OVERVIEW

We are a biotechnology company focused on the discovery, development and commercialization of novel therapeutics that harness the immune system to fight cancer. Our portfolio includes active immunotherapy, monoclonal antibody and small molecule product candidates to treat a wide range of cancers. Our most advanced product candidate is Provenge (sipuleucel-T), an active cellular immunotherapy for prostate cancer.

We have incurred significant losses since our inception. As of December 31, 2008, our accumulated deficit was $563.3 million. We have incurred net losses as a result of research and development expenses, clinical trial expenses, contract manufacturing expenses and general and administrative expenses in support of our operations and research efforts. We anticipate incurring net losses over at least the next several years as we continue our clinical trials, apply for regulatory approvals, develop our technology, expand our operations and develop the infrastructure

to support the commercialization of Provenge and other product candidates we may develop. The majority of our resources continue to be used in support of Provenge. We own worldwide commercialization rights for Provenge.

We will not generate revenue from the sale of our potential commercial therapeutic products in the U.S. until Provenge or another product candidate we may develop is approved by the U.S. Food and Drug Administration (the "FDA"). Without revenue generated from commercial sales, we anticipate that we will continue to fund our ongoing research, development and general operations from our available cash resources and future offerings of equity, debt or other securities.

In September 2005, we announced plans to submit our biologics license application (our "BLA") to the FDA for approval to market Provenge. This decision followed a pre-BLA meeting in which we reviewed safety and efficacy data with the FDA from our two completed Phase 3 clinical trials for Provenge, D9901 and D9902A. In these discussions the FDA agreed that the survival benefit observed in the D9901 study in conjunction with the supportive data obtained from study D9902A and the absence of significant toxicity in both studies was sufficient to serve as the clinical basis of our BLA submission for Provenge. Provenge was granted Fast Track designation from the FDA for the treatment of asymptomatic, metastatic, androgen-independent (also known as hormone refractory) prostate cancer patients, which enabled us to submit our BLA on a rolling basis.

On August 24, 2006, we submitted the clinical and non-clinical sections of our BLA and on November 9, 2006, we submitted the chemistry, manufacturing and controls ("CMC") section, completing our submission of our BLA to the FDA for Provenge. On January 12, 2007, the FDA accepted our BLA filing and assigned Priority Review status for Provenge.

The FDA's Cellular, Tissue and Gene Therapies Advisory Committee (the "Advisory Committee") review of our BLA for the use of Provenge in the treatment of patients with asymptomatic, metastatic, androgen-independent prostate cancer was held on March 29, 2007. The Advisory Committee was unanimous (17 yes, 0 no) in its opinion that the submitted data established that Provenge is reasonably safe for the intended population and the majority (13 yes, 4 no) believed that the submitted data provided substantial evidence of the efficacy of Provenge in the intended population.

On May 8, 2007, we received a Complete Response Letter from the FDA regarding our BLA. In its letter, the FDA requested additional clinical data in support of the efficacy claim contained in the BLA, as well as additional information with respect to the CMC section of the BLA. In a meeting with the FDA on May 29, 2007, we received confirmation that the FDA will accept a positive interim or final analysis of survival from our ongoing Phase 3 D9902B IMPACT (IMmunotherapy for Prostate AdenoCarcinoma Treatment) study to support licensure of Provenge. These analyses are event driven, rather than time specific.

On October 6, 2008, we announced the receipt of interim results from our IMPACT study. The independent data monitoring committee (the "IDMC") reported to us a 20 percent reduction in the risk of death in the Provenge arm of the study relative to placebo. The IDMC observed no safety concerns and recommended that the study continue to its final analysis, which is anticipated by the end of April 2009. If the study demonstrates approximately a 22 percent reduction in the risk of death, based on 304 events, we would expect the study to meet its primary endpoint of overall survival. In such event, we believe these data would be sufficient to address the FDA's request for additional clinical information to support the proposed efficacy claim and we would amend our BLA.

We would also expect to increase our investments in commercial infrastructure in preparation for the possible approval of Provenge. The level of increased investment would depend on our ability to access additional financing, either through the capital markets, borrowings or through partnership opportunities with Provenge. The IMPACT study may not meet the prespecified statistical criteria, but still provide additional supportive evidence of efficacy to support amending our BLA. The decision to amend the BLA will be based on several factors, including the totality of the data from our three phase 3 studies and whether such data demonstrate a favorable benefit to risk profile for patients with asymptomatic, metastatic, androgen-independent prostate cancer. If the IMPACT study fails to provide sufficient positive evidence of survival to allow us to amend on BLA we expect to focus our efforts on the TRPM8 clinical program and explore potential business development opportunities.

