This Quarterly Report on Form 10-Q contains forward-looking statements concerning matters that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Words such as "believes," "expects," "likely," "may" and "plans" are intended to identify forward-looking statements, although not all forward-looking statements contain these words.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date hereof to conform such statements to actual results or to changes in our expectations.

The following discussion should be read in conjunction with the financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. In addition, readers are urged to carefully review and consider the various disclosures made by us regarding the factors that affect our business, including without limitation the disclosures set forth in our Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K"), including the audited financial statements and the notes thereto and disclosures made under the captions "Risk Factors" and "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 may significantly improve cancer treatment options for patients. Our product portfolio includes active cellular immunotherapies and a small molecule product candidate that could be applicable to treating multiple types of cancers.

PROVENGEŽ (sipuleucel-T) is our only commercialized product licensed by the United States Food and Drug Administration ("FDA"), and is a first in class autologous cellular immunotherapy for the treatment of asymptomatic or minimally symptomatic, metastatic, castrate-resistant (hormone-refractory) prostate cancer. Commercial sale of PROVENGE began in May 2010. In January 2011, we announced plans to seek marketing authorization for the sale of PROVENGE in Europe. Prostate cancer is the most common non-skin cancer among men in the United States, with over one million men currently diagnosed with the disease, and the second leading cause of cancer deaths in men in the United States. We own worldwide rights for PROVENGE.

We have incurred significant losses since our inception. As of March 31, 2012, our accumulated deficit was $1.7 billion. We have incurred net losses as a result of research and development expenses, clinical trial expenses, contract manufacturing and facility expenses, costs associated with the commercial launch of PROVENGE and general and administrative expenses in support of our operations and research efforts. We anticipate that near term we will continue to fund our ongoing research, development and general operations from available cash, including proceeds from our January 2011 convertible notes offering, and revenue generated from commercial sales of PROVENGE. However, there can be no assurance that available cash and cash generated through current operations will be sufficient to continue to conduct our operations and expand according to our business plans. The majority of our resources continue to be used in support of the commercialization of PROVENGE. Even if we are able to successfully realize our commercialization goals for PROVENGE, because of the numerous risks and uncertainties associated with commercialization of a biologic, we are unable to predict when we will become profitable, if at all. Even if we achieve profitability, we may not be able to maintain or increase profitability.

We generated net revenue from sales of PROVENGE of $82.0 million during the first quarter of 2012, as compared to $27.0 million during the first quarter of 2011. Commercial sale of PROVENGE is supported by our three manufacturing facilities in Morris Plains, New Jersey (the "New Jersey Facility"), Orange County, California (the "Orange County Facility"), and Atlanta, Georgia (the "Atlanta Facility"). The FDA approval of additional capacity at our New Jersey Facility and our two new facilities in California and Georgia in 2011 significantly increased our manufacturing capacity and geographic coverage for the supply of PROVENGE. Approximately 570 parent accounts, some of which have multiple sites, have infused the product as of the end of March 2012.

On June 30, 2011, the Centers for Medicare and Medicaid Services (the "CMS") issued a final National Coverage Determination ("NCD") for PROVENGE, completing the analysis commenced one year prior and requiring Medicare contractors to cover the use of PROVENGE for on-label use. The NCD standardized coverage processes across the country for all Medicare patients with asymptomatic or minimally symptomatic metastatic castrate-resistant (hormone-refractory) prostate cancer and provides the local Medicare Administrative Contractors ("MACs") specific criteria, consistent with the label, on how PROVENGE should be covered. PROVENGE was issued a product specific Q-code effective July 1, 2011, which allows for electronic submission of claims. During November 2011, CMS also updated their coverage policy for PROVENGE to cover the infusion costs associated with the administration of PROVENGE, making coverage for PROVENGE consistent with all other infused biologics.

In January 2011, we announced plans to seek marketing authorization for the sale of PROVENGE in Europe. Following a number of pre-submission meetings with European Union National Agencies, we expect that data from our Phase 3 D9902B IMPACT (IMmunotherapy for Prostate AdenoCarcinoma Treatment) study, supported by data from our D9901 and D9902A studies, will be sufficient to seek regulatory approval for PROVENGE in the E.U. Using clinical data described in our United States Biologics License Application, we filed our marketing authorization application ("MAA") with the European Medicines Agency ("EMA"), which was validated on January 25, 2012. To accelerate the regulatory timeline, we plan to initially manufacture product for our MAA through a contract manufacturing organization. We anticipate a regulatory decision from the E.U. in mid-2013.

