securities. We have an agreement with a financing company under
which we have financed purchases of about $2.0 million of our laboratory and
office equipment. The lease term is 48 months and bears interest at rates
ranging from 12.5% to 13.0%, which are based on the five year U.S. Treasury
rate. We also have a construction financing line with a bank in the amount of
$4.3 million that was used to finance construction of leasehold improvements at
our current facility. The line matures in January 2001, bears interest at a rate
of prime plus one percent (9.50% at December 31, 1999, and 8.75% at December 31,
1998).

We plan to expend significant resources to establish our own manufacturing
facility and also to continue to expend substantial resources for the expansion
of research and development, including costs associated with conducting
preclinical testing and clinical trials. We may be required to expend
substantial funds if unforeseen difficulties arise in the course of completing
required additional development of product candidates, manufacturing of product
candidates, performing preclinical testing and clinical trials of such product
candidates, obtaining necessary regulatory approvals or other aspects of our
business. Our future liquidity and capital requirements will depend on many
factors, including:

- scope and results of preclinical testing and clinical trials;

- the retention of existing and establishment of further collaborative
arrangements, if any;

- continued scientific progress in our research and development programs;

- size and complexity of these programs;

- cost of establishing our manufacturing capabilities, conducting
commercialization activities and arrangements;

- time and expense involved in obtaining regulatory approvals;

- competing technological and market developments;

- time and expense of filing and prosecuting patent applications and
enforcing patent claims;

- investment in, or acquisition of, other companies;

- product in-licensing; and

- other factors not within our control.

We believe that the net proceeds of $496.5 million from the offering in
February 2000, together with our current cash balances, cash equivalents,
marketable securities and the cash generated from our collaborative arrangements
will be sufficient to meet our operating and capital requirements until we are
generating positive operating cash flows. However, we may need additional
financing within this timeframe. We may need to raise additional funds through
public or private financing, collaborative relationships or other arrangements.
We cannot assure you that such additional funding, if needed, will be available
on terms favorable to us. Furthermore, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Collaborative

47
<PAGE>
arrangements may require us to relinquish our rights to certain of our
technologies, products or marketing territories. Our failure to raise capital
when needed may have a material and adverse effect on our business, financial
condition and results of operations.

As of December 31, 1999, we had federal net operating loss carryforwards of
approximately $61 million. Our net operating loss carryforwards exclude losses
incurred prior to the organization of Abgenix in July 1996. Further, the amounts
associated with the cross-license and settlement that have been expensed for
financial statement accounting purposes have been capitalized and are being
amortized over a period of approximately fifteen years for tax purposes. The net
operating loss and credit carryforwards will expire in the years 2011 through
2019, if not utilized. Utilization of the net operating losses and credits may
be subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.

YEAR 2000 UPDATE

We have not experienced any problems related to the Year 2000 Issue. During
1999 we assessed our exposure and found that all of our time-sensitive software
was widely used and purchased from major vendors, all of whom had announced that
their software was either currently Year 2000-compliant or would be made so with
upgrades before the end of 1999. We had already purchased the Year
2000-compliant upgrade of our accounting system to acquire the benefits of its
improved features, so this purchase was not accelerated by the Year 2000 issue.
As a result we did not incur, and do not expect to incur, any material
expenditures related to year 2000 systems.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
new accounting and reporting standards for derivative financial instruments and
for hedging activities. SFAS 133 requires us to measure all derivatives at fair
value and to recognize them in the balance sheet as an asset or liability,
depending on our rights or obligations under the applicable derivative contract.
We will adopt SFAS 133 no later than the first quarter of fiscal year 2001. SFAS
133 is not expected to have an impact on our consolidated results of operations,
financial position or cash flows.

RECENTLY ISSUED STAFF ACCOUNTING BULLETIN

In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial Statements.
The SAB spells out four basic criteria that must be met before registrants can
record revenue. In addition, the SAB also provides guidance on the disclosures
(both in footnotes and in Management's Discussion and Analysis of Financial
Condition and Results of Operations) registrants should make about their revenue
recognition policies and the impact of events and trends on revenue. The SAB
states that all registrants are expected to apply the accounting and disclosures
described in it no later than the first fiscal quarter of the fiscal year
beginning after December 15, 1999. We are currently evaluating the impact of the
application of SAB No. 101 to our financial statements.

ITEM 7A. MARKET RISK

As of December 31, 1999, we had cash equivalents and short-term investments
of $58.0 million consisting of cash and highly liquid, short-term investments.
Our short-term investments will decline by an immaterial amount if market
interest rates increase, and therefore, our exposure to interest rate changes
has been immaterial. Declines of interest rates over time will, however, reduce
our interest

48
<PAGE>
income from our short-term investments. Our outstanding bank loan and capital
lease obligations are all at fixed interest rates and therefore have minimal
exposure to changes in interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is included in Item 14 of Part IV of
this Annual Report on Form 10-K and is incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

None.

49
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Identification of Directors. The information required by this item is
incorporated by reference from the discussion in the Proxy Statement
captioned "Election of Directors."

(b) Identification of Executive Officers. Please refer to the section entitled
"Executive Officers" in Part I, Item 1 hereof.

(c) Compliance with Section 16(a) of the Exchange Act. The information required
by this item is incorporated by reference from the discussion in the Proxy
Statement captioned "Section 16(a) Beneficial Ownership Reporting
Compliance."

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Security Ownership of Certain
Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Certain Transactions."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

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

1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
ABGENIX, INC., FINANCIAL STATEMENTS PAGE
- ----------------------------------- --------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Operations....................... F-3
Consolidated Statement of Changes in Redeemable Convertible
Preferred
Stock and Stockholders' Equity............................ F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>

2. FINANCIAL STATEMENT SCHEDULES

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

50
<PAGE>
3. EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
3.1(1) Amended and Restated Certificate of Incorporation of
Abgenix, as currently in effect.

3.2(1) Amended and Restated Bylaws of Abgenix, as currently in
effect.

4.1(1) Specimen Common Stock Certificate.

10.1(1) Form of Indemnification Agreement between Abgenix and each
of its directors and officers.

10.2(1) 1996 Incentive Stock Plan and form of agreement thereunder.

10.3(1) 1998 Employee Stock Purchase Plan and form of agreement
thereunder.

10.4(1) 1998 Director Option Plan and form of agreement thereunder.

10.5(1) Warrant dated January 23, 1997 exercisable for shares of
Series A Preferred Stock.

10.6(1) Warrant dated March 27, 1997 exercisable for shares of
Series A Preferred Stock.

10.7(3) Joint Venture Agreement dated June 12, 1991 between Cell
Genesys and JT Immunotech USA Inc.

10.7A(6) Amendment No. 1 dated January 1, 1994 to Joint Venture
Agreement.

10.7B(9) Amendment No. 2 dated June 28, 1996 to Joint Venture
Agreement.

10.8(3) Collaboration Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.

10.8A(5) Amendment No. 1 dated June 30, 1993 to Collaboration
Agreement.

10.8B(13) Amendment No. 2 dated January 1, 1994 to Collaboration
Agreement.

10.8C(7) Amendment No. 3 dated July 1, 1995 to Collaboration
Agreement.

10.8D(9) Amendment No. 4 dated June 28, 1996 to Collaboration
Agreement.

10.8E(2) Amendment No. 5 dated November 1997 to Collaboration
Agreement.

10.9(3) Limited Partnership Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.

10.9A(6) Amendment No. 2 dated January 1, 1994 to Limited Partnership
Agreement.

10.9B(8) Amendment No. 3 dated July 1, 1995 to Limited Partnership
Agreement.

10.9C(10) Amendment No. 4 dated June 28, 1996 to Limited Partnership
Agreement.

10.10(4) Field License dated June 12, 1991 among Cell Genesys,
JT Immunotech USA Inc. and Xenotech, L.P.

10.10A(10) Amendment No. 1 dated March 22, 1996 to Field License.

10.10B(10) Amendment No. 2 dated June 28, 1996 to Field License.

10.11(3) Expanded Field License dated June 12, 1991 among Cell
Genesys, JT Immunotech USA Inc. and Xenotech, L.P.

10.11A(10) Amendment No. 1 dated June 28, 1996 to Expanded Field
License.

10.12(2) Amended and Restated Anti-IL-8 License Agreement dated March
19, 1996 among Xenotech, L.P., Cell Genesys and Japan
Tobacco Inc.

10.13(9) Master Research License and Option Agreement dated June 28,
1996 among Cell Genesys, Japan Tobacco Inc. and
Xenotech, L.P.
</TABLE>

51
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.13A(2) Amendment No. 1 dated November 1997 to the Master Research
License and Option Agreement.

