UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2001

OR

For the transition period from                              to                             

Commission file number: 0-32405

Seattle Genetics, Inc.
(Exact name of registrant as specified in its charter)

21823 30^th Drive SE
Bothell, Washington 98021
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (425) 527-4000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.001
(Title of Class)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý    NO o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $57,537,830 as of March 15, 2002, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        There were 29,917,812 shares of the registrant's Common Stock issued and outstanding as of March 15, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

        Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held on May 15, 2002.

SEATTLE GENETICS, INC.

FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

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PART I

Item 1. Business.

Overview

        Seattle Genetics discovers and develops monoclonal antibody-based drugs to treat cancer and related diseases. We have four monoclonal antibody-based technologies: genetically engineered monoclonal antibodies; monoclonal antibody-drug conjugates (ADCs); single-chain immunotoxins; and antibody-directed enzyme prodrug therapy (ADEPT). Our technologies enable us to develop monoclonal antibodies that can kill cells on their own as well as those that require an increase in potency to destroy cancer cells. Using our expertise in cancer and monoclonal antibody technologies, we have constructed a diverse portfolio of product candidates targeted to many human tumors. Our technologies also provide us with an opportunity to partner with other companies that are developing monoclonal antibodies.

        Our three most advanced product candidates, SGN-15, SGN-10, and SGN-30, are being tested in clinical trials. SGN-15 is an ADC that binds to cancer cells and kills them by delivering the drug doxorubicin inside the cell. We are currently testing SGN-15 in four phase II clinical trials in combination with the chemotherapeutic drug Taxotere®. These trials include patients with breast, colon, prostate or lung cancer. We have found that the combination of SGN-15 and Taxotere is well tolerated in these patients and can induce objective antitumor responses. Aventis, the manufacturer and marketer of Taxotere, is co-funding two of the SGN-15 clinical trials. We plan to enter SGN-15 into its fifth phase II trial later in 2002. This trial will focus on ovarian cancer and utilize SGN-15 in combination with Gemzar®, a chemotherapeutic drug. SGN-10 is a single-chain immunotoxin that binds to cancer cells and kills them by delivering a protein toxin inside the cell. We are testing SGN-10 in two phase I clinical trials, one as a single agent and the other in combination with Taxotere, which Aventis is co-funding. Our most recent product candidate to enter clinical trials is the genetically engineered monoclonal antibody SGN-30. This phase I single agent study includes patients with hematologic malignancies such as Hodgkin's disease and anaplastic large cell lymphoma.

        We also have four product candidates in preclinical development for the treatment of patients with solid tumors, melanoma or hematologic malignancies, SGN-14, SGN-17/19, novel BR96-ADC and novel AC10-ADC. SGN-14 is our anti-CD40 monoclonal antibody that we have licensed to Genentech. It is a humanized monoclonal antibody designated by Genentech as PRO64553 and is being developed to treat patients with hematologic malignancies and other CD40 expressing cancers. SGN-17/19, which utilizes our ADEPT technology, is being developed for the treatment of patients with melanoma through a collaboration with Genencor International. We are also developing two additional product candidates that utilize our high-potency ADC technology, novel BR96-ADC and novel AC10-ADC. This next generation technology utilizes proprietary, stable linker systems that can significantly reduce the toxic side effects caused by the systemic release of drug associated with less stable linker technology. We have also developed synthetic, highly-potent, cell-killing drugs including Auristatin E, which are readily scaleable.

Monoclonal Antibodies for Cancer Therapy

        Cancer is the second leading cause of death in the United States, resulting in over 555,000 deaths annually. The National Cancer Institute reports that more than eight million people in the United States have cancer and that one in three Americans will develop cancer in their lifetime. The American Cancer Society estimates that over 1.2 million new cases of cancer will be diagnosed in 2002 in the United States.

        Monoclonal antibodies have been tested for many years as cancer therapeutics. Some monoclonal antibodies have significant antitumor activity as a single agent. However, many are not potent enough

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to represent effective therapeutic agents on their own. Based on this limitation, additional approaches to using monoclonal antibodies as cancer therapies have emerged. First, monoclonal antibodies that are administered in combination with chemotherapy achieve antitumor activity that is often greater than when either therapy is administered alone. Second, monoclonal antibodies that are directly linked to cell-killing payloads such as drugs, toxins, or radionuclides can more effectively kill cancer cells than monoclonal antibodies alone.

        There are a growing number of monoclonal antibodies that have been approved for the treatment of cancer. These include three genetically engineered monoclonal antibodies (Rituxan®, Herceptin®, and Campath®), a radionuclide-conjugated monoclonal antibody (Zevalin®), and an antibody-drug conjugate (Mylotarg®).. Additionally, there are many monoclonal antibodies in preclinical development and clinical trials that are likely to increase the number of monoclonal antibody-based commercial products in the future.

Our Monoclonal Antibody Technologies

        We focus on developing monoclonal antibody-based therapeutics for the treatment of patients with cancer and related diseases. Four distinct but related technologies form our core business and provide for the discovery and development of an array of unique monoclonal antibody-based anti-cancer therapeutics. These technologies also allow us to enhance the efficacy and potency of monoclonal antibodies owned by other biotechnology or pharmaceutical companies. Our four technologies are:

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genetically engineered monoclonal antibodies;



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monoclonal antibody-drug conjugates, or ADCs;



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single-chain immunotoxins; and



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antibody-directed enzyme prodrug therapy, or ADEPT.

        Genetically Engineered Monoclonal Antibodies.    Our monoclonal antibodies have been genetically modified to minimize non-human sequences thereby lowering immune response and extending the duration for their use in therapy. These monoclonal antibodies can be effective in treating either hematologic malignancies or solid tumors as single agents and/or in combination with chemotherapy. Our leading monoclonal antibody, SGN-30, that induces cell-killing on its own, has recently entered phase I clinical trials in patients with CD30-expressing hematologic malignancies such as Hodgkin's disease and anaplastic large cell lymphoma. A monoclonal antibody that is targeted to CD40 is also expected to enter clinical trials in late 2002. This monoclonal antibody, PRO64553 (formerly SGN-14), is being developed by Genentech as part of a license agreement. We have several additional monoclonal antibodies that are being evaluated in the preclinical setting that could be considered for future development.