Other potential product candidates we have under development include Neuvengetm, our investigational active cellular immunotherapy for the treatment of patients with breast, ovarian and other solid tumors expressing HER2/

neu. We are also developing an orally-available small molecule targeting TRPM8 that could be applicable to multiple types of cancer as well as benign prostatic hyperplasia. In December 2008 we filed an investigational new drug application ("IND") to investigate this small molecule in advanced cancer patients. The IND was cleared by the FDA in January 2009.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We make judgmental decisions and estimates with underlying assumptions when applying accounting principles to prepare our consolidated financial statements. Certain critical accounting policies requiring significant judgments, estimates, and assumptions are detailed below. We consider an accounting estimate to be critical if (1) it requires assumptions to be made that are uncertain at the time the estimate is made and (2) changes to the estimate or different estimates, that could have reasonably been used, would have materially changed our consolidated financial statements. The development and selection of these critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.

We believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, should our actual experience differ from these assumptions and other considerations used in estimating these amounts, the impact of these differences could have a material impact on our consolidated financial statements.

Revenue Recognition

Substantially all of the revenue we receive is collaborative research revenue and license revenue. We recognize collaborative research revenues from up-front payments, milestone payments, and personnel-supported research funding. We also recognize license revenue from intellectual property and technology agreements. The payments received under these research collaboration agreements are generally contractually not refundable even if the research effort is not successful. Performance under our collaborative agreements is measured by scientific progress, as mutually agreed upon by us and our collaborators.

Our revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. The consideration we receive is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units.

License Fees: License fees from our research collaborations include payments for technology transfer and access rights. Non-refundable, up-front payments received in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis over the period during which we have continuing obligations, generally the research term. When the research term is not specified in the agreement and instead the agreement specifies the completion or attainment of a particular development goal, an estimate is made of the time required to achieve that goal considering experience with similar projects, level of effort and the development stage of the project. The basis of the revenue recognition is reviewed and adjusted based on the status of the project against the estimated timeline as additional information becomes available. Non-refundable license fees where we have completed all future obligations are recognized as revenue in the period when persuasive evidence of an agreement exists, delivery has occurred, collectability is reasonably assured and the price is fixed and determinable.

Royalty Income: Royalties from licensees are based on reported sales of licensed products, and revenues are calculated based on contract terms when reported sales are reliably measurable and collectability is reasonably assured.

Research and Development Expenses

We account for research and development costs in accordance with Statement of Financial Accounting Standards ("SFAS") No. 2, "Accounting for Research and Development Costs," and Emerging Issues Task Force ("EITF") Issue No. 07-3, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research

and Development Activities" ("EITF 07-3"). For research and development activities in progress at January 1, 2008, costs are expensed as incurred including nonrefundable prepayments for research and development services. On January 1, 2008, we adopted EITF 07-3 and changed our accounting policy. For new contracts entered into as of or subsequent to January 1, 2008, nonrefundable prepayments for research and development services are deferred and recognized as the services are rendered. Research and development expenses include, but are not limited to, payroll and personnel expenses, lab expenses, clinical trial and related clinical manufacturing costs, facilities and related overhead costs.

Accounting for Stock-Based Compensation

We account for stock-based compensation in accordance with Financial Accounting Standards Board ("FASB") SFAS No. 123R, "Share-Based Payment" ("SFAS 123R"). Under the provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the award's fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

We grant restricted stock awards that generally vest over a four year period, however, in 2006 and 2007, we granted restricted stock awards with certain performance conditions to all employees. In accordance with SFAS 123R, management is required to estimate the probability of achieving each acceleration provision. Compensation expense is recorded based upon our assessment of accomplishing each provision.

We recognize compensation expense for our stock-based payment awards on the accelerated method over the requisite service period of the entire award, unless the awards are subject to other conditions, in which case we recognize compensation expense over the requisite service period of each separate vesting tranche. We determine the grant date fair value of our stock option awards and Employee Stock Purchase Plan under SFAS 123R using the BSM option pricing model.

For additional information about stock-based compensation, see Note 10 to the Consolidated Financial Statements.

Recent Accounting Pronouncements

On January 1, 2008, we adopted EITF Issue 07-3 and changed our accounting policy. For new contracts entered into as of or subsequent to January 1, 2008, nonrefundable prepayments for research and development services are deferred and recognized as the services are rendered.

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"), to partially defer SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). In accordance with the provisions of FSP 157-2, we have elected to defer implementation of SFAS 157 as it relates to our non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. We believe that the impact of these items will not be material to our consolidated financial statements. Assets and liabilities typically recorded at fair value on a non-recurring basis include:

• Long-lived assets measured at fair value due to an impairment assessment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets;" and

• Asset retirement obligations initially measured under SFAS No. 143, "Accounting for Asset Retirement Obligations."

On October 10, 2008, the FASB issued FASB Staff Position No. 157-3, "Fair Value Measurements" ("FSP 157-3"), which clarifies the application of SFAS 157 in an inactive market and provides an example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued.