10.14(2) Stock Purchase and Transfer Agreement dated July 15, 1996 by
and between Cell Genesys and Abgenix.

10.15(1) Governance Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.

10.15A(1) Amendment No. 1 dated October 13, 1997 to the Governance
Agreement.

10.15B(1) Amendment No. 2 dated December 22, 1997 to the Governance
Agreement.

10.16(1) Tax Sharing Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.

10.17(2) Gene Therapy Rights Agreement effective as of November 1,
1997 between Abgenix and Cell Genesys.

10.18(2) Patent Assignment Agreement dated July 15, 1996 by Cell
Genesys in favor of Abgenix.

10.19(11) Lease Agreement dated July 31, 1996 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77
(Arrillaga Family Trust) as amended, and Richard T.
Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery Separate Property Trust)
as amended, and Abgenix.

10.20(1) Loan and Security Agreement dated January 23, 1997 between
Silicon Valley Bank and Abgenix.

10.21(1) Master Lease Agreement dated March 27, 1997 between
Transamerica Business Credit Corporation and Abgenix.

10.22(2) License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and Abgenix.

10.23(12) Release and Settlement Agreement dated March 26, 1997 among
Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco Inc.
and GenPharm International, Inc.

10.24(12) Cross License Agreement effective as of March 26, 1997,
among Cell Genesys, Abgenix, Xenotech, L.P., Japan
Tobacco Inc. and GenPharm International, Inc.

10.25(12) Interference Settlement Procedure Agreement, effective as of
March 26, 1997, among Cell Genesys, Abgenix,
Xenotech, L.P., Japan Tobacco Inc. and GenPharm
International, Inc.

10.26(2) Agreement dated March 26, 1997 among Xenotech, L.P.,
Xenotech, Inc., Cell Genesys, Abgenix, Japan Tobacco Inc.
and JT Immunotech USA Inc.

10.27(2) Collaborative Research Agreement dated December 22, 1997
between Pfizer, Inc. and Abgenix.

+10.27A(22) Amendment No. 1 dated May 26, 1998 to Collaborative Research
Agreement between Abgenix and Pfizer, Inc.

+10.27B(22) Amendment No. 2 dated October 22, 1998 to Collaborative
Research Agreement between Abgenix and Pfizer, Inc.

10.28(1) Amended and Restated Stockholder Rights Agreement dated
January 12, 1998 among Abgenix and certain holders of
Abgenix's capital stock.

10.29(2) Collaborative Research Agreement effective as of January 28,
1998 between Schering-Plough Research Institute and
Abgenix.

10.29A(16) Amendment No. 2 effective January 28, 1999 to Collaborative
Research Agreement between Schering-Plough Research
Institute and Abgenix.
</TABLE>

52
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.29B(16) Amendment No. 3 effective February 12, 1999 to the
Collaborative Research Agreement between Schering-Plough
Research Institute and Abgenix.

10.30(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 23, 1996.

10.31(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 22, 1997.

10.32(2) Exclusive Worldwide Product License dated November 1997
between Xenotech, L.P. and Abgenix.

10.33(2) Research License and Option Agreement effective as of April
6, 1998 between Abgenix and Genentech, Inc.

10.33A(2) Amendment No. 1 effective as of June 18, 1998 to Research
License and Option Agreement between Abgenix and
Genentech, Inc.

10.34(14) Research Collaboration Agreement dated July 15, 1998 between
Millennium BioTherapeutics, Inc. and Abgenix.

+10.35(22) Research Collaboration Agreement dated September 29, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.

10.35A(22) Amendment No. 1 effective as of November 29, 1998 to the
Research Collaboration Agreement between Millennium
BioTherapeutics, Inc. and Abgenix.

+10.36(22) Research License and Option Agreement dated October 30, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.

10.37(16) Research Collaboration Agreement dated December 22, 1998
between Centocor, Inc. and Abgenix.

+10.38(22) Memorandum of Understanding between Research Corporation
Technologies, Inc. and Abgenix.

10.39(15) Registration Rights Agreement dated November 18, 1998
between the selling stockholders and Abgenix.

+10.40(22) Research License and Option Agreement dated January 4, 1999
between AVI BioPharma, Inc. and Abgenix.

10.41(17) Registration Rights Agreement dated January 27, 1999 between
Genentech and Abgenix.

10.42(16) Multi-Antigen Research License and Option Agreement dated
January 27, 1999 between Genentech and Abgenix.

10.43(18) Preferred Shares Rights Agreement, dated as of June 14,
1999, between Abgenix and ChaseMellon Shareholder
Services, L.L.C., including the Certificate of
Determinations, the Form of Rights Certificate and the
Summary of Rights attached thereto as Exhibits A, B and C,
respectively.

**10.44(21) Multi-Antigen Research License and Option Agreement by and
between Abgenix, Inc. and Japan Tobacco Inc. effective
December 31, 1999.

**10.45(21) Amended and Restated Field License by and among Abgenix,
Inc., JT America Inc. and Xenotech L.P. effective December
31, 1999.

10.46(21) Agreement to Terminate the Collaboration Agreement by and
among Abgenix, Inc., JT America Inc., and Xenotech L.P.
effective December 31, 1999.
</TABLE>

53
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
**10.47(21) Agreement to Terminate the Interest of Japan Tobacco Inc. in
the Master Research License and Option Agreement by and
among Abgenix, Inc., Japan Tobacco Inc. and Xenotech L.P.
effective December 31, 1999.

**10.48(21) Amendment of the Expanded Field License by and among
Abgenix, Inc., JT America Inc. and Xenotech L.P. effective
December 31, 1999.

10.49(21) Limited Partnership Interest and Stock Purchase Agreement
between Abgenix, Inc. and JT America Inc. made December
20, 1999.

**10.50(21) License Agreement by and between Abgenix, Inc. and Japan
Tobacco Inc. effective December 31, 1999.

10.51(18) Amended Preferred Shares Rights Agreement, dated as of
November 19, 1999, between Abgenix, Inc. and Chase Mellon
Shareholder Services, L.L.C., including the Certificate of
Determination, the form of Rights Certificate and the
Summary of Rights attached thereto as Exhibits A, B and C,
respectively.

10.52(19) 1999 Nonstatutory Stock Option Plan and form of agreement
thereunder.

10.53(20) Registration Rights Agreement dated November 19, 1999 by and
among Abgenix and the selling stockholders.

23.1 Consent of Ernst & Young LLP, Independent Auditors.

24.1 Power of Attorney. Reference is made to the signature page.
</TABLE>

- ---------

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

** Confidential treatment requested. Omitted portions have been filed
separately with the Commission.

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

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

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

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

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

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

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

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

54
<PAGE>
(9) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, portions
of which have been granted confidential treatment.

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

(11) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly report on Form 10-Q for the quarter ended September 30, 1996.

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

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

(14) Incorporated by reference to the same exhibit filed with Abgenix's Current
Report on Form 8-K filed with the Commission on July 17, 1998, portions of
which have been granted confidential treatment.

(15) Incorporated by reference to the same exhibit filed with Abgenix's Current
Report on Form 8-K filed with the Commission on November 24, 1998.

(16) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-71289), portions for
which Abgenix has requested confidential treatment.

(17) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-71289).

(18) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form 8-A (File No. 000-24207).

(19) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-8 (File No. 333-90707).

(20) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-3 (File No. 333-91699).

(21) Incorporated by reference to the same exhibits filed with Abgenix's
Current Report on Form 8-K filed with the Commission on January 27, 2000.

(22) Incorporated by reference to the same exhibits filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-70631).

(b) Reports on Form 8-K.

The Company filed on November 23, 1999, an updated description of the
Company's business.

See Item 14(a)3 above.

(d) Financial Statement Schedule.

See Item 14(a)2 above.

55
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Abgenix has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Fremont, State of California, on the 24th day of March, 2000.

<TABLE>
<S> <C> <C>
ABGENIX, INC.

By: /s/ R. SCOTT GREER
-----------------------------------------
R. Scott Greer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints R. Scott Greer and Kurt W. Leutzinger, and
each one of them, acting individually and without the other, as his
attorney-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes may do or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ R. SCOTT GREER Officer and Chairman of the
------------------------------------------- Board (Principal Executive March 24, 2000
R. Scott Greer Officer)

/s/ KURT W. LEUTZINGER Chief Financial Officer
------------------------------------------- (Principal Financial and March 24, 2000
Kurt W. Leutzinger Accounting Officer)

/s/ M. KATHLEEN BEHRENS, PH.D.
------------------------------------------- Director March 24, 2000
M. Kathleen Behrens, Ph.D.