        Monoclonal Antibody-Drug Conjugates, or ADCs.    ADCs are monoclonal antibodies that are linked to potent cell-killing drugs. We utilize monoclonal antibodies that internalize upon binding to their cell-surface receptor. The environment inside the cell causes the cell-killing drug to be released from the monoclonal antibody, allowing it to have the desired effect. Until released, the cell-killing drug is inactive, thereby sparing normal cells. Our ADC program can be applied to genetically engineered monoclonal antibodies that are chimeric, humanized or fully human and that bind strongly to and enter cancer cells and not most normal cells. An important component of ADCs are the conditional linkers that hold and then release the drugs from the monoclonal antibodies. We have a variety of stable linkers including enzyme-cleavable linkers that are highly stable in the bloodstream and represent an advancement over current technology. Our highly potent cell-killing drugs, such as Auristatin E, are synthetically produced and readily scaleable. Because Auristatin E is synthetic, the drug and linker can be prepared simultaneously as a drug-linker system, dramatically simplifying the manufacturing process versus natural product drugs that are more difficult to produce.

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        SGN-15, which we are testing in four phase II clinical trials in combination with Taxotere to treat patients with breast, colon, prostate or lung cancer, is an ADC that is composed of the cytotoxic drug doxorubicin directly linked to the chimeric BR96 monoclonal antibody. SGN-15 binds to a carbohydrate antigen that is found in high density on solid tumors. Later in 2002, we expect to commence a clinical trial in ovarian cancer, which would represent our fifth indication tested for SGN-15. We also have two high-potency ADCs presently undergoing preclinical development. Both of these ADCs utilize Auristatin E as the drug component and our stable enzyme-cleavable linker system to attach the drug to the monoclonal antibody.

        Single-Chain Immunotoxins.    Our single-chain immunotoxins are comprised of the receptor binding portions of monoclonal antibodies that internalize and are genetically fused with toxin components that kill cells by blocking protein production. Single-chain immunotoxins are relatively simple and inexpensive to manufacture through bacterial fermentation. SGN-10, our leading single-chain immunotoxin, utilizes the cloned variable regions of the BR96 monoclonal antibody and a genetically modified form of Pseudomonas exotoxin A. SGN-10 is being evaluated in two phase I clinical trials, as a single-agent and in combination with Taxotere, in patients with breast, colon, pancreatic, ovarian or prostate cancers.

        Antibody-Directed Enzyme Prodrug Therapy, or ADEPT.    ADEPT represents a novel approach to minimize drug exposure to normal tissues by using a monoclonal antibody fused to an enzyme. This approach involves the combination of two non-toxic agents to achieve potent antitumor activity specifically within tumor tissue. With ADEPT technology, we utilize non-internalizing monoclonal antibodies that remain bound to the cell surface, as distinguished from our ADC or single-chain immunotoxin technologies. ADEPT administration is a two step process. In the first step, a protein containing the cloned variable regions of a monoclonal antibody genetically fused to an enzyme is administered and accumulates on solid tumor masses. In the second step, inactive forms of anti-cancer drugs (termed prodrugs) are administered and subsequently are converted into potent cell-killing drugs that can penetrate into tumor tissue and induce antitumor responses. This allows for higher drug concentrations to be achieved within tumors relative to normal tissue. Our lead product candidate, SGN-17/19, is in development for patients with metastatic melanoma. SGN-17/19 is composed of two agents, SGN-17, a fusion protein containing antibody and enzyme components and SGN-19, a prodrug form of the active cell-killing compound melphalan. Our ADEPT technology and SGN-17/19 is being developed in partnership with Genencor International.

Our Strategy

        Our primary objective is to use our expertise in monoclonal antibodies and our novel technologies to develop our product pipeline and discover new product candidates for the treatment of cancer and related diseases. A secondary objective is to license our technology to other biotechnology and pharmaceutical companies that are developing monoclonal antibodies. Our strategy includes initiatives to:

        Continue to Identify and Develop Novel Monoclonal Antibodies.    We have focused on the research and development of monoclonal antibodies since our inception and have successfully identified and obtained patent rights for several novel monoclonal antibodies with potential therapeutic applications. We have expanded our internal efforts in novel antigen discovery to identify antigens that can be used to generate new monoclonal antibodies. We are also collaborating with Medarex to produce novel fully human monoclonal antibodies to certain cancer targets.

        Use Our Technologies to Increase the Potency of Monoclonal Antibody Therapeutics.    Our expertise and intellectual property rights can be used to make monoclonal antibodies into product candidates by improving their potency and efficacy. Using our high-potency ADC technology and

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tumor-reactive monoclonal antibodies, we have and are continuing to develop novel anti-cancer agents. Most prominently, ADCs composed of either monoclonal antibody BR96 or AC10 have been linked via a stable, enzymatically cleavable linker to the highly potent cytotoxic agent Auristatin E. Both BR96 and AC10-ADC forms have been found to be specifically potent to their respective tumor targets and to induce complete regressions of human tumors in animal models.

        As one of the leading companies developing ADC technology, we have opportunities to license this technology to other biotechnology and pharmaceutical companies developing monoclonal antibodies in exchange for up front payments, milestones on development, and royalties on sales. We have entered into two collaboration agreements of this type, the first with Eos Biotechnology and recently with Celltech Group, to provide them with access to our ADC technology for use with multiple monoclonal antibodies. We are in discussions from time to time about possible alliances regarding our ADC technology and we expect to enter into additional alliances in this area in 2002. It is our policy not to announce these alliances until they are definitive.

        We are also enhancing the potency and efficacy of monoclonal antibody-based therapeutics through the use of our ADEPT technology. Our lead ADEPT-based product candidate, SGN-17/19, is being developed for the treatment of metastatic melanoma. In January 2002, we entered into a collaboration agreement with Genencor International to jointly discover and develop cancer therapeutics based on tumor-targeted enzymes that activate prodrugs.