As of March 31, 2012, our manufacturing operations employed approximately 860 individuals and our commercial team included approximately 165 individuals employed in sales, marketing, and market access support.

Other potential product candidates we have under development include our investigational active cellular immunotherapy, DN24-02, directed against HER2/neu for the treatment of patients with bladder, breast, ovarian and other solid tumors expressing HER2/neu. In December 2010, we filed an Investigational New Drug application with the FDA for DN24-02 for the treatment of urothelial carcinoma, including bladder cancer following surgical resection, and we enrolled our first patient in this trial in September 2011. Active cellular immunotherapies directed at carbonic anhydrase 9 ("CA-9"), an antigen highly expressed in renal cell carcinoma, and carcinoembryonic antigen ("CEA"), an antigen expressed in colorectal and other cancers, are in preclinical development. We are also developing an orally-available small molecule targeting TRPM8 that could be applicable in treating multiple types of cancer. We completed our Phase 1 clinical trial initiated in 2009 to evaluate TRPM8.

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.

For a more detailed listing of our critical accounting estimates, refer to our 2011 Form 10-K.

Revenue Recognition

We recognize revenue primarily from the sale of PROVENGE. Revenue from the sale of PROVENGE is recorded net of product returns and estimated price discounts, including rebates and chargebacks offered pursuant to mandatory federal and state government programs and to members of Group Purchasing Organizations ("GPOs") with which we have contracts. Revenue from sales of PROVENGE is recognized upon our confirmed product delivery to and issuance of the product release form to the physician. Product returns are limited to those instances in which the physician receives the product but does not

infuse the product prior to expiry, either due to timing or the failure of the product to meet specifications and pass site inspection. Due to the limited usable life of PROVENGE of approximately 18 hours from the completion of the manufacturing process to patient infusion, actual return information is known and credited against sales in the month incurred.

PROVENGE sales are direct to the physician; however we have entered into distribution agreements with three credit-worthy third party wholesalers (the "Wholesalers") whereby we manufacture and ship the product direct to the physician and transfer the sale of PROVENGE to the Wholesalers. Under the distribution agreements, the Wholesalers assume all bad debt risk from the physician or institution, and no allowance for bad debt is recorded. In addition, under the terms of our distribution agreements, our return policy allows for the return of product that has expired or has a defect prior to delivery, product that is damaged during delivery and product that cannot be infused because it does not otherwise meet specified requirements.

Our product is subject to certain required pricing discounts via rebates and/or chargebacks pursuant to mandatory federal and state government programs, and accordingly our revenue recognition requires estimates of rebates and chargebacks. We have agreements with the CMS providing for a rebate on sales to eligible Medicaid patients. For sales of our product to eligible Medicaid patients, the physician purchases our product at full price, and then receives a rebate from the applicable state for the amount paid in excess of the contract price, which is the full price of the product less the applicable rebate. The state, in turn, invoices us for the amount of the rebate. Estimated rebates payable under Medicaid are recognized in the same period that the related revenue is recognized, resulting in a reduction in gross product sales revenue, and are classified as other accrued liabilities until paid. Our estimate of rebates payable is based on information we gather related to the physician site as well as health insurance information related to the patient being treated. Since there is often a delay between product sale and the processing and payment of the Medicaid rebates, we evaluate our estimates regularly, and adjust our estimates as necessary.

We also have agreements with the Public Health Service ("PHS") providing for a chargeback on sales to PHS-eligible Providers, and Federal Supply Schedule ("FSS") customers, including the Department of Veteran Affairs and the Department of Defense, providing for a chargeback on sales to eligible patients. Chargebacks occur when a contracted physician purchases our product at fixed contract prices that are lower than the price we charge the Wholesalers. Each Wholesaler, in turn, charges us back for the difference between the price initially paid by the Wholesaler and the contract price paid to the Wholesaler by the physician. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in gross product sales revenue and trade accounts receivable. Our estimate of chargebacks is based on information we gather related to the physician site.