/s/ RAJU S. KUCHERLAPATI, PH.D.
------------------------------------------- Director March 24, 2000
Raju S. Kucherlapati, Ph.D.

/s/ MARK B. LOGAN
------------------------------------------- Director March 24, 2000
Mark B. Logan
</TABLE>

56
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH E. MAROUN
------------------------------------------- Director March 24, 2000
Joseph E. Maroun

/s/ STEPHEN A. SHERWIN
------------------------------------------- Director March 24, 2000
Stephen A. Sherwin, M.D.
</TABLE>

57
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Abgenix, Inc.

We have audited the accompanying consolidated balance sheets of Abgenix,
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of operations, changes in redeemable convertible preferred stock and
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. 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 Abgenix, Inc.
at December 31, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.

/s/ ERNST & YOUNG LLP

Palo Alto, California
January 28, 2000

F-1
<PAGE>
ABGENIX, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 13,366 $ 1,415
Marketable securities..................................... 44,646 15,329
Accounts receivable....................................... 4,150 908
Prepaid expenses and other current assets................. 4,861 530
-------- --------
Total current assets.................................... 67,023 18,182
Property and equipment, net................................. 5,300 5,435
Long-term investment........................................ 29,225 --
Intangible assets, net...................................... 46,591 --
Deposits and other assets................................... 402 603
-------- --------
$148,541 $ 24,220
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,705 $ 439
Deferred revenue.......................................... 3,767 425
Accrued product development costs......................... 1,667 1,225
Accrued employee benefits................................. 1,287 259
Other accrued liabilities................................. 725 1,034
Current portion of long-term debt......................... 1,759 1,699
-------- --------
Total current liabilities............................... 10,910 5,081
Deferred rent............................................... 150 --
Long-term debt.............................................. 421 2,180
Commitments
Stockholders' equity:
Preferred stock, $0.0001 par value; 5,000,000 shares
authorized; none issued and outstanding at December 31,
1999 and 1998, respectively............................. -- --
Common stock, $0.0001 par value; 50,000,000 shares
authorized, 17,167,273 and 11,120,293 shares issued and
outstanding at December 31, 1999 and 1998, respectively,
at amount paid in....................................... 181,263 55,842
Additional paid-in capital................................ 32,254 31,588
Deferred compensation..................................... (670) (1,170)
Accumulated other comprehensive income.................... 14,013 --
Accumulated deficit....................................... (89,800) (69,301)
-------- --------
Total stockholders' equity.............................. 137,060 16,959
-------- --------
$148,541 $ 24,220
======== ========
</TABLE>

See Accompanying Notes

F-2
<PAGE>
ABGENIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Revenues:
Contract revenue.......................................... $ 12,285 $ 2,498 $ 611
Revenue under collaborative agreements from related
parties................................................. -- 1,344 1,343
-------- -------- ----------
Total revenues.......................................... 12,285 3,842 1,954
Operating expenses:
Research and development.................................. 21,106 17,588 11,405
General and administrative................................ 5,164 3,405 3,525
Charge for cross-license and settlement amount allocated
from Cell Genesys....................................... -- -- 11,250
Equity in (income) losses from the Xenotech joint venture
(charge for cross-license settlement in 1997)........... (546) 107 11,250
Non-recurring termination fee............................. 8,667 -- --
-------- -------- ----------
Total operating expenses................................ 34,391 21,100 37,430
-------- -------- ----------
Operating loss............................................ (22,106) (17,258) (35,476)
Other income and expenses:
Interest income........................................... (3,045) (961) (307)
Interest expense.......................................... 438 530 711
-------- -------- ----------
Loss before income tax...................................... (19,499) (16,827) (35,880)
Foreign income tax expense................................ 1,000 -- --
-------- -------- ----------
Net loss.................................................... $(20,499) $(16,827) $ (35,880)
======== ======== ==========
Net loss per share.......................................... $ (1.41) $ (3.00) $(1,032.70)
======== ======== ==========
Shares used in computing net loss per share................. 14,537 5,603 35
======== ======== ==========
</TABLE>

See Accompanying Notes

F-3
<PAGE>
ABGENIX, INC.

CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY

(in thousands, except share and per share data)

<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------
REDEEMABLE ACCUMULATED
CONVERTIBLE ADDITIONAL OTHER TOTAL
PREFERRED COMMON PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL COMPENSATION INCOME DEFICIT EQUITY
----------- -------- ---------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... $ 10,150 $ 1 $14,277 $ -- $ -- $(16,594) $ (2,316)
Contributions from Cell
Genesys Inc............. -- -- 15,000 -- -- -- 15,000
Issuance of 2,846,542
shares of series B
redeemable convertible
preferred stock at $6.50
per share, net of
issuance costs of
$1,463.................. 17,039 -- -- -- -- -- --
Conversion of note payable
to parent into 666,667
shares of series A
redeemable convertible
preferred stock......... 4,000 -- -- -- -- -- --
Issuance of 232,350 shares
of common stock upon
exercise of stock
options and stock
pruchase rights......... -- 350 -- -- -- -- 350
Deferred compensation for
stock options issued
below deemed fair
value................... -- -- 1,776 (1,776) -- -- --
Amortization of deferred
compensation............ -- -- -- 528 -- -- 528
Net loss.................. -- -- -- -- -- (35,880) (35,880)
-------- -------- ------- ------- ------- -------- --------
Balance at December 31,
1997...................... 31,189 351 31,053 (1,248) -- (52,474) (22,318)
Issuance of 160,000 shares
of series C redeemable
convertible preferred
stock at $8.00 per
share................... 1,280 -- -- -- -- -- --
Issuance of 421,143 shares
of series B redeemable
convertible preferred
stock at $6.50 per share
(net of issuance cost of
$81).................... 2,656 -- -- -- -- -- --
Conversion of 7,844,352
shares of series A,
series B and series C
redeemable convertible
preferred stock to
common stock............ (35,125) 35,125 -- -- -- -- 35,125
Issuance of 2,875,000
shares of common stock
at $8.00 per share upon
initial public offering
(net of issuance costs
of $2,860).............. -- 20,140 -- -- -- -- 20,140
Issuance of 153,269 shares
of common stock upon
exercise of stock
options................. -- 130 -- -- -- -- 130
Issuance of 14,130 shares
of common stock at $6.80
per share pursuant to
the employee stock
purchase plan........... -- 96 -- -- -- -- 96
Deferred compensation
related to grant of
certain stock below
deemed fair value....... -- -- 520 (520) -- -- --
Amortization of deferred
compensation............ -- -- -- 598 -- -- 598
Compensation related to
grant of stock options
to consultants.......... -- -- 15 -- -- -- 15
Net loss.................. -- -- -- -- -- (16,827) (16,827)
-------- -------- ------- ------- ------- -------- --------
Balance at December 31,
1998...................... -- 55,842 31,588 (1,170) -- (69,301) 16,959
Issuance of 3,000,000
shares of common stock
at $15.00 per share (net
of issuance costs of
$664)................... -- 41,636 -- -- -- -- 41,636
Issuance of 495,356 shares
of common at $16.15 per
share to Genentech...... -- 8,000 -- -- -- -- 8,000
Issuance of 208,000 shares
of common stock at
$15.00 per share (net of
issuance costs of $20).. -- 2,913 -- -- -- -- 2,913
Issuance of 1,778,000
shares of common stock
at $42.00 per share (net
of issuance costs of
$117)................... -- 71,073 -- -- -- -- 71,073
Issuance of 514,597 shares
of common stock upon
exercise of stock
options................. -- 1,463 -- -- -- -- 1,463
Issuance of 48,526 shares
of common stock at
$6.901 per share
pursuant to the employee
stock purchase plan..... -- 336 -- -- -- -- 336
Amortization of deferred
compensation............ -- -- -- 500 -- -- 500
Compensation related to
grant of stock options
to consultants.......... -- -- 666 -- -- -- 666
Unrealized gains on
available for sale
securities.............. -- -- -- -- 14,013 -- 14,013
Net loss.................. -- -- -- -- -- (20,499) (20,499)
--------
Comprehensive loss........ -- -- -- -- -- -- (6,486)
-------- -------- ------- ------- ------- -------- --------
Balance at December 31,
1999.................... $ -- $181,263 $32,254 $ (670) $14,013 $(89,800) $137,060
======== ======== ======= ======= ======= ======== ========
</TABLE>

