December 31, 2008 ("2008 Form 10-K") , including the audited financial statements and the notes thereto and disclosures made under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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 September 30, 2009, our accumulated deficit was $750.9 million, of which $137.0 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. We cannot predict when we may achieve profitability in the future, if ever, or our ability to sustain such profitability if achieved. 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 metastatic, castrate-resistant (also previously referred to as "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 (the "CRL") 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, castrate-resistant 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). On October 30, 2009 we completed the amendment of our BLA with the FDA to incorporate IMPACT study results and data regarding CMC requirements not previously addressed which constituted a complete response to the CRL.
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 expansion of our manufacturing facility in Morris Plains, New Jersey (the "New Jersey Facility") to bring that facility to full capacity. We expect the additional build-out of that facility to be

substantially completed in April 2010, which will be followed by validation and an inspection by the FDA. We expect the additional capacity to be available first half of 2011. 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 build-out and validation 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, the shell of the building is under construction and once complete 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.. 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 bladder, breast, ovarian and other solid tumors expressing HER2/ neu. Active cellular immunotherapies directed at CA9, an antigen highly expressed in renal cell carcinoma and CEA, an antigen expressed in colorectal cancer, are in preclinical development. 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. 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 raw materials. The Company takes title to these materials once manufactured and accepted, 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 will be expensed as research and development expense in the period the costs are incurred. As of September 30, 2009, there was $19.0 million of capitalized costs associated with the purchase of the antigen used in the manufacture of Provenge, which Diosynth RTP, Inc. ("Diosynth") is obligated to manufacture and delivery is expected to begin in 2010.
Fair Value
Effective January 1, 2008, we adopted Accounting Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures," except as it applies to the nonfinancial assets and nonfinancial liabilities subject to ASC 820-10-65, "Fair Value Measurements and Disclosures - Transition and Open Effective Date Information", 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 ASC 360-10, "Property, Plant and Equipment;" and

• Asset retirement obligations initially measured under ASC 410-20, "Asset Retirement and Environmental Obligations."

Fair value is defined 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 must maximize the use of observable inputs and minimize the use of unobservable inputs.
During the quarter ended June 30, 2009, we adopted ASC 820-10-65-4, "Fair Value Measurements and Disclosures - Transition and Open Effective Date Information" ("ASC 820-10-65-4"), which provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability has significantly decreased. It also provides guidance on identifying circumstances that indicate a transaction is not orderly and 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 ASC 820-10-65-4 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 ASC 825-10-65, "Financial Instruments - Transition and Open Effective Date Information" ("ASC 825-10-65") to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The adoption of ASC 825-10-65 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 ASC 320-10-45/65, "Investments - Debt and Equity Securities: Other Presentation Matters/Transition and Open Effective Date Information" ("ASC 320-10-45/65") that amends 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 ASC 320-10-45/65 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.
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 September 30, 2009 and December 31, 2008, the fair value of the Warrants was determined to be $137.0 million and $14.2 million, respectively; accordingly, we recorded approximately $122.8 million in other loss for the nine months ended September 30, 2009 related to the change in the fair value of the Warrants. Recent Accounting Pronouncements
On January 1, 2009, we adopted ASC 808-10, "Collaborative Arrangements" ("ASC 808-10"), 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 ASC 808-10 did not have any impact on our results of operations, cash flows or financial position.
On January 1, 2009, we adopted ASC 815-40-15, "Derivatives and Hedging - Contracts in Entity's Own Equity (Scope and Scope Exceptions)" ("ASC 815-40-15"), 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 ASC 815-40-15 did not have any impact on our results of operations, cash flows or financial position.
During the quarter ended June 30, 2009, we adopted ASC 855-10, "Subsequent Events" ("ASC 855-10") that 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 ASC 855-10 did not have any impact on our results of operations, cash flows or financial position.
During the quarter ended September 30, 2009, the Financial Accounting Standards Board (the "FASB") issued ASC 105-10, "Generally Accepted Accounting Principles" ("ASC 105-10") that mandated that the FASB Accounting Standards Codification (the "Codification") become the single official source of authoritative U.S. Generally Accepted Accounting Principles ("GAAP") other than guidance issued by the Securities and Exchange Commission (the "SEC"), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force ("EITF"), and related literature. The adoption of ASC 105-10 did not have any substantive impact on our condensed financial statements or related footnotes.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Revenue
Revenue decreased to $25,000 for the three months ended September 30, 2009, compared to $26,000 for the three months ended September 30, 2008. Revenue decreased to $80,000 for the nine months ended September 30, 2009, compared to $83,000 for the nine months ended September 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 $16.5 million for the three months ended September 30, 2009, from $12.7 million for the three months ended September 30, 2008. Research and development expenses increased to $41.6 million for the nine months ended September 30, 2009, from $39.3 million for the nine months ended September 30, 2008. The increases in the three and nine months ended September 30, 2009 compared to 2008 was primarily attributable to increased wages, payroll taxes and employee related expenses as we add personnel to prepare for potential FDA licensure of Provenge.
Research and development-related activities are clinical programs and discovery research. Our research and development expenses for the three and nine months ended September 30, 2009 and 2008 were as follows (in millions):

