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 June 30, 2009, our accumulated deficit was $705.4 million, of which $117.6 million relates to the increase in our warrant liability described below. 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 the next several years as we continue our clinical trials, apply for regulatory approvals, develop our technology, expand our operations including our manufacturing capabilities 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 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 licensed 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.
On August 24, 2006, we submitted the clinical and non-clinical sections of our Biologics License Application (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 final analysis of survival from our Phase 3 D9902B IMPACT (IMmunotherapy for Prostate AdenoCarcinoma Treatment) study to support licensure of Provenge.
On April 14, 2009, we announced that the IMPACT study had met its primary endpoint of overall survival and exhibited a safety profile consistent with prior studies. On April 28, 2009 at the American Urological Association annual meeting, we presented detailed results of the IMPACT study. The IMPACT study had a final enrollment of 512 patients with asymptomatic or minimally symptomatic, metastatic, androgen-independent prostate cancer and was a multi-center, randomized, double-blind, placebo-controlled study. Final results from the IMPACT study showed that Provenge extended median survival by 4.1 months compared to placebo (25.8 months versus 21.7 months), and Provenge improved 3-year survival by 38% compared to placebo (31.7% versus 23.0%). The IMPACT study achieved a p-value of 0.032, exceeding the pre-specified level of statistical significance defined by the study's design (p-value less than 0.043), and Provenge reduced the risk of death by 22.5% compared to placebo (HR=0.775). In light of the IMPACT study results, we intend to amend our BLA with the FDA and proceed to seek U.S. licensure for Provenge.
Since receiving positive clinical data from our IMPACT study for Provenge in April, we have focused on amending our BLA and expanding our manufacturing operations. We expect to significantly increase our investments in commercial infrastructure in preparation for the possible FDA licensure of Provenge. We have begun the build-out of Phase II and Phase III of our manufacturing facility in Morris Plains, New Jersey (the "New Jersey Facility") to bring that facility to capacity. We expect the additional build-out of that facility to be substantially completed in April 2010, which will be followed by validation of the New Jersey Facility and an inspection by the FDA. During July and August 2009, we entered into new facilities leases in Atlanta, Georgia, and Orange County, California, for an aggregate of approximately 340,000 rentable square feet of space we intend to use for commercial manufacturing, following construction and build-out of these new facilities. Each of these facilities leases has an initial ten and a half-year term, with two renewal terms of five years each. In Atlanta, Georgia, after the shell of the building is complete in the fourth quarter of this year, we will commence the build-out of the facility. In Orange County, California, we anticipate that build-out of the facility can commence immediately after

receiving the required permits, which we currently expect to be received by the end of the fourth quarter of 2009. We anticipate it will take approximately one year to substantially complete the build-out of these facilities, which will be followed by validation and inspection by the FDA prior to use for the commercial manufacture of Provenge.
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 TRP-M8 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. In April 2009, the first patient enrolled in our Phase 1 clinical trial for patients with advanced cancer.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES We make judgmental decisions and estimates with underlying assumptions when applying accounting principles to prepare our 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 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 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 financial statements.
Except as noted below, our critical accounting policies are summarized in our 2008 Form 10-K.
Prepaid Antigen Costs
The Company utilizes third party suppliers to manufacture and package antigen and other miscellaneous raw materials. The Company takes title to these materials once manufactured, and stores for use in final manufacturing and eventual sale. These materials consist of antigen used in the manufacture of Provenge, and other raw material costs associated with, Provenge, which has not yet received regulatory approval. The prepaid costs of these materials are capitalized, as in the view of the Company's management there is probable future commercial use and future economic benefit. If future commercial use and future economic benefit are not considered probable, then costs associated with prepaid manufacturing and raw materials costs will be expensed as research and development expense in the period the costs are incurred. As of June 30, 2009, there was $19.0 million of capitalized costs associated with the purchase of the antigen used in the manufacture of Provenge, which antigen Diosynth RTP, Inc. ("Diosynth") is obligated to manufacture and delivery is expected to begin in 2010 .
Fair Value
Effective January 1, 2008, we adopted Statement of Financial Accounting Standards ("SFAS No. 157"), "Fair Value Measurements" ("SFAS 157"), except as it applies to the nonfinancial assets and nonfinancial liabilities subject to Financial Accounting Standards Board ("FASB") issued Financing Accounting Standard ("FAS") 157-2, "Effective Date of FASB Statement No. 157", which we adopted effective January 1, 2009. The impact of these items was not material to our 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."