See Accompanying Notes

F-4
<PAGE>
ABGENIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(20,499) $(16,827) $(35,880)
Adjustments to reconcile net loss to net cash used by
operating activities:
Equity in (income) losses of Xenotech (including the
charge for cross-license and settlement in 1997)........ (546) 411 12,147
Depreciation and amortization............................. 1,763 1,715 1,489
Stock options issued to consultants....................... 666 -- --
Charge for cross-license and settlement................... -- -- 11,250
Changes for certain assets and liabilities:
Accounts receivable..................................... (3,242) -- --
Prepaid expenses and other current assets............... (4,337) (888) (392)
Deposits and other assets............................... 100 (166) (78)
Payable to Xenotech for cross-license and settlement
obligation............................................ -- (3,750) --
Accounts payable........................................ 1,266 (199) 426
Deferred revenue........................................ 3,342 425 (376)
Accrued stock issuance costs............................ -- (1,200) 1,200
Accrued product development costs....................... 442 482 743
Accrued employee benefits............................... 1,028 39 (130)
Other accrued liabilities............................... (329) (3) (574)
Deferred rent........................................... 150 -- --
-------- -------- --------
Net cash used in operating activities....................... (20,196) (19,961) (10,175)
-------- -------- --------
INVESTING ACTIVITIES
Purchases of short-term investments......................... (61,598) (24,868) (15,505)
Sales of short-term investments............................. 32,069 20,243 7,783
Capital expenditures........................................ (1,108) (697) (1,075)
Acquistion of Xenotech, net of cash acquired................ (45,938) -- --
Purchase of long-term investment............................ (15,000) -- --
Contributions to Xenotech................................... -- (475) (4,647)
-------- -------- --------
Net cash used in investing activities....................... (91,575) (5,797) (13,444)
-------- -------- --------
FINANCING ACTIVITIES
Net proceeds from issuances of common stock................. 125,421 20,366 350
Net proceeds from issuances of redeemable convertible
preferred stock........................................... -- 3,936 17,039
Proceeds from long-term debt................................ -- -- 4,300
Payments on long-term debt.................................. (1,699) (1,746) (643)
-------- -------- --------
Net cash provided by financing activities................... 123,722 22,556 21,046
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 11,951 (3,202) (2,573)
Cash and cash equivalents at the beginning of the year...... 1,415 4,617 7,190
-------- -------- --------
Cash and cash equivalents at the end of the year............ $ 13,366 $ 1,415 $ 4,617
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 438 $ 549 $ 632
======== ======== ========
Cash paid during the year for foreign income tax............ $ 1,000 $ -- $ --
======== ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Allocation of charges related to the cross-license and
settlement from parent and Xenotech....................... $ -- $ -- $ 15,000
======== ======== ========
Conversion of note payable to parent........................ $ -- $ -- $ 4,000
======== ======== ========
Furniture and equipment acquired under capital lease
financing................................................. $ -- $ -- $ 1,968
======== ======== ========
Deferred compensation related to grant of certain stock
options................................................... $ -- $ 520 $ 1,776
======== ======== ========
</TABLE>

See Accompanying Notes

F-5
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND PRESENTATION

Abgenix, Inc., a Delaware corporation ("Abgenix" or the "Company"), develops
and intends to commercialize antibody therapeutic products for the treatment of
a variety of disease conditions, including transplant-related diseases,
inflammatory and autoimmune disorders, cardiovascular disease, infectious
diseases and cancer. The Company has developed a proprietary technology to
enable the quick generation of high affinity, fully human antibody product
candidates to essentially any disease target appropriate for antibody therapy.
The operations of Abgenix commenced in 1989 and were initially conducted as a
research project within Cell Genesys, Inc., ("Cell Genesys"). On June 24, 1996,
Abgenix was incorporated and subsequently on July 15, 1996, it was organized
pursuant to a Stock Purchase and Transfer Agreement between the Company and Cell
Genesys.

Effective December 31, 1999 the Company acquired Japan Tobacco Inc.'s,
("Japan Tobacco"), interest in the Xenotech joint venture, ("Xenotech"),
increasing the Company's ownership of the joint venture from 50% to 100%.
Accordingly, the accompanying financial statements include the accounts of
Xenotech on a consolidated basis as of December 31, 1999. Intercompany accounts
have been eliminated in consolidation. Prior to the acquisition, Xenotech was
accounted for under the equity method of accounting, accordingly, the Company's
operations include equity in income and losses from Xenotech for the years 1999,
1998 and 1997, (see Note 2).

In 1997, the Company incurred an aggregate non-recurring charge for
cross-license and settlement of $22,500,000 which represents an allocation of
$11,250,000 from Cell Genesys and an entry to record the 50% ownership in the
equity in the losses of Xenotech of $11,250,000, (see Note 6).

CASH EQUIVALENTS, MARKETABLE SECURITIES AND LONG-TERM INVESTMENT

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

Marketable securities--Marketable securities consist of highly liquid
investments with a maturity of greater than three months when purchased. The
Company's marketable securities have been classified as "available-for-sale,"
and carried at market value. Unrealized gains and losses are reported as
accumulated other comprehensive income/loss, which is a separate component of
stockholders' equity. These unrealized gains and losses are considered
temporary.

Long-term investment--In 1999, the Company purchased 418,995 shares of
CuraGen Corporation's common stock at $35.80 per share, for an aggregate
purchase price of $15 million. This investment has been classified as "available
for sale", and is carried at market value. Unrealized gains and losses are
reported as accumulated other comprehensive income, which is a separate
component of stockholders' equity. Unrealized gains and losses are considered
temporary. The Company intends to hold this investment for at least a year and
has, therefore, recorded it as a long-term investment.

DEPRECIATION AND AMORTIZATION

The Company records property and equipment at cost and provides depreciation
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are depreciated over the remaining life of the facility
lease, and all other assets are generally depreciated over two to five years.
Furniture and equipment leased under capital leases is amortized over the
shorter of the useful lives or the lease term. Amortization of leased assets is
included in depreciation and amortization expense and is combined with
accumulated depreciation and amortization of the Company's owned assets.

F-6
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS

The intangible assets consist primarily of patents and certain royalty
rights, which were acquired through the acquisition of the Xenotech joint
venture. Beginning in 2000, they will be amortized over their average estimated
useful life of 15 years. No amortization was recorded in 1999.

REVENUE RECOGNITION

Revenues related to collaborative research agreements with corporate
partners are generally recognized ratably over the related funding periods for
each contract. For research funding, the Company is required to perform research
activities as specified in each respective agreement on a best efforts basis,
and the Company is reimbursed based on the fees stipulated in the respective
agreements which approximates cost. Deferred revenue may result when the Company
does not incur the required level of effort or has not fulfilled its obligation
under the agreement during a specific period in comparison to funds received
under the respective contracts. Milestone payments are recognized pursuant to
collaborative agreements upon the achievement of the specified milestone, where
no future obligation to perform exists for that milestone. Nonrefundable,
non-creditable license fees, for which no future obligation to perform exists,
are recognized when invoiced.

RESEARCH AND DEVELOPMENT

Research and development expenses, including direct and allocated expenses,
consist of independent research and development costs and costs associated with
sponsored research and development.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees and directors using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, the
Company does not recognize compensation expense for stock options granted with
exercise prices equal to the fair market value of the underlying common stock.

NET LOSS PER SHARE

In 1997, the Company adopted Financial Accounting Standard No. 128,
"Earnings Per Share" ("SFAS 128"). Under the provisions of SFAS 128, basic
earnings per share is calculated based on the weighted average number of shares
outstanding during the period. Potentially dilutive securities are excluded from
the computation, as their effect is antidilutive.

Pro forma net loss per share has been computed to give effect to the
automatic conversion of redeemable convertible preferred stock into common stock
which occurred at the completion of the Company's initial public offering in
July 1998, using the as-if-converted method, from the original date of issuance.

F-7
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in calculation of basic and diluted and pro
forma net loss per share follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss..................................... $(20,499) $(16,827) $ (35,880)
======== ======== ==========
Basic and diluted:
Weighted-average shares of common stock
outstanding used in computing basic and
diluted net loss per share............... 14,537 5,603 35
======== ======== ==========
Basic and diluted net loss per share......... $ (1.41) $ (3.00) $(1,032.70)
======== ======== ==========
Pro forma:
Shares used in computing basic and diluted
net loss per share (from above).......... 5,603 35
Adjusted to reflect the effect of the
assumed conversion of preferred stock
from the date of issuance................ 4,301 3,858
-------- ----------
Weighted-average shares used in computing
pro forma net loss per share............. 9,904 3,893
======== ==========
Pro forma net loss per share................. $ (1.70) $ (9.22)
======== ==========
</TABLE>

Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of pro forma net loss per
share, as well as an additional 2,110,744, 1,736,854 and 1,630,093 shares
related to outstanding options and warrants not included above, determined using
the treasury stock method at the estimated average fair value, for the years
ended December 31, 1999, 1998 and 1997, respectively.