The adoption of this standard as of December 31, 2008 did not have a material impact on our results of operations, cash flows or financial positions.

New Accounting Standards Not Yet Adopted

In December 2007, the FASB ratified the final consensuses in EITF Issue No. 07-1, "Accounting for Collaborative Arrangements" ("EITF 07-1"), which requires a certain presentation of transactions with third parties and of payments between parties to a collaborative arrangement in our statement of operations, along with disclosure about the nature and purpose of the arrangement. EITF 07-1 is effective beginning January 1, 2009. We have evaluated the impact of adopting EITF 07-1 on our consolidated financial statements and do not expect any impact on our results of operations, cash flows or financial position.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

Revenue

Revenue was $111,000 in 2008, $743,000 in 2007 and $273,000 in 2006. The decrease in 2008 compared to 2007 was primarily due to decreased revenue related to the sale of certain intellectual property in 2007. Our revenue in 2008 also includes recognition of deferred revenue related to one license agreement. The increase in 2007 compared to 2006 was primarily due to revenue related to an intellectual property option purchase agreement entered into in 2006 with Wilex AG ("Wilex") and exercised in 2007 for payment to us of $500,000, as further described below. Our revenue in 2007 and 2006 also includes recognition of deferred revenue related to two license agreements.

On February 22, 2006, we entered into an option purchase agreement with Wilex for our intellectual property in small molecule inhibitors of urokinase plasminogen activator (u-PA). On March 7, 2007, Wilex exercised its option pursuant to the terms and conditions of the option agreement in exchange for payment to us of $500,000. The sale of this technology is a perpetual exclusive arrangement where we have assigned our entire right, title and interest in the intellectual property to Wilex. Furthermore, upon exercising its option, Wilex is obligated to make additional milestone payments to us upon the occurrence of future events, which includes initiation of the first clinical Phase II and Phase III studies resulting from a product developed from the intellectual property and upon the first sale of this product after an approval from the FDA. These milestone payments are capped at $1.6 million.

Research and Development Expenses

Research and development expenses were $50.1 million in 2008, $76.5 million in 2007 and $74.1 million in 2006. The 2008 decrease compared with 2007 was primarily due to decreased Phase 3 clinical activities as a result of the completion of patient enrollment in the IMPACT trial in late 2007, the completion and utilization of our Morris Plains, New Jersey manufacturing facility (the "Facility") and resultant reduction of outside clinical manufacturing, the purchase of commercial antigen in 2007, the reduction in the costs for pre-commercialization efforts of Provenge and the decrease in headcount and related severance costs associated with the 2007 reduction in force. The 2007 increase compared with 2006 was primarily due to the purchase of commercial antigen in 2007 and increased costs associated with our Facility, offset by decreased Phase 3 clinical activities as a result of the completion of patient enrollment in the IMPACT trial in late 2007.

Financial data from our research and development-related activities is compiled and managed by us as follows:

1) Clinical programs; and

2) Discovery research.

Our research and development expenses for the years ended December 31, 2008, 2007 and 2006 were as follows (in millions):

                                                    2008       2007       2006

          Clinical programs:
          Direct costs                             $  9.0     $ 30.1     $ 27.2
          Indirect costs                             37.7       43.3       42.3

          Total clinical programs                    46.7       73.4       69.5

          Discovery research                          3.4        3.1        4.6

          Total research and development expense   $ 50.1     $ 76.5     $ 74.1

Direct research and development costs associated with our clinical programs include clinical trial site costs, clinical manufacturing costs, costs incurred for consultants and other outside services, such as data management and statistical analysis support, and materials and supplies used in support of the clinical programs. Indirect costs of our clinical program include wages, payroll taxes and other employee-related expenses, rent, restructuring charges, stock-based compensation, utilities and other facilities-related maintenance. The costs in each category may change in the future and new categories may be added. Costs attributable to our discovery research programs represent our efforts to develop and expand our product pipeline.

While we believe our clinical programs are promising, we do not know whether any commercially viable products will result from our research and development efforts. Due to the unpredictable nature of scientific research and product development, we cannot reasonably estimate:

• the timeframe over which our projects are likely to be completed;

• whether they will be completed;

• if they are completed, whether they will provide therapeutic benefit or be approved for commercialization by the necessary regulatory agencies; or

• whether, if approved, they will be scalable to meet commercial demand.

General and Administrative Expenses

General and administrative expenses were $20.5 million in 2008, $25.8 million in 2007 and $23.5 million in 2006. General and administrative expenses were primarily comprised of salaries and wages, consulting fees, marketing fees and administrative costs to support our operations. The decrease in 2008 compared with 2007 was primarily attributable to decreased outside services and marketing costs related to pre-commercialization efforts for Provenge, decreased headcount and severance costs associated with the 2007 reduction in force and decreased legal fees associated with our current legal proceedings. The increase in 2007 compared with 2006 was primarily attributable to increased legal fees associated with our current legal proceedings, increased non-cash stock compensation and increased administrative costs offset by decreased consulting costs associated with the validation of our enterprise resource planning system in 2006.