        Develop a Broad Portfolio of Products.    Our product candidates encompass multiple mechanisms of action and target a variety of cancer types. We have monoclonal antibodies, such as SGN-30 and PRO64553 (formerly SGN-14), which deliver a signal and have potent antitumor activity on their own. Monoclonal antibody SGN-30 recently entered clinical testing in Hodgkin's disease, anaplastic large cell lymphoma, and other hematologic malignancies, representing our third product candidate in clinical trials. We expect a fourth product candidate targeted to hematologic malignancies, including non-Hodgkin's lymphoma and multiple myeloma, PRO64553 (formerly SGN-14), to enter clinical trials in late 2002. We are developing several ADCs including our phase II product candidate SGN-15. In 2001, we initiated a phase II clinical trial in non-small cell lung cancer and in 2002 we are planning to launch a clinical trial in ovarian cancer using SGN-15. These trials represent our fourth and fifth cancer indications under clinical testing using SGN-15. We have a single-chain immunotoxin (SGN-10) in phase I clinical trials and a lead ADEPT product candidate (SGN-17/19) in our development pipeline. We also have two novel ADCs that are presently in preclinical development.

        Acquire Attractive Product Candidates.    In addition to our own development efforts, we will continue to identify products and technologies to in-license. We have successfully in-licensed monoclonal antibodies from academic groups as well as from other companies. In July 2001, we obtained an option to license certain monoclonal antibodies that target cancer and immunologic disease from CLB-Research and Development, located in the Netherlands. In October 2001, we entered into an option to license certain cell-killing drugs from Proacta Therapeutics, based in New Zealand. In March 2002, we entered into an option to license a series of monoclonal antibodies with anti-cancer specificity from Mabtech AB, based in Sweden. While we expect that new product candidates will arise from our internal research programs, we will continue to seek in-licensing opportunities to build our product candidate pipeline.

        Establish Strategic Collaborations.    We intend to enter into corporate collaborations at various stages in the research and development process. Many different types of strategic collaborations could occur depending on the specific attributes of partners that we select. Preferred partners are likely to have expertise in key areas that will accelerate our ability to commercialize our products. These areas include regulatory, clinical, manufacturing, marketing, sales and distribution. Additionally, strategic collaborations can substantially enhance our cash position through up front payments, milestones, and royalties or profit-sharing relationships on sales. When establishing strategic collaborations, we intend

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to retain significant product rights. Presently, we have strategic relationships with Genentech encompassing our anti-CD40 antibody program and Genencor International that includes our ADEPT technology.

Our Clinical and Preclinical Development Programs

        We currently have three product candidates in clinical development, SGN-15 in multiple phase II trials, SGN-10 in multiple phase I trials, and SGN-30 which recently entered phase I. We also have four product candidates in preclinical development, PRO64553 (formerly SGN-14), SGN-17/19, a high-potency BR96-based ADC and a high-potency AC10-based ADC. We are also actively engaged in research and discovery of new monoclonal antibodies, antigen targets, linker systems, high-potency drugs and enzymes that can be incorporated into our development portfolio.

        The following table summarizes the status of our product candidates currently in clinical trials:

*

Aventis, the manufacturer of Taxotere, is co-funding certain clinical trials and has no rights to SGN-15 or SGN-10.

        In addition, we have the following product candidates currently in preclinical development:

Our Product Candidates

SGN-15

        SGN-15 is our lead ADC currently in phase II clinical trials for treating breast, colon, prostate and lung cancers. In 2002, we expect to commence a clinical trial for ovarian cancer, which will be our fifth indication for SGN-15. SGN-15 is a monoclonal antibody-drug conjugate composed of a chimeric

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monoclonal antibody (cBR96), chemically linked to the cell-killing drug doxorubicin. BR96 binds to a Lewis^y-related carbohydrate antigen that is highly expressed on many cancer cells, including those of the breast, lung, pancreas, ovary and prostate as well as on some normal cells in the gastrointestinal tract. SGN-15 works by binding to the cell and upon internalization, its payload of doxorubicin is released.

        Development Status and Clinical Data.    In September 1999, we initiated a phase I/II trial to study SGN-15 in combination with Taxotere in patients with breast or colon cancer. SGN-15 targets the Lewis^y-related antigen that is expressed on a high percentage of tumor tissue from patients with carcinoma including breast, colon, prostate, lung and ovarian. The rationale for the trial was based on our pre-clinical data showing enhanced antitumor efficacy of SGN-15 in combination with the taxane class of chemotherapeutic agent, and their non-overlapping toxicity profiles. We enrolled patients with breast cancer that had already failed previous chemotherapy, which may have included taxane therapy. We also enrolled colon cancer patients that failed frontline therapy and had little or no alternatives for treatment. In September 2000, we completed the phase I component of the phase I/II SGN-15 trial and established a dose of SGN-15 that was well-tolerated in combination with Taxotere given at its normal dose on a weekly schedule. We safely treated 16 patients, observed antitumor responses, and initiated separate phase II trials in breast and colon cancer in October 2000.

        Our development strategy is initially focused on designing trials for second-line therapy, for use after front-line therapies have failed. This approach is intended to accelerate the development pathway as rapidly as possible toward regulatory approval.

        An estimated 205,000 people will be diagnosed with breast cancer in 2002 and 40,000 people will die from the disease in the United States. Our ongoing phase II breast cancer study is being conducted at the University of Alabama Birmingham, Georgia Cancer Specialists in Atlanta, GA, the Lombardi Cancer Center at Georgetown University Medical Center in Washington, D.C., at The University of Chicago, Florida Cancer Specialists in Ft. Meyers, FL, Sharp Healthcare in San Diego, CA, and Northside Hospital in Atlanta, GA.

        In the United States, colorectal cancers are the third most common types of cancer in terms of new cases and deaths in both men and women. The American Cancer Society estimates that over 148,000 new cases will be diagnosed and more than 56,000 people will die from colorectal cancers in 2002.