During the third quarter of 2011, we identified a misstatement in our consolidated financial statements for the three months ended March 31, 2011 related to our estimate of chargebacks on product sales to PHS eligible providers. For the three months ended March 31, 2011, we overstated revenue and trade accounts receivable by $1.0 million, related to our under-estimate of chargebacks from PHS-eligible providers. We analyzed the potential impact of this overstatement and concluded that correction would not be material to the three months ended March 31, 2011, taking into account the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). In accordance with the relevant guidance, we evaluated the materiality of the error from a qualitative and quantitative perspective. As provided by SAB 108, correction of the misstatement for the quarter ended March 31, 2011 did not require amendment of the previously filed quarterly report on Form 10-Q. Accordingly, we recorded the adjustment in the nine months ended September 30, 2011 to reduce both revenue and trade accounts receivable by $1.0 million. The correction to the financial information for the three months ended March 31, 2011 is reflected in this quarterly report on Form 10-Q.

In the fourth quarter of 2011, we entered into agreements with certain GPOs that contract for the purchase of PROVENGE on behalf of their members and provide certain sales and marketing and contract administration services. Eligible members of the GPOs purchase PROVENGE at the wholesaler acquisition cost, and may be entitled to receive a rebate on eligible purchases at the end of each quarter. Estimated rebates and administrative fees payable to GPOs are recognized in the same period that the related revenue is recognized, resulting in a reduction in product sales revenue, and are classified as other accrued liabilities until paid.

Inventory

Inventories are determined at the lower of cost or market value with cost determined under the specific identification method. Inventories consisted of raw materials and work in process as of March 31, 2012 and raw materials as of December 31, 2011.

We began capitalizing raw material inventory in mid-April 2009, in anticipation of the potential approval for marketing of PROVENGE in the first half of 2010. At this time, our expectation of future benefits became sufficiently high to justify capitalization of these costs, as regulatory approval was considered probable and the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to mid-April 2009 were recorded as research and development expense in our statements of operations. As of April 2009, we had approximately $26.4 million in inventory, based on our current standard cost, which was previously expensed and could be used for the commercial and clinical manufacture of PROVENGE, training or additional research and development efforts.

As of March 31, 2012 and December 31, 2011, approximately $0.6 million and $4.7 million, respectively, of our zero-cost inventory remained on hand. During the quarter ended March 31, 2012, two manufacturing sites had no remaining zero-cost inventory. As a result, our cost of revenue reflects approximately $2.0 million in antigen expense. We estimate the remaining balance of zero-cost inventory will be used in research and commercial operations in the second quarter of 2012. As a result, cost of product revenue reflects a lower average per unit cost of raw materials.

Convertible Senior Notes due 2016

The Company's 2.875% Convertible Senior Notes due 2016 (the "2016 Notes"), issued in the first quarter of 2011, are convertible at the option of the holder, and we may choose to satisfy conversions, if any, in cash, shares of our common stock, or a combination of cash and shares of our common stock, based on a conversion rate initially equal to 19.5160 shares of our common stock per $1,000 principal amount of the 2016 Notes, which is equivalent to an initial conversion price of approximately $51.24 per share. Should a holder exercise the conversion option during the next twelve-month period, it is our intention to satisfy the conversion with shares of our common stock.

The 2016 Notes are accounted for in accordance with Accounting Standards Codification ("ASC") 470-20, Debt with Conversion and Other Options. Under ASC 470-20, issuers of certain convertible debt instruments that have a net settlement feature that may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability
(debt) and equity (conversion option) components of the instrument. The liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company's debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding increase to debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversion.

Fair Value

We measure and report at fair value our cash equivalents and investment securities. 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.

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.

Accounting for Stock-Based Compensation

Stock-based compensation cost is estimated at the grant date based on the award's fair value and is recognized on the accelerated method as expense over the requisite service period. The fair value of our stock options is calculated using the Black-Scholes-Merton ("BSM") option pricing model. 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 for new awards may differ materially from that recorded in the current period.

Restricted stock awards generally vest and are expensed over a three- or four-year period. In 2010, 2011 and 2012, we granted restricted stock awards with certain performance conditions to certain executive officers and key employees. At each reporting date, we evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance provision or the occurrence of other events which may cause the awards to accelerate and vest.