USE OF ESTIMATES

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

OTHER RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards 133, or FAS 133, "Accounting for
Derivative Instruments and Hedging Activities". In July 1999 the FASB announced
the delay of the effective date of FAS 133 for one year, to the first quarter of
2001. FAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires companies to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting under FAS 133. The
impact of FAS 133 on our financial position and results of operations is not
expected to be material.

F-8
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED STAFF ACCOUNTING BULLETIN

RECLASSIFICATIONS

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

2. ACQUISITION OF XENOTECH AND TRANSACTIONS WITH JAPAN TOBACCO

ACQUISITION OF XENOTECH AND TRANSACTIONS WITH JAPAN TOBACCO

On December 20, 1999, the Company executed several agreements with Japan
Tobacco that became effective December 31, 1999, under which the Company
acquired Japan Tobacco's interest in the XenoMouse, a technology for generating
fully human antibody drugs used in treating a wide range of diseases. Under the
agreements, Abgenix paid $47.0 million in cash to Japan Tobacco for its 50%
interest in Xenotech under which the XenoMouse technology was developed. This
acquisition brought the Company's ownership of Xenotech to 100% and was
accounted for under the purchase method of accounting. The purchase price of
$47.2 million, including acquisition costs, was allocated $0.6 million to cash
and $46.6 million to intangibles consisting primarily of the patents for the
XenoMouse technology and the rights to royalties under certain licenses. The
intangible assets will be amortized over 15 years, the estimated average life of
the patents and licenses, using the straight-line method. Because Xenotech was
acquired effective December 31, 1999, and prior to this date was owned 50% by
the Company, operations of Xenotech were recorded on the equity method of
accounting through December 31, 1999, and upon acquisition the Xenotech accounts
were consolidated with the Company.

Under the agreements, the Company made a non-recurring payment of
$10.0 million to Japan Tobacco to terminate rights to the current XenoMouse
technology. Additionally, Japan Tobacco paid $4.0 million to the Company for a
license to use the existing XenoMouse technology on a more limited basis than
previously, and to use future XenoMouse technology in development at Abgenix.
One third of the $4.0 million payment, or $1.3 million, was allocated to the
current XenoMouse technology and was offset against the $10.0 million payment.
The net of these two amounts, $8.7 million, was recorded as a non-recurring
termination fee to the consolidated statements of operations in 1999. The
remainder of the $4.0 million payment, or $2.7 million, was recorded as deferred
revenue and will be recognized as revenue when the future XenoMouse technologies
are delivered. Japan Tobacco will also make royalty payments on any future sales
of antibody products generated using XenoMouse.

Lastly, under the December agreements, the Company granted to Japan Tobacco
a license for certain new technology related to the generation of mouse models
of certain human diseases. In return for this license, Japan Tobacco paid
Abgenix $6.0 million, which was recorded in contract revenue.

F-9
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITION OF XENOTECH AND TRANSACTIONS WITH JAPAN TOBACCO (CONTINUED)
In June 1999 the Company entered into a collaboration agreement with Japan
Tobacco, Inc. relating to the clinical development of one of the Company's
products. Under the agreement, Japan Tobacco made payments totaling $2,280,000
to the Company, which was recorded as revenue in 1999.

XENOTECH PRIOR TO THE ACQUISITION

Prior to the acquisition, the Company and a subsidiary of Japan Tobacco
equally owned Xenotech. The Company obtained its interest when Cell Genesys
assigned its rights upon the creation of Abgenix. Research performed by
Xenotech, which was generally outsourced to the Company, was funded through
capital contributions from the partners. Revenues recognized by the Company for
performing the research for Xenotech were $1,344,000 and $1,343,000, for the
years ended December 31, 1998 and 1997, respectively, net of its cash
contributions of $304,000 and $897,000, respectively, to Xenotech related to
this revenue. No revenue was recognized in 1999. The Company acquired options
and product licenses for antigen targets developed from the XenoMouse technology
from Xenotech during these periods as well. The cost of such options and
licenses were expensed as research and development by the Company in the amounts
of $645,000, $453,000 and $172,500 for the years ended December 31, 1999, 1998
and 1997, respectively.

Prior to the acquisition, the Company accounted for its investment in
Xenotech under the equity method and therefore recorded 50% of Xenotech's net
income or losses, up to the Company's investment amount. Details are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Abgenix's share of Xenotech (income) losses......... $(546) $411 $ 12,347
Losses associated with cross-license and
settlement........................................ -- -- (11,250)
Difference due to timing and change in deferred
revenue........................................... -- -- (200)
----- ---- --------
Equity in (income) losses of Xenotech............... $(546) $411 $ 897
===== ==== ========
</TABLE>

PROFORMA UNAUDITED FINANCIAL INFORMATION

The following unaudited pro forma financial information presents the results
of operations of the Company and Xenotech for the years ended December 31, 1999
and 1998 as if the acquisition had been consummated as of the beginning of the
periods presented.

<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total revenues.......................................... $ 12,680 $ 2,723
Net loss................................................ $(23,047) $(20,344)
Net loss per share...................................... $ (1.59) $ (3.63)
</TABLE>

The pro forma financial information includes the effect of the amortization
of intangible assets acquired, using a 15 year life. The pro forma condensed
financial information is presented for illustrative purposes only. This
information is not necessarily indicative of the Company's financial position or
results of operations for future periods or the results that actually would have
been realized had the acquisition and certain transactions occurred as of the
beginning of the periods presented.

F-10
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. COLLABORATION AND LICENSE AGREEMENTS

As of December 31, 1999, the Company had agreements with 15 collaborative
partners covering at least 20 product candidates. These agreements typically
allow the collaborative partner to generate fully human antibodies to one or
more specific antigen targets provided by the collaborative partner. In most
cases, the Company provides the technology to the collaborative partner who then
carries out the research with their specific antigen target. In other cases, the
Company may perform the research with the collaborative partner's antigen
target, for additional compensation. In some cases, the Company has granted
multi-antigen research licenses allowing the partner to incorporate the
Company's technology into early stages of their antibody research. The financial
terms of these agreements may include license fees, milestone payments and
royalties on any future product sales. Contract revenue from two partners
represented 67.4% and 14.7%, respectively, of the Company's revenue in 1999.

As of December 31, 1999, agreements are as follows:

Amgen: In April 1999, the Company entered into a research collaboration,
option and license agreement with Amgen, Inc., to generate fully human
antibodies to an undisclosed antigen target. Under this agreement, Amgen is
paying the Company to perform the immunizations and certain research activities.

AVI BioPharma: In January 1999, the Company entered into a research license
and option agreement with AVI to generate fully human antibodies to an antigen
target for the treatment of various cancers.

BASF: In March 1999, the Company entered into a research collaboration
agreement with BASF Bioresearch Corporation to generate fully human antibodies
to an undisclosed antigen target.

Cell Genesys: In November 1997, the Company entered into the gene therapy
rights agreement with Cell Genesys. Cell Genesys received certain rights to
commercialize products based on antibodies generated with XenoMouse technology
in the field of gene therapy.

Centocor/Johnson and Johnson: In December 1998, the Company entered into a
research collaboration agreement with Centocor to generate fully human
antibodies to an undisclosed antigen target in the cardiovascular field.

Chiron: In December 1999, the Company entered into a research license and
option agreement with Chiron to generate fully human antibodies to an
undisclosed antigen in the field of autoimmune diseases. Under a separate
research collaboration agreement, Chiron may use XenoMouse to generate fully
human antibodies to up to four cancer targets.

CuraGen: In December 1999, the Company entered into a broad collaboration
with CuraGen, Inc. to make fully human antibodies to genomics-based antigen
targets. Under the collaboration, CuraGen will supply a large number of antigen
targets to the Company, and the Company will be responsible for generating fully
human antibodies to them. The Company will share responsibility for evaluation
of the antibody product candidates generated. Both CuraGen and the Company will
be able to select antibody product candidates from the pool generated in the
course of the collaboration. The party selecting a product candidate will pay to
the other, for rights to develop and commercialize such product, license fees,
milestone payments and royalty payments on any eventual product sales.