        Our colon cancer study was designed to accrue patients in two stages, the first of which has completed accrual. The trial is being conducted at the University of Alabama Birmingham, Georgia Cancer Specialists in Atlanta, GA, and the Lombardi Cancer Center at Georgetown University Medical Center in Washington, D.C.

        According to estimates by the American Cancer Society, prostate cancer is the second leading cause of cancer-related death in men. An estimated 189,000 men will be diagnosed with prostate cancer in 2002 and over 30,000 will die from the disease in the United States.

        In November 2000, we initiated a phase II trial in patients with hormone-refractory prostate cancer with the combination of SGN-15 and Taxotere. In preclinical prostate cancer models, we observed synergistic antitumor effects using the combination of SGN-15 and taxanes. Patients entering the trial are randomly assigned to one of two equal-sized groups. One group of patients will receive treatment with the combination of SGN-15 and Taxotere, and the other group will receive Taxotere alone. The lead site for our prostate cancer trial is Arizona Cancer Center in Tucson. The trial is designed to evaluate the antitumor activity of the combination therapy. This includes measurements of tumor size, serum prostate-specific antigen (PSA) level and quality of life.

        In August 2001, we initiated a fourth phase II trial investigating the combination of SGN-15 and Taxotere as second-line therapy for patients with non-small cell lung cancer, which represents

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approximately 80% of all lung cancers. Response rates from approved front-line therapies in these patients are modest and no therapy is curative. In this randomized trial, we plan to treat two-thirds of enrolled patients with the combination of SGN-15 and Taxotere and compare the data with one-third of the patients that are treated with Taxotere alone. Taxotere is commercially approved for second-line therapy of lung cancer patients although the objective response rate was found to be less than 10 percent.

        In 2002, we plan to launch our fifth phase II trial using SGN-15. This trial will be a combination study with Gemzar (gemcitabine) in recurrent or refractory ovarian cancer.

SGN-10

        SGN-10 is our single-chain immunotoxin that is in development for treating multiple types of carcinoma including breast, colon, lung, pancreatic, ovarian and prostate cancers. SGN-10 is engineered to redirect the potent cell-killing activity of a protein toxin called Pseudomonas exotoxin A from its normal target to cancer cells by genetically deleting its natural binding ability and replacing it with the binding capability of our cancer-targeting BR96 monoclonal antibody. BR96 binds to a Lewis^y-related carbohydrate molecule that is expressed at high levels on many cancer cells, including those of the breast, lung, colon, pancreas, ovary and prostate and on some normal cells in the gastrointestinal tract.

        Development Status and Clinical Data.    Our single agent phase I clinical trial in patients with advanced stage solid tumorsis being conducted at the University of Alabama at Birmingham, the Fox Chase Cancer Center in Philadelphia, Pennsylvania and the University of Chicago Cancer Center. Our development strategy for SGN-10 as a single-agent is to identify appropriate disease targets and conduct disease specific phase II trials. Because we have observed that the majority of patients receiving SGN-10 develop an immune response three weeks after treatment has begun, which could limit the number of effective doses they can receive, we are investigating strategies to reduce the immune response towards SGN-10. These include pre-treating patients with agents that suppress the immune system prior to treating with SGN-10.

        In July 2000, we initiated a second phase I trial of SGN-10 in combination with Taxotere to determine the optimal combination dose in patients with advanced stage solid tumors. Our strategy for this trial is to identify a safe combination dose of SGN-10 and Taxotere to utilize in phase II and other advanced trials. The trial is being conducted at Georgetown University Medical School in Washington, D.C.

SGN-30

        SGN-30 is a monoclonal antibody that targets the cell surface receptor CD30 that is expressed on many hematologic malignancies including Hodgkin's disease, certain leukemias and lymphomas, and in certain immunologic disease indications. SGN-30 is a genetically engineered monoclonal antibody that induces direct anti-cancer activity on its own. Preclinical experiments showed that SGN-30 has potent antitumor activity in animal models of human hematologic disease. Toxicologic analysis in non-human primates showed that SGN-30 is well-tolerated at doses that were greater than 25-times those required to generate antitumor activity in preclinical models of human cancer.

        Development Status and Clinical Data.    In 2001, we completed the manufacturing of sufficient quantities of SGN-30 for use in phase I and phase II clinical trials and we filed an Investigational New Drug (IND) application with the U.S. FDA in February 2002. In March 2002, we initiated the first phase I study using SGN-30 in patients suffering from CD30-expressing hematologic malignancies. The study is being conducted at the Siteman Cancer Center of Washington University in St. Louis, MO, the MD Anderson Cancer Center in Houston, TX and the Norris Cancer Center at the University of Southern California in Los Angeles, CA.

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Our Preclinical Development Program

PRO64553 (formerly SGN-14)

        We are collaborating with Genentech to develop a humanized monoclonal antibody that targets CD40. CD40 is a cell surface receptor that is expressed on a variety of hematologic malignancies such as multiple myeloma, non-Hodgkin's lymphoma and leukemias, certain solid tumors, and Kaposi's sarcoma. PRO64553 induces direct antitumor activity in multiple models of human cancer at doses that are well-tolerated in toxicology experiments. In January 2002, we announced that PRO64553 had entered the Genentech clinical development portfolio and we are expecting an IND application to be filed and the subsequent phase I study to be initiated later in 2002.

SGN-17/19

        SGN-17/19 is based on our ADEPT technology and is being developed for the treatment of melanoma. SGN-17 is a fusion-protein containing monoclonal antibody and enzyme components that incorporates the binding site of the monoclonal antibody, L49, and a specific form of the enzyme b-lactamase. L49 binds to the p97 cell surface molecule, which is non-internalizing and expressed at high density on melanoma. The p97 cell surface molecule is also expressed on many ovarian, breast and lung carcinomas, although at a lower level. The prodrug, SGN-19, is a form of the chemotherapeutic drug melphalan that has been inactivated through the addition of a chemical group that can be removed by the enzyme b-lactamase. When SGN-17 is injected systemically, it accumulates on the tumor tissue and remains bound at the cell surface. SGN-19 is then administered systemically and converted to melphalan in the tumor tissue by the enzyme b-lactamase bound to the surface of cancer cells, resulting in localized release of melphalan. Through genetic engineering efforts in 2001 and early in 2002, there have been considerable recent advances in the production of the SGN-17 component. We have also made considerable improvements to the chemical synthesis of SGN-19 throughout the last year.

