Forward-Looking Statements

The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, might, will, should, expect, plan, anticipate, project, believe, estimate, predict, potential, intend or continue, the negative of terms like these or other comparable terminology, and other words or terms of similar meaning in connection with any discussion of future operating or financial performance. These statements are only predictions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Any or all of our forward-looking statements in this document may turn out to be wrong. Actual events or results may differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. In evaluating these statements, you should specifically consider various factors, including the risks outlined under the caption "Risk Factors" set forth in Item 1A. of Part I of our Form 10-K for the fiscal year ended December 31, 2007, as updated in Item 1A. of Part II of this Form 10-Q, as well as those contained from time to time in our other filings with the SEC. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

Seattle Genetics is a clinical-stage biotechnology company developing monoclonal antibody-based therapies for the treatment of cancer and autoimmune disease. Our business strategy is focused on advancing our portfolio of product candidates in diseases with unmet medical need and significant market potential. We have a worldwide collaboration agreement with Genentech to develop and commercialize our product candidate dacetuzumab (SGN-40). In addition, we currently have three other proprietary product candidates in ongoing clinical trials, lintuzumab (SGN-33), SGN-35 and SGN-70, as well as several lead preclinical product candidates, including SGN-75 and SGN-19A. Our pipeline of product candidates is based upon two technologies: engineered monoclonal antibodies and monoclonal antibody-drug conjugates, or ADCs. These technologies enable us to develop monoclonal antibodies that can kill target cells on their own as well as to increase the potency of monoclonal antibodies by linking them to a cell-killing payload to form an ADC. In addition to our internal pipeline, we have ADC license agreements with a number of leading biotechnology and pharmaceutical companies, including Genentech, Inc., Bayer Healthcare, AG, CuraGen Corporation, Progenics Pharmaceuticals, Inc., Daiichi Sankyo Co., Ltd., and MedImmune, Inc., a wholly-owned subsidiary of AstraZeneca PLC, as well as an ADC co-development agreement with Agensys, Inc., a wholly-owned subsidiary of Astellas Pharma.

We do not currently have any commercial products for sale. All of our product candidates are in relatively early stages of development and significant further research and development, financial resources and personnel will be required to develop commercially viable products and obtain regulatory approvals. As of September 30, 2008, we had an accumulated deficit of $283.4 million. Over the next several years, we expect to incur substantial expenses as we continue to invest in research, development and manufacturing and move towards commercialization of our product candidates. Our commitment of resources to research and the continued development and potential commercialization of our product candidates will require substantial additional funds and resources. Our operating expenses will also likely increase as we invest in research or acquire additional technologies, as additional product candidates are selected for clinical development and as some of our earlier stage product candidates move into later stage clinical development. In addition, we may incur significant milestone payment obligations as our product candidates progress through clinical trials towards commercialization. We expect that a substantial portion of our revenues for the next several years will be the result of amortization of payments already received and expected to be received from Genentech under our dacetuzumab collaboration agreement. Our revenues for the foreseeable future will also depend on the achievement of development and clinical milestones under our existing collaboration and license agreements, particularly our dacetuzumab collaboration with Genentech, as well as entering into new collaboration and license agreements. Our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, we believe that period to period comparisons of our operating results may not be meaningful and you should not rely on them as indicative of our future performance.

Financial summary

To date, we have generated revenues principally from our collaboration and license agreements. These revenues reflect upfront technology access fees, milestone payments and reimbursement for support and materials supplied to our collaborators. For the nine months ended September 30, 2008, revenues increased 73% to $25.2 million, compared to $14.6 million for the same period in 2007. Operating expenses increased 59% to $85.1 million, compared to $53.7 million for the same period in 2007. Our net loss for the nine month period ended September 30, 2008 was $54.9 million, or $0.70 per share, compared to $34.0 million, or $0.57 per share, for the same period in 2007. As of September 30, 2008, we had $187.1 million in cash, cash equivalents and short-term and long-term investments, and $105.8 million in total stockholders' equity.

Results of Operations

Three months and nine months ended September 30, 2008 and 2007

Revenues.

Total revenues increased 74% to $8.1 million in the third quarter of 2008 and increased 73% to $25.2 million in the first nine months of 2008 from the comparable periods in 2007. Revenues by collaborator are summarized as follows:

                                                                                    Three months ended                  Nine months ended
                                                                                      September 30,                       September 30,
Collaboration and license agreement revenue by collaborator ($ in thousands)    2008      2007     % change         2008       2007     % change
Genentech                                                                      $ 6,850   $ 3,766         82 %     $ 20,488   $ 10,720         91 %
MedImmune                                                                          436       249         75 %        1,316        777         69 %
CuraGen                                                                             50        25        100 %        1,137         75       1416 %
Bayer                                                                               63       215        (71 )%         981        827         19 %
Progenics                                                                           52       182        (71 )%         468      1,215        (61 )%
Daiichi Sankyo                                                                     354        -         N/A (1)        354         -         N/A (1)
Other                                                                              274       200         37 %          424        970        (56 )%

Total                                                                          $ 8,079   $ 4,637         74 %     $ 25,168   $ 14,584         73 %

(1) No comparable data for prior period.