Genentech: In January 1999, the Company entered into a multi-antigen
research license and option agreement with Genentech. This agreement superceded
two agreements in 1998. Under the new agreement, the Company granted Genentech a
license to utilize XenoMouse technology in its antibody product research efforts
and an option to obtain product licenses for up to ten antigen targets,

F-11
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. COLLABORATION AND LICENSE AGREEMENTS (CONTINUED)
(including the two from the 1998 superceded agreements), but not more than two
in any one year, over the agreement's six year term. Genentech can renew the
agreement for up to four additional targets over a subsequent three-year period.
Genentech acquired 495,356 shares of our common stock for an aggregate purchase
price of $8.0 million. To renew the agreement at the end of the sixth year,
Genentech must purchase an additional $2.5 million of our common stock at a 50%
premium to the then current market price.

Human Genome Sciences: In December 1999, the Company entered into a broad
collaboration with Human Genome Sciences, Inc. ("HGS") to generate fully human
antibodies to genomics-based antigen targets. Under the collaboration, HGS has
the right to use XenoMouse technology for research purposes and to take out
options and/or licenses on a pre-set number of antigen targets. The Company also
may collaborate with HGS on a pre-set number of antigen targets to which the
Company will generate fully human antibodies. The companies will then jointly
develop and commercialize these products. The Company is also able to select
antigen targets from the Human Genome Sciences database to make antibodies
against and will have an option to license a pre-set number of such antigen
targets for its in-house development and commercialization. If the Company
enters into a license to Human Genome Science's antigen target the Company would
pay license fees, milestone payments and royalties equivalent to what they pay
the Company for licenses to XenoMouse technology.

Japan Tobacco: In December 1999, the Company entered into a collaboration
with Japan Tobacco allowing it to use XenoMouse for research purposes and to
obtain options and/or product licenses for a limited number of specific antigen
targets each year. This collaboration superceded our prior collaboration
agreement with Japan Tobacco. For each antigen target licensed, the Company
could receive license fees, milestone payments and royalty payments on any
eventual product sales. Japan Tobacco could also pay royalties on any future
product sales relating to several antigen targets it had previously licensed
under the former Xenotech structure.

Millennium: In July 1998, the Company entered into a research collaboration
agreement with Millennium BioTherapeutics to generate fully human antibodies to
an antigen target in the field of inflammation. In October 1998, the Company
entered into a research, license and option agreement with Millennium
BioTherapeutics covering the same antigen target. In September 1998, the Company
entered into a second research collaboration agreement with Millennium covering
a second antigen target in the field of inflammation.

Pfizer: In December 1997, the Company entered into a research collaboration
agreement with Pfizer to generate fully human antibodies to an antigen target in
the cancer field. In October 1998, Pfizer exercised its option to expand its
research collaboration with the Company to include a second antigen target in
the field of cancer. In November 1999, Pfizer exercised its option to expand its
research collaboration with the Company to include a third antigen target in the
field of cancer. Pfizer is paying the Company to perform the immunizations and
to undertake certain research activities. As part of this arrangement, in
January 1998 Pfizer purchased 160,000 shares of our series C preferred stock for
$1.3 million and received an option to collaborate with the Company on up to
three antigen targets. These shares converted into 160,000 shares of common
stock upon our initial public offering.

Research Corporation Technologies: In December 1998, the Company entered
into a binding memorandum of understanding for a research collaboration
agreement with RCT to generate fully human antibodies to certain antigen target.
Resultant antibody product candidates could potentially be used in treating
organ transplant rejection and autoimmune disorders.

F-12
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. COLLABORATION AND LICENSE AGREEMENTS (CONTINUED)
Schering-Plough: In January 1998, the Company entered into a research
collaboration agreement with Schering-Plough to generate fully human antibodies
to an antigen target in the field of inflammation. Under this agreement,
Schering-Plough is paying the Company to perform the immunizations and certain
research activities. In September 1999, Schering-Plough exercised its option for
a product license.

U.S. Army: In July 1999, the Company entered into a collaboration with the
U.S. Army to generate fully human antibodies to filoviruses. In October 1999,
the U.S. Army expanded the collaboration to include poxviruses.

F-13
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. AVAILABLE-FOR-SALE SECURITIES

The following is a summary of available-for-sale securities at December 31,
1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
AMORTIZED UNREALIZED ESTIMATED AMORTIZED UNREALIZED ESTIMATED
COST GAIN/(LOSS) FAIR VALUE COST GAIN/(LOSS) FAIR VALUE
--------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial obligations.......... $22,829 $ (73) $22,756 $ -- $ -- $ --
Commercial paper................ 15,358 10 15,368 5,106 -- 5,106
Obligations of the U.S.
government and its agencies... 17,822 (149) 17,673 11,575 -- 11,575
------- ----- ------- ------- ---------- -------
Total........................... $56,009 $(212) $55,797 $16,681 $ -- $16,681
======= ===== ======= ======= ========== =======
Classified as:
Cash equivalents.............. $11,151 $ 1,352
Marketable securities......... 44,646 15,329
------- -------
$55,797 $16,681
======= =======
</TABLE>

The Company's available for sale marketable securities have the following
maturities at December 31, 1999:

<TABLE>
<S> <C>
Due in one year or less..................................... $45,611
Due after one year but less than five years................. 10,186
-------
$55,797
=======
</TABLE>

There were no significant unrealized gains or losses as of December 31,
1998. The unrealized gains and losses as of December 31, 1999 were reported as
accumulated other comprehensive income, which is a separate component of
stockholders' equity.

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture, machinery and equipment........................ $ 4,163 $ 3,118
Leasehold improvements.................................... 4,333 4,270
------- -------
8,496 7,388
Less accumulated depreciation and amortization............ (3,196) (1,953)
------- -------
$ 5,300 $ 5,435
======= =======
</TABLE>

Property and equipment financed under capital leases was $1,956,000 at
December 31, 1999, 1998 and 1997. Accumulated amortization for such financed
assets are included in accumulated depreciation and amortization.

F-14
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS

LOAN AND CAPITAL LEASE

On January 24, 1997, the Company secured a loan with a bank in the amount of
$4,300,000 in order to finance tenant improvements on its facility in Fremont,
California. The loan matures in January 2001 and bears an annual interest rate
of prime plus 1.0%. The interest rate at December 31, 1999 and 1998 was 9.50%
and 8.75% respectively. The loan is secured by substantially all tangible and
intangible assets of the Company.

On March 28, 1997, the Company entered into a lease agreement with a
financing company under which the Company financed approximately $2,000,000 of
its laboratory and office equipment. The lease term is 48 months and bears
interest at rates ranging from 12.5% to 13.0%. The last schedule matures in
September, 2001.

Future principal payments under the loan and minimum payments under the
capital lease are as follows:

<TABLE>
<CAPTION>
CAPITAL TOTAL
LOAN LEASE PAYMENTS
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ending December 31,
2000............................................ $ 1,258 $ 595 $ 1,853
2001............................................ 105 332 437
------- ----- -------
Total............................................. 1,363 927 2,290
Less amount representing interest and tax......... -- (110) (110)
------- ----- -------
Present value of future payments.................. 1,363 817 2,180
Less current portion.............................. (1,258) (501) (1,759)
------- ----- -------
Noncurrent portion................................ $ 105 $ 316 $ 421
======= ===== =======
</TABLE>

FACILITY LEASE

The Company has an operating lease for its facilities in Fremont,
California. The lease expires in January 2007; however, the Company has the
option to extend the term through 2016. Future minimum payments under the
noncancelable operating lease at December 31, 1999 are:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Year ending December 31,
2000...................................................... $ 923
2001...................................................... 955
2002...................................................... 987
2003...................................................... 1,019
Thereafter................................................ 3,341
------
Total lease payments........................................ $7,225
======
</TABLE>

Rent expense, in thousands, was $1,043 and $862 for the years ended
December 31, 1999 and 1998, respectively.

F-15
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS (CONTINUED)
CBL LICENSE AGREEMENT

On February 1, 1997, the Company entered into a license agreement for
exclusive worldwide rights to commercialize ABX-CBL. The Company paid an initial
license fee and is further obligated to pay an annual maintenance fee of
$50,000, to commit at least $1,000,000 annually to the development of ABX-CBL
until ABX-CBL receives regulatory approval in any country and to pay royalties
on potential product sales. The Company is also obligated to issue 25,000 shares
of its common stock upon the submission of a Product License Application for the
first indication of the product.