        In January 2002, we entered into a collaboration agreement with Genencor International, Inc. to jointly discover and develop a class of cancer therapeutics based on tumor-targeted enzymes that activate prodrugs. The collaboration will utilize our ADEPT technology along with Genencor's targeted enzyme prodrug therapy (TEPT) platform, their epitope mapping (i-mune™) technology, and their protein engineering and expression capabilities.

Novel BR96-ADC

        Utilizing the BR96 monoclonal antibody and our high-potency ADC technology, we have identified novel anti-cancer agents targeted to solid tumors expressing the Lewis^y-related carbohydrate antigen. Our lead BR96-ADC contains our stable, enzymatically cleavable linker and the highly potent cytotoxic agent Auristatin E. This agent has been found to induce complete regressions of human tumors such as non-small cell lung cancer in animal models at doses that are relatively modest. We expect the lead high-potency BR96-ADC to enter our development pipeline in 2002. Activities relating to scale-up manufacturing of the monoclonal antibody and drug-linker components of the ADC are in process.

Novel AC10-ADC

        Utilizing the AC10 monoclonal antibody and our high-potency ADC technology, we have identified novel anti-cancer agents targeted to hematologic malignancies and certain immunologic diseases expressing CD30. Our lead AC10-ADC form contains our stable, enzymatically cleavable linker and the highly potent cytotoxic agent Auristatin E. This agent has been found to induce complete regressions of human tumors such as anaplastic large cell lymphoma and Hodgkin's disease in animal models at low doses. We expect the lead high-potency AC10-ADC to enter the development pipeline in late 2002.

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Activities relating to scale-up manufacturing of the AC10 monoclonal antibody and drug-linker components of the ADC have been initiated.

        CD30 is expressed on activated T and B cells but is absent on these cells when in resting state. This restricted expression profile enables us to consider therapies targeted to CD30 for use in immunologic disease such as lupus, scleroderma and multiple sclerosis. High-potency AC10-ADC forms may be used to develop a therapeutic strategy in which activated immune cells, that are contributing to the poor prognosis in patients with these immunologic diseases, are eliminated. Preclinical research in this area is ongoing internally and with outside collaborators.

Corporate Collaborations

        Part of our business strategy is to establish corporate collaborations with biotechnology and pharmaceutical companies. We plan to collaborate with others, both for the development and commercialization of our own product candidates and for the potential improvement of collaborators' monoclonal antibodies using our technologies. Through our corporate collaborations, we seek to fund portions of our research and development expenses. We also seek to retain significant downstream participation in product sales through either profit-sharing or product royalties paid on annual net sales.

        Our principal corporate collaborations are listed below.

        Bristol-Myers Squibb.    We obtained the rights to some of our technologies and product candidates through a license agreement with Bristol-Myers Squibb, portions of which are exclusive. Through this license, we secured rights to certain monoclonal antibody-based cancer targeting technologies, which included rights to 26 different patents, eight monoclonal antibodies, chemical linkers, a ribosome-inactivating protein and enabling technologies. Under this license agreement, we received cGMP produced and vialed material for two different monoclonal antibody-based therapeutic agents, SGN-15 and SGN-10, which are presently in clinical trials. Under the terms of the license agreement, we are required to pay royalties on net sales of future products incorporating the licensed technology. Our obligation to pay royalties terminates product-by-product upon the later of ten years after first commercial sale or the last to expire of the licensed patents. The agreement is also subject to earlier termination upon breach of any material obligations by the other party.

        Mabtech AB.    In June 1998, we obtained exclusive worldwide rights to a monoclonal antibody that recognizes CD40 from Mabtech AB, located in Sweden. Under the terms of our license with Mabtech, we are required to make a milestone payment and pay royalties on net sales of products incorporating technology licensed from Mabtech.

        In March 2002, we entered into an additional agreement with Mabtech to obtain an option to license certain monoclonal antibodies that target various cancers. The option provides us with development, manufacturing and worldwide commercialization rights to therapeutic products derived from these antibodies.

        Genentech.    In June 1999, we licensed our anti-CD40 antibody program to Genentech, some of which is on an exclusive basis. The agreement includes SGN-14, which Genentech has designated PRO64553. In January 2002, we announced that PRO64553 has entered Genentech's clinical development portfolio for the treatment of patients with hematologic malignancies or other types of cancer. Our agreement with Genentech includes joint oversight of development. The business terms of this agreement include $4.0 million in equity purchases in Seattle Genetics and $41.0 million in potential milestone payments on the first product developed. The agreement also provides for milestone payments of up to $20.0 million and future royalties on net sales of each additional product incorporating our technology. Genentech's obligation to pay royalties terminates on a product-by-product basis upon the later of a specified number of years after first commercial sale or

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the last to expire of the licensed patents. Genentech may also terminate the agreement at any time upon 90 days notice or by either party upon breach of any material obligations. As part of this agreement, we sold Genentech 680,272 shares of Series B convertible preferred stock in December 1999 and 285,714 shares of common stock at our initial public offering in March 2001.

        University of Miami.    In September 1999, we entered into an exclusive license agreement with the University of Miami, Florida, covering an anti-CD30 monoclonal antibody that is the basis for two new product candidates targeted to hematologic malignancies and immunologic disease. Under the terms of our license with the University of Miami, we made an up front payment and are required to make milestone payments, certain annual maintenance fee payments and pay royalties on net sales of products incorporating technology licensed from the University of Miami for a period of ten years after the first commercial sale of a product.

        Arizona State University.    In February 2000, we entered into a license agreement with the Arizona State University covering the cell-killing agent Auristatin E. We intend to use Auristatin E as a component of new ADCs. Under the terms of our license with Arizona State University, we are required to make milestone payments, annual maintenance fee payments and pay royalties on net sales of products incorporating technology licensed from Arizona State University until the last to expire of the licensed patents on a country-by-country basis.