SFAS 157 clarifies the definition of fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.

During the quarter ended June 30, 2009, we adopted FASB Staff Position FAS No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FAS 157-4"), which provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. FAS 157-4 includes guidance on identifying circumstances that indicate a transaction is not orderly. FAS 157-4 emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation techniques used, the objective of a fair value measurement remains the same. The adoption of FAS 157-4 did not have a material impact on our results of operations, cash flows or financial position.
During the quarter ended June 30, 2009, we adopted FASB Staff Position FAS No. 107-1 and Accounting Points Bulletin ("APB") No. 28-1, "Interim Financial Disclosures about Fair Value of Financial Instruments" ("FAS 107-1"), which amends FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments," to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FAS 107-1 also amends APB Opinion No. 28, "Interim Financial Reporting", to require these disclosures in summarized financial information at interim reporting periods. The adoption of FAS 107-1 did not have a material impact on our results of operations, cash flows or financial position.
During the quarter ended June 30, 2009, we adopted FASB Staff Position FAS No. 115-2 and FAS No. 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" ("FAS 115-2 and FAS 124-2"). FAS 115-2 and FAS 124-2 amend the impairment guidance for certain debt securities and requires an investor to assess the likelihood of selling the security prior to recovering its cost basis. If an investor is able to meet the criteria to assert that it will not have to sell the security before recovery, impairment charges related to those credit losses would be recognized in earnings, while impairment charges related to non-credit losses would be reflected in other comprehensive income. The adoption of FAS 115-2 and FAS 124-2 did not have a material impact on our results of operations, cash flows or financial position. Warrant Liability
On April 3, 2008, we issued 8.0 million shares (the "Shares") of our common stock, and warrants to purchase up to 8.0 million shares of common stock (the "Warrants") to an institutional investor (the "Investor"). The Investor purchased the Shares and Warrants for a negotiated price of $5.92 per share of common stock purchased. The Warrants are exercisable at any time prior to April 8, 2015, with an exercise price of $20.00 per share of common stock and include a net exercise feature.
We account for the Warrants as a liability under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), and Emerging Issues Task Force ("EITF") No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" ("EITF No. 00-19"), which provide guidance for distinguishing between permanent equity, temporary equity and assets and liabilities. The Warrants have been recorded at their relative fair values at issuance and will continue to be recorded at fair value each subsequent balance sheet date. Any change in value between reporting periods will be recorded as other income (expense) each reporting date. The Warrants will continue to be reported as a liability until such time as they are exercised or are otherwise modified to remove the provisions that require this treatment, at which time the Warrants will be adjusted to fair value and reclassified from liabilities to stockholders' equity. The fair value of the Warrants is estimated using the Black-Scholes-Merton ("BSM") option-pricing model. As of June 30, 2009 and December 31, 2008, the fair value of the Warrants was determined to be $117.6 million and $14.2 million, respectively; accordingly, we recorded approximately $103.4 million in other loss for the six months ended June 30, 2009 related to the change in the fair value of the Warrants. Recent Accounting Pronouncements
On January 1, 2009, we adopted 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. The adoption of EITF 07-1 did not have any impact on our results of operations, cash flows or financial position.
On January 1, 2009, we adopted EITF Issue No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock" ("EITF 07-5"), which requires that we apply a two-step approach in evaluating whether an equity-linked financial instrument (or embedded feature) is indexed to our own stock, including evaluating the instrument's contingent exercise and settlement provisions. The adoption of EITF 07-5 did not have any impact on our results of operations, cash flows or financial position.