Recent Accounting Pronouncements

In 2011, the Financial Accounting Standards Board (the "FASB") issued two Accounting Standard Updates ("ASUs") which amended guidance for the presentation of comprehensive income. The amended guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The current option to report other comprehensive income and its components in the statement of stockholders' equity was eliminated. Although the new guidance changed the presentation of comprehensive income, no changes were made to the components that are recognized in net income or other comprehensive income under existing guidance. These ASUs are effective for us in the first quarter of 2012 and retrospective application is required. We have changed our financial statement presentation of comprehensive income in this Quarterly Report on Form 10-Q, but it had no impact on our results of operations, cash flows or financial position.

No other accounting pronouncements were released during the first quarter of 2012 that would impact our financial statements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

Revenue



                                        Three Months Ended March 31,
                                          2012                 2011
                                               (In thousands)
             Product revenue, net    $       81,972       $       27,001
             Royalty revenue                     81                   -
             Collaborative revenue               21                   21

             Total revenue           $       82,074       $       27,022

Net product revenue from the commercial sale of PROVENGE was $82.0 million and $27.0 million for the three months ended March 31, 2012 and 2011, respectively. We expect product revenue to continue to increase in 2012 as we expand commercialization and as market acceptance grows.

Revenue from the sale of PROVENGE is recorded net of product returns and estimated pricing discounts via rebates and/or chargebacks, offered pursuant to mandatory federal and state government programs and to members of GPOs. Our revenue recognition requires estimates of rebates and chargebacks each period. We recorded estimated Medicaid rebates of approximately $0.3 million for the three months ended March 31, 2012. In addition, we recorded estimated GPO rebates of approximately $1.0 million and estimated GPO administrative fees of approximately $1.0 million for the three months ended March 31, 2012. No rebates or administrative fees were recorded for the three months ended March 31, 2011 related to Medicaid or GPOs.

For the three months ended March 31, 2012 and 2011, we recorded estimated chargebacks of approximately $4.3 million and $1.4 million, respectively. The following table is a roll forward of our estimated chargebacks and accrued chargeback balance:

                                                           Three Months Ended March 31,
(in thousands)                                              2012                   2011
Balance at December 31                                 $        7,065          $         -
Current provision related to sales made in current
period                                                          4,305                 1,425
Current provision related to sales made in prior
periods                                                            21                    -
Payments/credits                                               (4,516 )                  -

Balance at March 31                                    $        6,875          $      1,425

Royalty revenue for the three months ended March 31, 2012 resulted from the recognition of royalties pursuant to a license agreement. Collaborative revenue for the three months ended March 31, 2012 and 2011 resulted from the recognition of deferred revenue related to a license agreement.

Cost of Product Revenue



                                         Three Months Ended March 31,
                                           2012                 2011
                                                (In thousands)
            Cost of product revenue   $       60,041       $       18,338
            Gross profit (1)                  21,931                8,663

(1) Gross profit is calculated by subtracting cost of product revenue from net product revenue.

The increase in cost of product revenue in the first quarter of 2012 as compared to the same period of 2011 was due to increased sales of PROVENGE and additional FDA approved manufacturing capacity. Cost of product revenue includes the costs of manufacturing and distributing PROVENGE. Prior to FDA approval of these facilities, these costs were classified as selling, general and administrative expense. Upon FDA approval of the remaining capacity of the New Jersey Facility in March 2011, the Orange County Facility in June 2011 and the Atlanta Facility in August 2011, all commercial manufacturing costs at these facilities are included in cost of product revenue. Costs related to the manufacture of PROVENGE for clinical patients are classified as research and development expense.

We began capitalizing raw material inventory in mid-April 2009, in anticipation of the potential approval for marketing of PROVENGE in the first half of 2010. At this time, our expectation of future benefits became sufficiently high to justify capitalization of these costs, as regulatory approval was considered probable and the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to mid-April 2009 were recorded as research and development expense in our statements of operations. As of April 2009, we had approximately $26.4 million in inventory, based on our current standard cost, which was previously expensed and could be used for the commercial and clinical manufacture of PROVENGE, training or additional research and development efforts. As of March 31, 2012 and December 31, 2011, approximately $0.6 million and $4.7 million, respectively, of our zero-cost inventory remained on hand. As a result, cost of product revenue reflects a lower average per unit cost of raw materials. During the quarter ended March 31, 2012, two manufacturing sites had no remaining zero-cost inventory. As a result, our cost of revenue reflects approximately $2.0 million in antigen expense. We estimate the remaining balance of zero-cost inventory will be used in research . . .