        Aventis Pharmaceuticals.    Aventis co-funds three different clinical trials using two of our product candidates, SGN-15 and SGN-10. As a part of our SGN-15 program, which is being tested clinically in combination with the chemotherapeutic agent Taxotere, Aventis is funding 50% of the clinical trial costs directly to the clinical sites. The SGN-15 trials that are part of the Aventis co-funding agreement include a phase I/II trial in breast or colon cancer patients for which the phase I was completed in September 2000 and two separate phase II trials in breast and colon cancers that were initiated in October 2000. As part of our SGN-10 program, Aventis is co-funding a phase I trial in patients including those with breast, colon, lung, prostate, ovarian or pancreatic cancer. SGN-10 is being tested in combination with Taxotere to determine the appropriate dose and disease indication for later stage clinical testing. Aventis is funding 50% of the clinical trial costs directly to the clinical sites. Aventis has no rights or options to SGN-15 or SGN-10 under the co-funding arrangement.

        ICOS Corporation.    In October 2000, we entered into a license agreement with ICOS Corporation for non-exclusive rights to use the CHEF expression system, a DNA sequence we may use to manufacture SGN-30. Under the terms of our agreement with ICOS, we are required to make milestone payments and pay royalties on net sales of products manufactured using the CHEF expression system, which requirement terminates upon the last to expire of the licensed patents.

        Medarex.    In February 2001, we entered into a collaboration agreement with Medarex to produce fully human monoclonal antibodies to certain breast cancer and melanoma antigen targets identified by us over the next three years. Under the agreement, all development, manufacturing and clinical costs of jointly developed products and all net profits or net losses will be shared by Medarex and us. Each of us has the right to opt out of the joint development of any antigen target and receive instead certain milestone and royalty payments on net sales. The agreement terminates upon the later of one year after completion of the research activities or the date on which neither party is exploiting any jointly developed products. As part of this agreement, we sold Medarex $2.0 million or 285,714 shares of our common stock at our initial public offering in March 2001.

        In November 2001, we entered into an additional agreement with Medarex, which allows us to immunize Medarex mice and to generate antibodies. We have the rights to obtain a non-exclusive research license and /or exclusive commercial licenses with respect to an antibody developed from this program.

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        Eos Biotechnology.    In June 2001, we entered into an agreement with Eos Biotechnology, Inc. to allow them to use our proprietary ADC technology with their monoclonal antibodies. Eos Biotechnology paid us an up front technology access fee, are paying service and reagent fees to us and may additionally make milestone payments and pay royalties on net sales of any resulting products. Eos Biotechnology will be responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of this agreement.

        CLB-Research and Development.    In July 2001, we entered into an exclusive option and license agreement to license certain monoclonal antibodies that target cancer and immunological disease from CLB-Research and Development, located in the Netherlands. Under the terms of the agreement with CLB, we have exclusive access to selected antibodies for research and development purposes and an option for a worldwide exclusive license to the antibodies. The agreement provided for the payment of an up front fee for an option to license one or more compounds. Upon the exercise of the option we would be subject to license fees, progress-dependent milestone payments and royalties upon commercialization of the antibodies.

        Proacta Therapeutics.    In October 2001, we entered into an exclusive option and license agreement to license certain drugs from Proacta Therapeutics, based in New Zealand. The agreement provides us with exclusive access to a unique set of potent cell-killing drugs that directly target DNA. Under the terms of the agreement with Proacta, we have an option for the exclusive development, manufacturing and worldwide commercialization rights to any products utilizing the drugs. The agreement provided for the payment of an up front fee for an option to license one or more compounds. Upon the exercise of the option we would be subject to license fees, progress-dependent milestone payments and royalties upon commercialization of the drugs.

        Genencor International, Inc.    In January 2002, we formed a strategic alliance to jointly discover and develop a class of cancer therapeutics based on tumor-targeted enzymes that activate prodrugs with Genencor International, Inc. The agreement provides for us to receive specific fees and milestones and for Genencor to receive certain milestone payments. As a part of the agreement, we sold Genencor $3.0 million or 573,614 shares of our common stock in a private placement.

        Under the terms of the multi-year agreement, the companies will utilize our antibody-directed enzyme prodrug therapy (ADEPT) technology, the platform on which SGN-17/19, our lead product candidate for the treatment of metastatic melanoma, is based. In addition, the collaboration will employ Genencor's targeted enzyme prodrug therapy (TEPT) platform, the epitope mapping technology (the i-mune assay), and protein engineering and expression capabilities. There will be cost sharing between the two companies for products that enter development.

        In addition, for any monoclonal antibody or protein therapeutic developed in the collaboration, Genencor's i-mune assay technology, which allows for the prediction of amino acid sequences that are capable of causing adverse immune responses, may be utilized. Based on these predictions, specific sequences of ADEPT or TEPT-based product candidates can be modified resulting in therapeutic agents that may be administered over longer durations, thus possibly leading to enhanced efficacy in cancer patients.

        Celltech Group.    In March 2002, we entered into an agreement with Celltech to allow them to use our proprietary ADC technology with their monoclonal antibodies. Celltech has agreed to pay us an upfront technology access fee, service and reagent fees and may additionally make milestone payments and pay royalties on net sales of any resulting products. Celltech will be responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of this agreement.

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Patents and Proprietary Technology

        Our success will depend in large part on our and our licensors' abilities to: obtain patent and other proprietary protection for antigens, antibodies and targeted drug delivery systems; defend patents once obtained; preserve trade secrets; and operate without infringing the patents and proprietary rights of third parties. We seek appropriate patent protection for our proprietary technologies by filing patent applications in the United States and certain other countries. As of December 31, 2001, we owned or held over 30 exclusive, partially exclusive or non-exclusive licenses to issued United States patents and 12 pending United States patent applications.