During the quarter ended June 30, 2009, we adopted SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165 establishes general standards of accounting and disclosure for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of SFAS 165 did not have any impact on our results of operations, cash flows or financial position.
New Accounting Standards Not Yet Adopted In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162" ("SFAS 168"). The statement confirmed that the FASB Accounting Standards Codification (the "Codification") will become the single official source of authoritative U.S. GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, EITF, and related literature. After that date, only one level of authoritative U.S. GAAP will exist. All other literature will be considered non-authoritative. The Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification, which changes the referencing of financial standards, becomes effective for interim and annual periods ending on or after September 15, 2009. We will apply the Codification beginning in the third quarter of fiscal 2009. The adoption of SFAS 168 is not expected to have any substantive impact on our condensed financial statements or related footnotes.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
Revenue
Revenue decreased to $25,000 for the three months ended June 30, 2009, compared to $26,000 for the three months ended June 30, 2008. Revenue decreased to $55,000 for the six months ended June 30, 2009, compared to $57,000 for the six months ended June 30, 2008. Our revenue in 2009 and 2008 includes recognition of deferred revenue related to a license agreement. Research and Development Expenses
Research and development expenses increased to $13.3 million for the three months ended June 30, 2009, from $13.2 million for the three months ended June 30, 2008. Research and development expenses decreased to $25.1 million for the six months ended June 30, 2009, from $26.7 million for the six months ended June 30, 2008. The six month decrease was primarily due to the expense of antigen in 2008.
Research and development-related activities are clinical programs and discovery research. Our research and development expenses for the three and six months ended June 30, 2009 and 2008 were as follows (in millions):

                                             Three months ended          Six months ended
                                                  June 30,                   June 30,
                                             2009           2008         2009          2008
  Clinical programs:
  Direct costs                             $     1.1       $   2.6     $     2.5      $  5.5
  Indirect costs                                11.6           9.6          21.6        19.3

  Total clinical programs                       12.7          12.2          24.1        24.8
  Discovery research                             0.6           1.0           1.0         1.9

  Total research and development expense   $    13.3       $  13.2     $    25.1      $ 26.7

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 programs 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;

• to what extent a product may generate commercial demand and be viewed favorably by physicians; or

• whether, if approved, the manufacture of these products will be scalable to meet commercial demand.

General and Administrative Expenses
General and administrative expenses increased to $7.6 million for the three months ended June 30, 2009, compared to $5.4 million for the three months ended June 30, 2008. General and administrative expenses increased to $12.8 million for the six months ended June 30, 2009, compared to $11.1 million for the six months ended June 30, 2008. General and administrative expenses were primarily comprised of salaries and wages, consulting fees, marketing fees and administrative costs to support our operations. The increases in the three and six months ended June 30, 2009 compared to 2008 was primarily attributable to increased salaries in the three months ended June 30, 2009, and wages associated with stock compensation.
Interest Income
Interest income decreased to $196,000 for the three months ended June 30, 2009, from $951,000 for the three months ended June 30, 2008. Interest income decreased to $529,000 for the six months ended June 30, 2009, from $2.1 million for the six months ended June 30, 2008. The decreases in the three and six months ended June 30, 2009 compared to 2008 was primarily due to lower average interest rates.
Interest Expense
Interest expense decreased to $213,000 for the three months ended June 30, 2009, compared to $1.2 million for the three months ended June 30, 2008. Interest expense decreased to $1.3 million for the six months ended June 30, 2009, compared to $2.8 million for the six months ended June 30, 2008. The decreases in the three and six months ended June 30, 2009 compared to 2008 was primarily due to a decreased outstanding debt balance associated with the conversion in April of $11.5 million in principal amount of the 4.75% Convertible Senior Subordinated Notes due 2014 (the "Notes") to equity, and the May 2009 exchange of $21.2 million in principal amount of the Notes for equity, decreased interest expense related to debt and capital lease obligations and capitalized interest expense related to the construction of the New Jersey Facility and our product scheduling system in 2009. Warrant Liability
Non-operating loss associated with the increase in warrant liability for the three and six months ended June 30, 2009 was $105.8 million and $103.4 million, respectively as compared to non-operating income of $2.4 million for the three and six months ended June 30, 2008.. This represents the increase in the fair value of $103.4 million for the Warrants from December 31, 2008. Under SFAS 157, the Warrants were determined to be Level 3 liability. As such, the fair value was calculated using the BSM 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 statement of operations in future periods. Conversely, potential future declines in our stock price will result in gains being recognized in our 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Uses and Proceeds
As of June 30, 2009, we had approximately $287.5 million in cash, cash equivalents and short-term investments. To date, we have financed our operations primarily through proceeds from the sale of equity, debt and convertible securities, cash receipts from collaborative agreements and interest income earned.

Net cash used in operating activities for the six months ended June 30, 2009 and 2008 was $48.8 million and $34.1 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.
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 June 30, 2009, our aggregate investment in equipment and leasehold improvements was $52.8 million.
While we believe that our current cash on hand as of June 30, 2009, is sufficient to meet our anticipated expenditures during the next 12 months as we . . .