COMMITMENT FOR PRODUCT DEVELOPMENT

The Company has contracted with a third party, located in the United
Kingdom, for the manufacture of certain products it uses in its clinical trials.
As of December 31, 1999 and 1998 the Company has committed approximately
$4,900,000 and $600,000, respectively, related to future deliveries of these
products. The Company has not recorded these obligations in its accrued
liabilities as no legal liability exits until the products are delivered to and
accepted by the Company.

CHARGE FOR CROSS LICENSE AND SETTLEMENT

In 1997, Cell Genesys, Abgenix, Xenotech and Japan Tobacco signed a
comprehensive patent cross-license and settlement agreement with GenPharm that
resolved all related litigation and claims between the parties. As consideration
for the cross-license and settlement agreement, Cell Genesys issued a note to
GenPharm for $15,000,000 which was paid in full September 30, 1998. Of this
note, $3,750,000 satisfied certain of Xenotech's obligations under the
agreement. Japan Tobacco also made an initial payment. During 1997, two patent
milestones were achieved and Xenotech was obligated to pay $7,500,000 for each
milestone. Xenotech paid $7,500,000 in 1997 to satisfy the first milestone and
recorded a payable to GenPharm for the remaining $7,500,000. Xenotech recorded
the total of $15,000,000 as an expense in 1997. These payments satisfied all
obligations under the agreement.

Pursuant to Staff Accounting Bulletin 55, Cell Genesys allocated its portion
of the settlement obligation, $11,250,000, to Abgenix since the related
technology was contributed upon formation of Abgenix. The $15,000,000 note
issued by Cell Genesys was recorded as a capital contribution by Abgenix. In
accordance with the joint venture agreement and the equity method of accounting,
Abgenix also recorded an expense of $11,250,000 representing 50% of the Xenotech
expense.

As a result of the above, the Company recognized as a non-recurring charge
for cross-license and settlement, a total of $22,500,000 in 1997. The full
amount of the cross-license and settlement costs were expensed, because the
Company determined that the cross-license received by the Company from GenPharm
was non-exclusive and had no alternative future uses for the Company.

F-16
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY

COMMON STOCK

Initial Public Offering--In July 1998, the Company completed an initial
public offering of 2,500,000 shares of its common stock to the public, at a
price of $8.00 per share. On July 27, 1998, the Company's underwriters exercised
an option to purchase 375,000 additional shares of common stock at a price of
$8.00 per share to cover over-allotments. The Company received net proceeds from
the offerings of approximately $20.1 million. Upon the closing of the initial
public offering, each of the outstanding 7,844,352 shares of redeemable
convertible preferred stock was automatically converted into one share of common
stock.

Genentech--In January 1999, Genentech acquired 495,356 shares of our common
stock for an aggregate purchase price of $8.0 million.

Follow-on Public Offering--On March 4, 1999, the Company completed a
follow-on public offering of 3,000,000 shares of its common stock to the public,
at a price of $15.00 per share. On April 7, 1999 the Company's underwriters
exercised an option to purchase 208,000 additional shares of common stock at a
price of $15.00 per share to cover over-allotments. The Company received net
proceeds from the offerings of approximately $44.5 million.

Private Placement--On November 19, 1999, the Company completed a private
placement of 1,778,000 shares of its common stock to qualified institutional and
other accredited investors at a net price of $42.00 per share The Company
received net proceeds of $71.1 million.

Stockholder Rights Plan--In June 1999, our Board of Directors adopted a
Stockholder Rights Plan. The Stockholder Rights Plan provides for a dividend
distribution of one Preferred Shares Purchase Right on each outstanding share of
our common stock. Each Right entitles stockholders to buy 1/1000th of a share of
our Series A participating preferred stock at an exercise price of $120.00. Each
Right will become exercisable following the tenth day after a person or group
announces acquisition of 15 percent or more of our common stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 15 percent or more of our common stock. In
the case of Cell Genesys, which beneficially owns approximately 19.6% of our
outstanding common stock as of December 31, 1999, each right will become
exercisable following the tenth day after it announces the acquisition of
25 percent or more of our common stock, or announces commencement of a tender
offer, the consummation of which would result in ownership by Cell Genesys of
25 percent or more of our common stock. We will be entitled to redeem the Rights
at $0.01 per Right at any time on or before the tenth day following acquisition
by a person or group of 15 percent or more (or in the case of Cell Genesys,
25 percent or more) of our common stock.

PREFERRED STOCK

The Board of Directors is authorized to issue up to an aggregate of
5,000,000 shares of preferred stock, at $0.0001 par value per share. At
December 31, 1999, none were issued or outstanding.

WARRANTS

In connection with the loans it guaranteed in 1997, Cell Genesys received
warrants to purchase a total of 121,667 shares of the Company's common stock, at
an exercise price of $6.00 per share. The original terms were such that the
warrants were exercisable immediately and expired in three years. The fair value
of the above warrants was determined at the time to be insignificant for
accounting purposes. These warrants were exercised in January 2000.

F-17
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTION AND BENEFIT PLANS

INCENTIVE STOCK PLANS

The Company has three stock option plans, which allow for the granting of
incentive and non-qualified stock options to employees, outside directors and
consultants of the Company. There are 4,541,250 shares of common stock
authorized for issuance under the plans. The Company grants shares of common
stock for issuance under the plans at no less than the fair value of the stock.
Options granted under the plans generally have a term of ten years and vest over
four years.

Information with respect to the Plan activity is as follows:

<TABLE>
<CAPTION>
WEIGHTED
SHARES NUMBER OF AVERAGE
AVAILABLE SHARES EXERCISE PRICE
---------- --------- --------------
<S> <C> <C> <C>
Balances at December 31, 1996............. 429,902 1,168,906 $ 0.60
Authorized................................ 791,250 -- --
Options granted......................... (676,644) 676,644 $ 2.42
Options exercised....................... -- (232,350) $ 1.51
Options canceled........................ 104,774 (104,774) $ 1.11
---------- --------- ------
Balances at December 31, 1997............. 649,282 1,508,426 $ 1.24
Authorized................................ 500,000 -- --
Options granted......................... (353,551) 353,551 $ 6.82
Options exercised....................... -- (153,268) $ 0.86
Options canceled........................ 66,522 (66,522) $ 2.11
---------- --------- ------
Balances at December 31, 1998............. 862,253 1,642,187 $ 2.44
Authorized................................ 1,650,000 -- --
Options granted......................... (1,027,875) 1,027,875 $22.22
Options exercised....................... -- (514,597) $ 2.80
Options canceled........................ 166,388 (166,388) $ 6.57
---------- --------- ------
Balances at December 31, 1999............. 1,650,766 1,989,077 $12.22
========== ========= ======
</TABLE>

The following table summarizes information about options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING NUMBER
EXERCISE NUMBER CONTRACTUAL OF OPTIONS
PRICES OF OPTIONS LIFE, IN YEARS EXERCISABLE
- ------ ---------- ---------------- -----------
<S> <C> <C> <C>
$0.60................................... 528,230 6.58 380,142
$1.00--$8.50............................ 491,208 7.80 210,167
$9.00--$15.00........................... 563,461 9.05 139,391
$15.25--44.00........................... 379,678 9.56 18,641
$88.50.................................. 26,500 9.94 0
--------- ------- -------
1,989,077 8.20 748,341
========= ======= =======
</TABLE>

From inception to December 31, 1997, options to purchase a total of
1,861,744 shares of common stock were granted at prices ranging from $0.60 to
$5.00 per share. Deferred compensation of

F-18
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTION AND BENEFIT PLANS (CONTINUED)
$1,776,000 was recorded for these option grants based on the deemed fair value
of common stock (ranging from $1.20 to $6.50 per share). In the first quarter of
1998, the Company granted options to purchase 260,175 shares of common stock at
$6.00 per share for which deferred compensation of approximately $520,000 was
recorded based on the deemed fair value of common stock at $8.00 per share.
During the second, third and fourth quarters of 1998, the Company granted an
additional 51,376 options to employees to purchase shares of common stock at
prices ranging from $5.00 to $10.00 per share. No deferred compensation expense
was recorded as the options were granted at the then current market price of the
stock on the date of the grant. The Company amortized $500,000, $598,000 and
$520,000 of the deferred compensation balance during the years ended
December 31, 1999, 1998 and 1997 respectively.

Additionally, the Company granted 1,500 and 42,000 options to purchase
shares of common stock in 1999 and 1998, respectively to independent
consultants. The prices of the options ranges from $8.50 to $14.91 per share
with vesting periods ranging from one to two years. Compensation expense of
$666,000 and $15,000 was recorded in 1999 and 1998, respectively.