        These patents and patent applications are directed to certain monoclonal antibodies, product candidates, linker technologies, ADC technologies, immunotoxin technologies, ADEPT and enabling technologies. Although we believe our patents and patent applications provide us with a competitive advantage, the patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. We and our corporate collaborators or licensors may not be able to develop patentable products or processes. We and our corporate collaborators or licensors may not be able to obtain patents from pending patent applications. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us or our corporate collaborators.

        Our or our corporate collaborators' current patents, or patents that issue on pending applications, may be challenged, invalidated, infringed or circumvented, and the rights granted in those patents may not provide proprietary protection to us.

        Our commercial success depends significantly on our ability to operate without infringing patents and proprietary rights of third parties. A number of pharmaceutical and biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover technologies similar to the technologies owned, optioned by or licensed to us or our corporate collaborators. We cannot determine with certainty whether patents or patent applications of other parties may materially affect us or our corporate collaborators' ability to make, use or sell any products.

        We also rely on trade secrets and proprietary know-how, especially when we do not believe that patent protection is appropriate or can be obtained. Our policy is to require each of our employees, consultants and advisors to execute a confidentiality and inventions agreement before beginning their employment, consulting or advisory relationship with us. These agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of their relationship with us except in limited circumstances. These agreements also generally provide that we shall own all inventions conceived by the individual in the course of rendering services to us.

Government Regulation

        Our products are subject to extensive regulation by numerous governmental authorities, principally the FDA, as well as numerous state and foreign agencies. We need to obtain clearance of our potential products by the FDA before we can begin marketing the products in the United States. Similar approvals are also required in other countries.

        Product development and approval within this regulatory framework is uncertain, can take a number of years and requires the expenditure of substantial resources. The nature and extent of the governmental pre-market review process for our potential products will vary, depending on the regulatory categorization of particular products. We believe that the FDA and comparable regulatory bodies in other countries will regulate monoclonal antibody products and related pharmaceutical products as biologics. The necessary steps before a new biological product may be marketed in the

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United States ordinarily include: preclinical laboratory and animal tests; submission to the FDA of an investigational new drug application which must become effective before clinical trials may commence; completion of adequate and well controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use; the submission to the FDA of a biologics license application; and FDA review and approval of the biologics license application prior to any commercial sale or shipment of the product.

        Clinical trials generally are conducted in three sequential phases that may overlap. In phase I, the initial introduction of the product into patients, the product is tested to assess safety, metabolism, pharmacokinetics and pharmacological actions associated with increasing doses. Phase II usually involves trials in a limited patient population to: determine the efficacy of the potential product for specific, targeted indications; determine dosage tolerance and optimum dosage; and further identify possible adverse reactions and safety risks. Phase III trials are undertaken to evaluate further clinical efficacy in comparison to standard therapies, within a broader patient population, generally, at geographically dispersed clinical sites. Phase I, phase II or phase III testing may not be completed successfully within any specific period of time, if at all, with respect to any of our potential products. Furthermore, the FDA or an institutional review board or we may suspend a clinical trial at any time for various reasons, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

        The results of pharmaceutical development, preclinical trials and clinical trials are submitted to the FDA in the form of a biologics license application for approval of the manufacture, marketing and commercial shipment of the biological product. The testing and approval process is likely to require substantial time, effort and resources, and there can be no assurance that any approval will be granted on a timely basis, if at all. The FDA may deny a biologics license application if applicable regulatory criteria are not satisfied, require additional testing or information, or require post-market testing and surveillance to monitor the safety or efficacy of the product. In addition, after marketing approval is granted, the FDA may require post-marketing clinical trials, which typically entail extensive patient monitoring and may result in restricted marketing of an approved product for an extended period of time.

Competition

        The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Many third parties compete with us in developing therapies to treat a variety of cancers including hematologic malignancies, carcinomas and melanoma. They include pharmaceutical companies, biotechnology companies, academic institutions and other research organizations.

        Many of these competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approval and marketing than we do. In addition, many of these competitors have become more active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to our programs.

        We are aware of specific companies that have competitive technologies. These companies include Wyeth and Immunogen, both of which have ADC technology. Wyeth markets the ADC Mylotarg, for which they received approval in early 2000, for patients with acute myelogenous leukemia. While we are not developing lead agents for that specific disease, Wyeth may apply their technology to other monoclonal antibodies that may compete with our lead product candidates. Immunogen has certain

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ADCs in development that compete with our lead agents in clinical trials and in preclinical development. Immunogen also has established partnerships with outside companies to allow them to utilize Immunogen's technology. These outside companies may compete with our lead agents in development. We believe that our technology in the ADC area, specifically our stable linkers and highly potent, synthetically accessible cell-killing drugs, compete favorably with the technologies that are in use at Wyeth and Immunogen.

        We expect that competition among products approved for sale will be based, among other things, on efficacy, reliability, product safety, price and patent position. Our ability to compete effectively and develop products that can be manufactured cost-effectively and marketed successfully will depend on our ability to: advance our technology platforms; license additional technology; maintain a proprietary position in our technologies and products; obtain required government and other public and private approvals on a timely basis; attract and retain key personnel; and enter into corporate partnerships.

Manufacturing

        We received clinical-grade SGN-15 and SGN-10 from Bristol-Myers Squibb for our previous and ongoing clinical trials. In 2001, we contracted with ICOS Corporation to develop cell lines expressing the SGN-30 product candidate and to manufacture preclinical and clinical supplies of SGN-30. We received clinical-grade SGN-30 from ICOS as part of this agreement. We also contracted with ICOS for the development and manufacture of BR96, the monoclonal antibody component of our most advanced product candidate, SGN-15. We believe that our contract manufacturing relationship with ICOS, together with the existing product we received from Bristol-Myers Squibb, will be sufficient to accommodate clinical trials through phase II and in some cases phase III of our current product candidates. However, we may need to obtain additional manufacturing arrangements, if available on commercially reasonable terms, or increase our own manufacturing capability to meet our future needs, both of which would require significant capital investment.