Interest Income

Interest income was $3.6 million in 2008, $6.5 million in 2007 and $6.1 million in 2006. The decrease in 2008 compared to 2007 was primarily due to lower average interest rates and lower average cash and investment balances. The increase in 2007 compared to 2006 was primarily due to higher average interest rates and a higher average cash balance due to the proceeds from the issue in June and July 2007 of an aggregate of $85.25 million in 4.75% Convertible Senior Subordinated Notes (the "Notes").

Interest Expense

Interest expense was $5.2 million in 2008, $4.1 million in 2007 and $336,000 in 2006. The increase in 2008 was primarily due to an increase in the average debt balance in 2008, including the principal amount of the Notes as

compared to 2007, offset by capitalized interest expense related to the construction of the Facility and our product scheduling system and by decreased interest expense related to debt and capital lease obligations. The increase in 2007 was primarily due to an increase in the average debt balance in 2007, including the principal amount of the Notes, as compared to 2006, and the 2006 capitalization of interest costs related to the construction of the Facility.

Warrant Liability

Non-operating income associated with the decrease in warrant liability was $371,000 for the year ended December 31, 2008. This represents the decrease in the initial fair value of $14.6 million of the warrants from the date of issuance, April 2008. Under SFAS 157, the warrants were determined to be Level 3 liability, as such the fair value was calculated using the Black-Scholes-Merton option-pricing model and is remeasured at each reporting period. Potential future increases in our stock price will result in losses being recognized in our consolidated statement of operations in future periods. Conversely, potential future declines in our stock price will result in gains being recognized in our consolidated statement of operations in future periods. Neither of these potential gains or losses will have any impact on our cash balance, liquidity or cash flows from operations.

Income Taxes

As of December 31, 2008, we had federal and state net operating loss carryforwards ("NOLs") of approximately $529 million and $76 million, respectively. We also had federal and state research and development credit carryforwards ("R&D Credits") of approximately $15 million and $1.7 million, respectively. The NOLs and R&D Credits expire at various dates, beginning in 2009 through 2028, if not utilized. Utilization of the NOLs and R&D Credits may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986. The annual limitations may result in the expiration of NOLs and R&D Credits before utilization.

Stock-Based Compensation Expense

Total stock-based employee compensation expense recognized in the consolidated statement of operations in 2008, 2007 and 2006 was $5.9 million, $6.1 million and $5.3 million, respectively, of which $2.9 million, $2.8 million and $2.6 million, respectively, were included in research and development expense and $3.0 million, $3.3 million and $2.7 million, respectively, were included in general and administrative expense. Total stock-based employee compensation expense recognized in the consolidated statement of operations in 2008, 2007 and 2006 increased our net loss per share by $0.06, $0.07 and $0.07, respectively. As we use a full valuation allowance with respect to deferred taxes, the adoption of SFAS 123R had no impact on deferred taxes.

LIQUIDITY AND CAPITAL RESOURCES

Cash Uses and Proceeds

As of December 31, 2008, we had approximately $108.5 million in cash, cash equivalents and short-term and long-term investments. To date, we have financed our operations primarily through proceeds from the sale of equity and debt securities, including the Notes, cash receipts from collaborative agreements, and interest income earned.

Net cash used in operating activities for the years ended December 31, 2008, 2007 and 2006 was $66.1 million, $82.6 million and $80.8 million, respectively. Expenditures in all periods were a result of research and development expenses, clinical trial costs, contract manufacturing costs and general and administrative expenses in support of our operations. In 2006, these expenditures were partially offset by cash received from our corporate collaborators, including license fees from Kirin Brewing Co., Ltd. of $6.0 million.

Since our inception, investing activities, other than purchases and maturities of short-term and long-term investments, consist primarily of purchases of property and equipment. At December 31, 2008, our aggregate investment in equipment and leasehold improvements was $45.2 million.

As of December 31, 2008, we anticipate that our cash on hand, including our cash equivalents and short-term and long-term investments, will be sufficient to enable us to meet our anticipated expenditures for at least the next 12 months; provided, however, that if we receive positive survival results from the final analysis for the IMPACT

trial and therefore commence activities in anticipation of the approval of Provenge for commercialization, we will need to raise additional funds for, among other things:

• the development of marketing, manufacturing, information technology and other infrastructure and activities related to the commercialization of Provenge,

• working capital needs,

• expanding the our manufacturing capabilities,

• increased personnel needs, and

• continuing our internal research and development programs.

Additional financing may not be available on favorable terms or at all. If we . . .