Genentech revenues increased 82% to $6.9 million in the third quarter of 2008 and increased 91% to $20.5 million for the first nine months of 2008 compared to the comparable periods in 2007. These increases are primarily the result of revenues earned under the dacetuzumab collaboration agreement with Genentech entered into in January 2007. Under the terms of this agreement, we perform research and development activities over the six-year development period of the agreement, the costs of which are reimbursed by Genentech. We are also entitled to receive milestones as dacetuzumab progresses through development and royalties on future product sales. The $60 million upfront payment received in 2007 and all reimbursement and milestone payments received are deferred and recognized as revenue over the development period of the agreement using a time-based method. Genentech revenues also reflect the earned portion of payments received under our ADC collaboration agreement. Revenues earned during the first nine months of 2008 under our collaboration with CuraGen increased by $1.1 million over the amount earned in the first nine months of 2007. The increase in 2008 reflects a $1.0 million phase II clinical trial initiation milestone payment received from CuraGen in the second quarter. Revenues earned under our Bayer collaboration decreased 71% in the third quarter of 2008 compared to the third quarter of 2007 due to lower requirements for research materials by Bayer in the 2008 third quarter. Bayer revenue increased 19% for the first nine months of 2008 from the comparable period in 2007 and reflects the earned portion of a $1.0 million collaboration extension payment received from Bayer in May 2008. Revenues earned under our MedImmune collaboration increased 75% to $436,000 in the third quarter and increased 69% to $1.3 million for the first nine months of 2008 from the comparable periods in 2007. The increase for both periods results from the earned portion of a $1.5 million fee paid by MedImmune to exercise an option to license a second antigen target in October 2007. Revenues earned under our Progenics collaboration decreased 71% to $52,000 in the third quarter and decreased 61% to $468,000 for the first nine months of 2008 from the comparable periods in 2007. The decrease in the third quarter of 2008 was due to the completion of the research term of the agreement in June 2008. In addition, revenue for the first nine months of 2008 was lower due to a preclinical milestone earned during the first nine months of 2007. Daiichi Sankyo revenue reflects the earned portion of a $4.0 million upfront payment received by us in the third quarter of 2008, and reimbursable support and research materials provided to Daiichi Sankyo by us under the ADC collaboration agreement we entered into with Daiichi Sankyo in July 2008.

Our revenue is impacted by progress-dependent milestones, annual maintenance fees and reimbursement and support fees as our collaborators advance product candidates through the development process. We expect future collaboration and license agreement revenue to trend higher in the near term. However, revenue may vary substantially from quarter to quarter depending on the progress made by our collaborators with their product candidates, the level of support we provide to our collaborators, the timing of milestones achieved and our ability to enter into additional collaboration agreements. In addition, we have a significant balance in deferred revenue representing prior payments from collaborators. This deferred revenue will be recognized as revenue in the future using a time-based approach.

Research and development.

Research and development expenses increased 56% to $27.7 million in the third quarter of 2008 and increased 64% to $73.4 million in the first nine months of 2008 from the comparable periods in 2007. Our research and development expenses are summarized as follows:

                                                  Three months ended                 Nine months ended
                                                    September 30,                      September 30,
Research and Development ($ in thousands)     2008       2007     % change       2008       2007     % change
Research                                    $  3,431   $  3,358          2 %   $ 11,252   $ 10,691          5 %
Development and contract manufacturing        10,673      5,551         92 %     26,222     15,690         67 %
Clinical                                      12,107      7,556         60 %     31,321     14,483        116 %
Stock compensation expense                     1,500      1,270         18 %      4,567      3,855         18 %

Total research and development expenses     $ 27,711   $ 17,735         56 %   $ 73,362   $ 44,719         64 %

Research expenses increased moderately during 2008 from the comparable periods in 2007 and primarily reflect an increase in laboratory supply expenses and service costs during the periods. Development and contract manufacturing costs increased 92% to $10.7 million in the third quarter of 2008 and increased 67% to $26.2 million in the first nine months of 2008 from the comparable periods in 2007. These increases reflect higher compensation related to increased staffing levels, laboratory supply expenses and increased manufacturing costs associated with supplying dacetuzumab, lintuzumab and SGN-35 for the Company's clinical trials. Clinical costs increased 60% to $12.1 million in the third quarter of 2008 and increased 116% to $31.3 million in the first nine months of 2008 from the comparable periods in 2007. These increases reflect expanded clinical trial activities for dacetuzumab, lintuzumab and SGN-35 as well as higher compensation costs related to increased staffing levels to support ongoing clinical trials. Share-based compensation expense increased 18% for both the three month and nine month periods ended September 30, 2008 from the comparable periods in 2007, reflecting the increase in the number of options outstanding associated with increased staffing levels and a higher per share value of options granted due to an increase in our common stock price.