                                            Three months ended          Nine months ended
                                               September 30,              September 30,
                                            2009           2008         2009           2008
 Clinical programs:
 Direct costs                             $     1.2       $   2.3     $     3.7       $  7.8
 Indirect costs                                14.8           9.4          36.5         28.6

 Total clinical programs                       16.0          11.7          40.2         36.4
 Discovery research                             0.5           1.0           1.4          2.9

 Total research and development expense   $    16.5       $  12.7     $    41.6       $ 39.3

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 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. Costs associated with the preparation of the New Jersey facility for commercial manufacture of Provenge are included as clinical costs until such time that the FDA grants Provenge marketing approval. 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 $9.3 million for the three months ended September 30, 2009, compared to $4.6 million for the three months ended September 30, 2008. General and administrative expenses increased to $22.1 million for the nine months ended September 30, 2009, compared to $15.7 million for the nine months ended September 30, 2008. General and administrative expenses were primarily comprised of salaries and wages, stock-based compensation, consulting fees, marketing fees and administrative costs to support our operations. The increases in the three and nine months ended September 30, 2009 compared to 2008 was primarily attributable to increased wages, payroll taxes and employee related expenses as we add personnel to prepare for potential FDA licensure of Provenge. Interest Income
Interest income decreased to $0.2 million for the three months ended September 30, 2009, from $0.8 million for the three months ended September 30, 2008. Interest income decreased to $0.7 million for the nine months ended September 30, 2009, from $2.9 million for the nine months ended September 30, 2008. The decreases in the three and nine months ended September 30, 2009 compared to 2008 were primarily due to lower average interest rates. Interest Expense
Interest expense decreased to $0.6 million for the three months ended September 30, 2009, compared to $1.2 million for the three months ended September 30, 2008. Interest expense decreased to $1.9 million for the nine months ended September 30, 2009, compared to $4.0 million for the nine months ended September 30, 2008. The decreases in the three and nine months ended September 30, 2009 compared to 2008 were primarily due to a lower 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 nine months ended September 30, 2009 was $19.4 million and $122.8 million, respectively as compared to non-operating income of $9.1 million and $6.8 million for the three and nine months ended September 30, 2008. This represents the increase in the fair value of $122.8 million for the Warrants from December 31, 2008. 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 September 30, 2009, we had approximately $259.6 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, debt and convertible securities, cash receipts from collaborative agreements and interest income earned.
Net cash used in operating activities for the nine months ended September 30, 2009 and 2008 was $54.1 million and $51.4 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 September 30, 2009, our aggregate investment in equipment and leasehold improvements was $73.2 million.
While we believe that our current cash on hand as of September 30, 2009, is sufficient to meet our anticipated expenditures during the next 12 months as we initiate our commercialization efforts in anticipation of the possible licensure of Provenge, we may need to raise additional funds for, among other things:
• expanding our manufacturing capabilities, including the build-out of our facilities in Atlanta, Georgia and Orange County, California,

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

• working capital needs,

• increased personnel needs, and

• continuing and expanding our internal research and development programs.

If we were unable to raise additional funds through sales of common stock or debt securities, borrowings, or collaborative alliances with respect to . . .