Employees

        As of December 31, 2001, we had 69 employees, 24 of whom hold degrees at the doctoral level. Of these employees, 54 are engaged in or directly support research, development and clinical activities and 15 are in administration and business development positions. Each of our employees has signed a confidentiality agreement and none are covered by a collective bargaining agreement. We have never experienced employment-related work stoppages and consider our employee relations to be good.

Item 2. Properties.

        Our headquarters are in Bothell, Washington, where we lease approximately 63,900 square feet under a lease expiring May 2010. We may renew the lease, at our option, for two consecutive seven-year periods. Approximately 48,000 of the space has been built out as laboratory, discovery, research and development and general administration space with the remaining space available for future expansion.

Item 3. Legal Proceedings.

        We are not a party to any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

        No matters were submitted to a vote of securities holders during the fourth quarter of 2001.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        Our common stock is traded on the Nasdaq National Market under the symbol SGEN.

        The following table sets forth the high and low sales prices for our common stock, as quoted on the Nasdaq National Market, for each quarter since our initial public offering on March 6, 2001.

        There were approximately 120 holders of record of our common stock as of March 15, 2002 and, according to our estimates, approximately 6,000 beneficial owners of our common stock.

        We have not paid any cash dividends on our common stock since our inception. We currently do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business operations.

        We completed our initial public offering of our common stock pursuant to our Registration Statement on Form S-1 under the Securities Act of 1933 (File No. 333-50266) on March 6, 2001. All 7,000,000 shares of common stock offered in the final prospectus were sold at a price per share of $7.00. The managing underwriters of our offering were JP Morgan, CIBC World Markets and Banc of America Securities LLC. The aggregate gross proceeds of the shares offered and sold were $49.0 million that resulted in net proceeds to Seattle Genetics of approximately $44.4 million after deducting underwriting discounts and commissions and other offering expenses of $4.6 million. From the effective date of the offering through December 31, 2001, Seattle Genetics has used approximately $18.0 million of the proceeds, including $750,000 for clinical trials, $5.4 million for contract manufacturing costs, $5.4 million for purchase of property and equipment and approximately $6.3 million for preclinical research and development activities and general corporate purposes. The remainder of the net proceeds from the offering are invested in a variety of high quality interest-bearing instruments, consisting of U.S. government and agency securities, high-grade U.S. corporate bonds, taxable municipal bonds, mortgage-backed securities, commercial paper and money market accounts.

        Concurrent with the closing of our initial public offering, we sold 285,714 shares of common stock to Medarex, Inc. in a private placement at the initial public offering price of $7.00 per share, which generated cash proceeds of $2.0 million. In addition, concurrent with the closing of the initial public offering, 17,387,072 shares of convertible preferred stock were converted to an equivalent number of shares of common stock.

        In January 2002, we formed a strategic alliance with Genencor International, Inc. to jointly discover and develop a class of cancer therapeutics based on tumor-targeted enzymes that activate prodrugs. In conjunction with forming this strategic alliance, Genencor purchased approximately $3 million, or 573,614 shares of our common stock in a private placement pursuant to a purchase agreement entered into at the time of sale.

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Item 6. Selected Financial Data.

        The following selected financial data should be read in conjunction with the financial statements and notes to our financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Form 10-K. The selected Statements of Operations and Balance Sheet data for, and as of the years ended December 31, 1999, 2000 and 2001 have been derived from our audited financial statements appearing elsewhere in this Form 10-K. The selected Statements of Operations and Balance Sheet data for, and as of the year ended December 31, 1998 have been derived from our audited financial statements that are not included in this Form 10-K. Historical results are not necessarily indicative of future results.

(1)

Operating expenses exclude charges for non-cash stock-based compensation as follows:

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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, will, should, expect, plan, anticipate, believe, estimate, predict, potential or continue, the negative of terms like these or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. 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. In evaluating these statements, you should specifically consider various factors, including the risks outlined under the caption "Important Factors That May Affect Our Business, Results of Operations and Our Stock Price" set forth at the end of this Item 7 and 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

        We focus on the discovery and development of monoclonal antibody-based drugs to treat cancer and related diseases. We have four monoclonal antibody-based technologies: genetically engineered monoclonal antibodies; monoclonal antibody-drug conjugates (ADCs); single-chain immunotoxins; and antibody-directed enzyme prodrug therapy (ADEPT). Our technologies enable us to develop monoclonal antibodies that can kill cells on their own as well as those that require an increase in potency to destroy cancer cells. Using our expertise in cancer and monoclonal antibody technologies, we have constructed a diverse portfolio of product candidates targeted to many human tumors. Our technologies also provide us with an opportunity to partner with other companies that are developing monoclonal antibodies.

        We have three monoclonal antibody-based product candidates in clinical trials, SGN-15, SGN-10 and SGN-30. SGN-15 and SGN-10 target a variety of cancers including breast, colon, prostate and lung. SGN-30 is being developed to treat patients with various hematologic malignancies. We also have four preclinical product candidates presently undergoing development for patients with solid tumors, melanoma or hematologic malignancies. These include PRO64553 (formerly SGN-14), which is being developed in an alliance with Genentech, Inc., SGN-17/19, which is being developed in collaboration with Genencor International, a novel BR96-ADC and a novel AC10-ADC. These last two product candidates utilize our high-potency ADC technology. This next generation technology utilizes proprietary stable linker systems that can significantly reduce the toxic side effects caused by the systemic release of drug associated with less stable linker technology. We have also developed synthetic, highly-potent, cell-killing drugs including Auristatin E, which are readily scaleable for commercial development.

        Since our inception, we have incurred substantial losses and as of December 31, 2001, we had an accumulated deficit of $33.5 million. These losses and accumulated deficit have resulted from the significant costs incurred in the development of our monoclonal antibody-based technologies, clinical trial costs of SGN-15 and SGN-10, manufacturing expenses of preclinical and clinical grade materials, general and administrative costs, and non-cash stock-based compensation expenses associated with stock options granted to employees and consultants prior to our initial public offering in March 2001. Operating expenses increased to $23.9 million in 2001 from $10.0 million in 2000 and $4.1 million in 1999. We expect that our losses will increase for the foreseeable future as we continue to expand our research, development,