The following table shows expenses incurred for preclinical study support, contract manufacturing for clinical supplies and clinical trial services provided by third parties as well as milestone payments for in-licensed technology for each of our product candidates. The table also presents unallocated costs which consist of personnel, facilities and other costs not directly allocable to development programs:

                                                Three months ended         Nine months ended         Five years ended
                                                   September 30,             September 30,          September 30, 2008
Product Candidates ($ in thousands)              2008          2007         2008         2007
dacetuzumab (SGN-40)                          $     4,002    $  2,853    $   12,021    $  5,043    $             27,615
lintuzumab (SGN-33)                                 4,620       2,574        10,215       5,891                  21,759
SGN-35                                              3,862         839         7,835       1,515                  17,863
SGN-75                                                924         100         1,889         374                   2,623
SGN-70                                                511       1,314         1,136       2,953                   8,731

Total third party costs                            13,919       7,680        33,096      15,776                  78,591
Unallocated costs and overhead                     12,292       8,785        35,699      25,088                 163,475
Stock compensation expense                          1,500       1,270         4,567       3,855                  13,367

Total research and development expenses       $    27,711    $ 17,735    $   73,362    $ 44,719    $            255,433

Our third party costs for dacetuzumab increased in both the three months and nine months ended September 30, 2008 and reflect phase I and II clinical trial costs and higher contract manufacturing costs for additional clinical supply. We expect third party costs associated with dacetuzumab to increase as we continue to enroll patients into multiple ongoing clinical trials and contract with outside firms to manufacture additional drug for clinical supply. Under our dacetuzumab collaboration agreement, Genentech reimburses us for development activities that we perform under the agreement. Expenses that we incur under the dacetuzumab collaboration are included in our research and development expense, while reimbursements of those expenses by Genentech are recognized as revenue over the six year development period of the agreement. Our third party costs for lintuzumab increased in both the three months and nine months ended September 30, 2008, and reflect costs associated with our phase I and II clinical studies. We expect our third party costs for lintuzumab to increase from amounts incurred in 2007 as clinical activities expand and as manufacturing resupply activities continue. Our third party costs for SGN-35 increased in both the three months and nine months ended September 30, 2008 and reflects our phase I clinical trial and contract manufacturing activities. We expect third party costs for SGN-35 to increase as we expand our clinical trials, including pivotal trials planned to begin in 2009, and pursue contract

manufacturing activities for additional clinical supply. Our third party costs for SGN-70 decreased in both the three months and nine months ended September 30, 2008 primarily due to completion of manufacturing activities conducted during 2007 to perform scale-up and GMP manufacturing of drug product to support clinical trials. We expect third party costs for SGN-70 to continue to decrease from amounts incurred in 2007, reflecting lower manufacturing and preclinical development activities which we expect will be partially offset by increasing clinical trial costs as clinical activities expand in 2008. SGN-75 third party costs in the three months and nine months ended September 30, 2008 have increased over 2007 levels and reflect IND-enabling activities that are underway. We expect third party costs for SGN-75 to increase during 2008 compared to 2007 as these activities continue in preparation for the potential filing of an IND and the initiation of clinical trials.

Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost of completion. In order to advance our product candidates toward commercialization, the product candidates are tested in several preclinical safety, toxicology and efficacy studies. We then conduct clinical trials for those product candidates that may take several years or more to complete. The length of time varies substantially based upon the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:

• the number of patients who participate in the trials;

• the length of time required to enroll trial participants;

• the number of sites included in the trials;

• the costs of producing supplies of the product candidates needed for clinical trials and regulatory submissions;

• the safety and efficacy profile of the product candidate;

• the use of clinical research organizations to assist with the management of the trials; and

• the costs and timing of, and the ability to secure, regulatory approvals.

Furthermore, our strategy may include entering into additional collaborations with third parties to participate in the development and commercialization of some of our product candidates. In these situations, the preclinical development or clinical trial process for a product candidate and the estimated completion date may largely be under the control of that third party and not under our control. We cannot forecast with any degree of certainty which of our product candidates will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements.

We anticipate that our research, development, contract manufacturing and clinical expenses will continue to grow in the foreseeable future as we expand our discovery and preclinical activities and advance new product candidates into clinical trials. These expenses will fluctuate based upon many factors including the degree of collaborative activities, timing of manufacturing campaigns, numbers of patients enrolled in our clinical trials and the outcome of each clinical trial event.