PRO FORMA INFORMATION

Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 1999, 1998 and 1997,
respectively: risk-free interest rate of 6.39%, 4.67%, and 6.46%; no dividend
yield in 1999, 1998 or 1997; volatility factor of 1.03, 0.78, and 0.67; and an
expected life of the option of six years in 1999 and five years in 1998 and
1997. These same assumptions were applied in the determination of the option
values related to stock options granted to non-employees, except for the option
life for which 3 to 5 years, the term of the consulting contracts, were used.
The value has been recorded in the financial statements.

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

The weighted-average fair values of options granted during the years ended
December 31, 1999, 1998 and 1997 were $22.22, $6.82, and $3.00 per share. All
options granted in 1997 and 1996 were granted at exercise prices below the
deemed fair value of the underlying common stock. All options granted in 1999
and 1998 were granted at exercise prices at the then current market value of the
stock.

F-19
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTION AND BENEFIT PLANS (CONTINUED)
The following table illustrates what net loss would have been had the Company
accounted for its stock-based awards under the provisions of SFAS 123. Pro forma
amounts may not be representative of future years.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net loss:
As reported............................................... $(20,499) $(16,827)
======== ========
Pro forma................................................. $(24,064) $(17,160)
======== ========
Net loss per share:
As reported............................................... $ (1.41) $ (3.00)
======== ========
Pro forma................................................. $ (1.66) $ (3.06)
======== ========
</TABLE>

STOCK PURCHASE PLAN

The Company's employee stock purchase plan enables eligible employees to
purchase common stock at 85% of the average market price on the first or the
last day of each 24 month offering period, whichever is lower. Employees may
authorize periodic payroll deductions of up to 15% of eligible compensation for
common stock purchases, with certain limitations. The number of shares which may
be issued under the plan is 250,000, plus an annual increase equal to the lesser
of 250,000, 1% of the Company's outstanding capitalization or a lesser amount
determined by the Board. The maximum shares which can be issued over the
10 year term of the plan is 2,500,000. As of December 31, 1999, 336,367 shares
have been authorized under the plan and 62,656 shares have been issued.

BENEFIT PLAN

The Company has available a 401(k) retirement plan. Eligible employees may
contribute up to 15% of their compensation. The Company does not match
contributions and therefore no expense has been recorded.

F-20
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RELATED PARTY TRANSACTIONS WITH CELL GENESYS

Through July 31, 1997, pursuant to the terms of the Service Agreement with
Cell Genesys, Cell Genesys provided Abgenix certain administrative services. In
addition, beginning July 15, 1996, the Company leased equipment from Cell
Genesys on a month-to-month basis pursuant to the Stock Purchase and Transfer
Agreement. Total fees incurred under the Services Agreement and the Stock
Purchase and Transfer Agreement were approximately $383,000 and $825,000 in 1998
and 1997, respectively. No fees were incurred in 1999. The Company chose to draw
down on its Promissory Note with Cell Genesys in order to pay for the fees
incurred through December 1997. In December 1997, the entire principal amount of
the Promissory Note was converted into preferred stock, which subsequently was
automatically converted to common stock upon the completion of the Company's
initial public offering of its common stock.

In addition, the Company had an agreement with Cell Genesys under which the
Company provided immunization services as requested by Cell Genesys. Under this
agreement, the Company recognized revenue of $111,000 in 1997.

10. INCOME TAXES

For the year ended December 31, 1999, the Company recorded a tax provision
of $1,000,000 which represents foreign withholding taxes on certain payments
received from Japan Tobacco during the year.

As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $61,000,000. The Company also had federal
research and development tax credit carryforwards of approximately $2,500,000.
The net operating loss and credit carryforwards will expire in the years 2011
through 2019, if not utilized.

Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

Significant components of the Company's deferred tax assets for federal and
state income taxes as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 20,900 $ 12,900
Research credit carryforwards......................... 2,500 1,500
Capitalized research and development.................. 2,900 1,600
Capitalized license agreements........................ 6,300 6,000
Deferred partnership losses........................... -- 1,600
Other, net............................................ -- 100
-------- --------
Total deferred tax assets............................... 32,600 23,700
Valuation allowance..................................... (32,600) (23,700)
-------- --------
Net deferred tax assets............................. $ -- $ --
======== ========
</TABLE>

F-21
<PAGE>
ABGENIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INCOME TAXES (CONTINUED)
The net valuation allowance increased by $9,300,000 and $7,000,000 during
the year ended December 31, 1998 and 1997, respectively. Deferred tax assets
relate primarily to net operating loss carryforwards and to the capitalization
of the GenPharm cross-licensing agreement.

11. SUBSEQUENT EVENTS (UNAUDITED)

COMMON STOCK

Follow-on Public Offering: On February 10, 2000, the Company completed a
follow-on public offering of 3,000,000 shares (2,160,000 new shares from the
Company and 840,000 existing shares owned by Cell Genesys) of its common stock
to the public, at a price of $210.00 per share. On February 29, 2000, the
Company's underwriters exercised an option to purchase 450,000 additional shares
(324,000 new shares from the Company and 126,000 existing shares owned by Cell
Genesys) of common stock at a price of $210.00 per share to cover
over-allotments. The Company received proceeds from the offerings of
$496.5 million after the underwriters' discount and estimated costs of offering.

Two-For-One Stock Split: In March 2000, the Company announced that effective
April 6, 2000 the Company will effect a two-for-one common stock split. The
accompanying financial statements have not been restated to reflect this
two-for-one common stock split.

NEW COLLABORATIONS AND LICENSES

Elan: In January 2000, we entered into a research license and option
agreement with Elan to generate fully human antibodies to an undisclosed antigen
in the field of neurological diseases.

Gliatech: In January 2000, we entered into a research collaboration, option
and license agreement with Gliatech to generate fully human antibodies for use
in the fields of cardiovascular and inflammatory diseases. Under this agreement,
Gliatech is paying the Company to perform the immunizations and certain research
activities.

Millennium: In March 2000, we entered into a collaboration agreement under
which Millennium has the right to generate fully human antigens for a pre-set
number of antigens. Upfront payments may be made in cash or common stock of
Millennium.

NEW FACILITY LEASE

In February 2000, the Company signed an operating lease for an additional
100,100 square foot facility, in Fremont, California, to be used primarily for
pilot scale manufacturing. This lease expires in the year 2018, with options to
extend the lease term. The lease requires a deposit or stand-by letter of credit
for $2,000,000 during the term of the lease.

Future minimum payments under this non-cancelable operating lease as of
signing are as follows (in thousands): 2000--$1,121; 2001--$1,961; 2002--$2,030;
2003--$2,101; 2004--$2,174; and thereafter $27,698.

F-22
<PAGE>
ABGENIX, INC.

INDEX TO EXHIBITS*

<TABLE>
<CAPTION>
EXHIBIT ITEM
- ------- ------------------------------------------------------------
<C> <S>
23.1........ Consent of Ernst & Young LLP, Independent Auditors.
24.1........ Power of Attorney (See signature page).
27.1........ Financial Data Schedule.
</TABLE>

- ---------

* Only exhibits actually filed are listed. Item 14(a)(3) of this Report on
Form 10-K sets forth exhibits incorporated by reference.

<PAGE>
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-66055) pertaining to the 1996 Incentive Stock Plan, the 1998
Employee Stock Purchase Plan and the 1998 Director Option Plan of Abgenix, Inc.,
the Registration Statement (Form S-8 No. 333-90707) pertaining to the 1999
Nonstatutory Stock Option Plan of Abgenix, Inc. for the registation of 1,778,000
shares of its common stock, and the Registration Statement (Form S-3
No. 333-83837) and related Prospectus of Abgenix, Inc. for the registration of
495,356 shares of its common stock, of our report dated January 28, 2000, with
respect to the consolidated financial statements of Abgenix, Inc. included in
this Annual Report on Form 10-k for the year ended December 31, 1999.

/s/ Ernst & Young, LLP

Palo Alto, California
March 24, 2000

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF ABGENIX AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 13,366
<SECURITIES> 44,646
<RECEIVABLES> 4,150
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,023
<PP&E> 8,496
<DEPRECIATION> 3,196
<TOTAL-ASSETS> 148,541
<CURRENT-LIABILITIES> 10,910
<BONDS> 421
0
0
<COMMON> 181,263
<OTHER-SE> (44,203)
<TOTAL-LIABILITY-AND-EQUITY> 148,541
<SALES> 0
<TOTAL-REVENUES> 12,285
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,391
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 438
<INCOME-PRETAX> (19,499)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (20,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,499)
<EPS-BASIC> (1.41)
<EPS-DILUTED> (1.41)

</TABLE>