The risks and uncertainties associated with our research and development projects are discussed more fully in the section entitled "Risk Factors" that appears in our periodic reports filed with the SEC, including in our annual Form 10-K for the year ended December 31, 2007 as updated by this quarterly report on Form 10-Q. As a result of the uncertainties discussed above, we are unable to determine with any degree of certainty the anticipated completion dates or completion costs of our research and development projects or when and to what extent we will receive cash inflows from the commercialization and sale of our product candidates.

General and administrative.

                                                         Three months ended                Nine months ended
                                                           September 30,                     September 30,
General and administrative ($ in thousands)          2008      2007     % change       2008      2007     % change
General and administrative, excluding share-based
compensation expense                                $ 2,761   $ 2,565          8 %   $  8,883   $ 7,369         21 %
Share-based compensation expense                        926       732         27 %      2,833     1,562         81 %

Total general and administrative expenses           $ 3,687   $ 3,297         12 %   $ 11,716   $ 8,931         31 %

General and administrative expenses increased 12% to $3.7 million in the third quarter of 2008 and increased 31% to $11.7 million for the first nine months of 2008 from the comparable periods in 2007. General and administrative expenses, excluding share-based compensation expense, increased 8% to $2.8 million in the third quarter and 21% to $8.9 million for the first nine months of 2008 from the comparable periods in 2007 primarily due to compensation expenses related to higher staffing levels. Share-based compensation expense included in general and administrative expenses increased 27% to $926,000 during the third quarter of 2008 and 81% to $2.8 million for the first nine months of 2008 from the comparable periods in 2007 reflecting additional stock option awards related to employee additions and higher per share value of options granted due to an increase in our common stock price. We anticipate that general and administrative expenses will continue to increase in 2008 as a result of increased costs related to adding personnel in support of the anticipated growth of our operations.

Investment income, net.

Investment income, net decreased 13% to $1.6 million in the third quarter of 2008 and decreased by 1% to $5 million for the first nine months of 2008 from the comparable periods in 2007. Higher average investment balances in both 2008 periods were offset by lower average yields on investments.

Liquidity and capital resources.

                                                     September 30,        December 31,
Liquidity and capital resources ($ in thousands)         2008                 2007
Cash, cash equivalents and investments             $         187,094     $      129,584
Working capital                                    $          81,900     $       90,003
Stockholders' equity                               $         105,808     $       53,986

                                                     Nine months ended September 30,
                                                         2008                 2007
Cash provided by (used in):
Operating activities                               $         (36,993 )   $       34,330
Investing activities                               $         (99,782 )   $      (34,989 )
Financing activities                               $         101,544     $        4,921

We have financed the majority of our operations through the issuance of equity securities, supplemented by funding received from our collaboration and license agreements. To a lesser degree, we have also financed our operations through interest earned on cash, cash equivalents and investments. These financing sources have historically allowed us to maintain adequate levels of cash and investments.

Our combined cash, cash equivalents and investment securities increased to $187.1 million at September 30, 2008, compared to $129.6 million at December 31, 2007. This increase reflects cash provided by financing activities, which included net proceeds of $97.6 million from our public offering of common stock in January 2008. Our working capital was $81.9 million at September 30, 2008, compared to $90.0 million at December 31, 2007. We have structured our investment portfolio to align scheduled maturities of investment securities with our working capital needs. Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments and subject to investment guidelines allowing for investments in U.S. government and agency securities, high-grade U.S. corporate bonds, taxable municipal bonds, mortgage-backed securities, ARS, commercial paper and money market accounts. As of September 30, 2008 we held ARS valued at approximately $14.0 million that have failed at auction and are currently illiquid. Liquidity of these investments is subject to either a successful auction process, redemption of the investment, or a sale of the security in a secondary market. As of September 30, 2008, each of the failed ARS carried a "AAA" Standard & Poors rating and an "A" Fitch rating, and continued to pay interest according to the stated terms. In October 2008, holdings in ARS valued on the September 30, 2008 balance sheet at $6.9 million were downgraded by Fitch to "BBB." As a result of the downgrade, the interest rate on these ARS will increase to 200 basis points above the one-month LIBOR. Based on our available cash, expected operating cash requirements, our belief that our holdings in ARS can be liquidated in approximately one to three years at par and our ability and intent based on the current assessment of the Company's future operating plans to hold such investments until liquidation, we believe that the current illiquidity of these investments is temporary. However, we will reassess this conclusion in future reporting periods based on several factors, including the continued failure of future auctions, failure of the investment to be redeemed, further deterioration of the credit rating of the investment, market risk and other factors. Any such future reassessment that results in a conclusion that the unrealized losses on these investments are other than temporary would result in a write down in the fair value of these investments. Such a write down would be recognized in our operating results.

The global credit and financial markets have recently experienced a period of unusual volatility and illiquidity. Unless and until this resolves, it may be difficult for us to liquidate investments prior to their maturity without . . .