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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2005

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, WA 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:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES  ¨    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES  ¨    NO  x

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 that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  x    NO  ¨

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.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  ¨    NO  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $137 million as of the last business day of the registrant’s most recently completed second fiscal quarter, 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 42,435,520 shares of the registrant’s Common Stock issued and outstanding as of March 3, 2006.

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 12, 2006.

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SEATTLE GENETICS, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2005

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PART I

Item 1. Business.

Overview

Seattle Genetics is a biotechnology company focused on the development of monoclonal antibody-based therapies for the treatment of cancer and immunologic diseases. We currently have three product candidates, SGN-30, SGN-40 and SGN-33, in six ongoing clinical trials, and three lead preclinical product candidates, SGN-35, SGN-70 and SGN-75. Our pipeline of product candidates is based upon two technologies: genetically engineered monoclonal antibodies and monoclonal antibody-drug conjugates (ADCs). These technologies enable us to develop monoclonal antibodies that can kill target cells on their own as well as to increase the potency of monoclonal antibodies by linking them to a cell-killing payload. We have licensed our ADC technology to seven collaborators: Genentech, UCB Celltech, PDL BioPharma, CuraGen, Bayer Pharmaceuticals, MedImmune and PSMA Development Company (a joint venture between Progenics and Cytogen). We also have internal research and in-licensing programs for novel antigens and new monoclonal antibodies.

Monoclonal Antibodies for Cancer Therapy

Antibodies are proteins released by the immune system’s B-cells, a type of white blood cell, in response to the presence of a foreign entity in the body, such as a virus or bacteria, or in some cases to an abnormal immunologic response. B-cells produce millions of different kinds of antibodies, which have slightly different shapes that enable them to bind to and inactivate specific molecular targets. Antibodies that have identical molecular structure and bind to a specific target are called monoclonal antibodies. The inherent selectivity of monoclonal antibodies makes them ideally suited for targeting specific cells, such as cancer cells, while bypassing most normal tissue.

There are a growing number of antibody-based products that have been approved for the treatment of cancer. These include five genetically engineered monoclonal antibodies (Rituxan^®, Herceptin^®, Campath^®, Avastin^® and Erbitux^®), two radionuclide-conjugated monoclonal antibodies (Zevalin^® and Bexxar^®) and an antibody-drug conjugate (Mylotarg^®). Together, these eight products generated sales of more than $4 billion in 2005. Additionally, there are many monoclonal antibodies in preclinical and clinical development that are likely to increase the number of monoclonal antibody-based commercial products in the future.

Cancer is the leading cause of death for people in the United States under the age of 85, resulting in over 560,000 deaths annually. The American Cancer Society estimates that 1.4 million new cases of cancer will be diagnosed in the United States during 2006. The World Health Organization estimates that more than 11 million people worldwide are diagnosed with cancer each year, a rate that is expected to increase to an estimated 16 million people annually by the year 2020. Cancer causes seven million deaths worldwide each year and, according to the National Cancer Institute, approximately 35 percent of people with cancer will die within five years from being diagnosed.

Our Monoclonal Antibody Technologies

Our pipeline of monoclonal antibody-based product candidates are designed utilizing two approaches to maximize antitumor activity and reduce toxicity. The first technology uses genetic engineering to produce monoclonal antibodies that have intrinsic antitumor activity with lowered risk of adverse events or immunologic response. The second technology involves attaching a highly potent cytotoxic drug to an antibody, which delivers and releases the drug inside the tumor cell. The resulting hybrid molecule is called an antibody-drug candidate (ADC). We also evaluate the use of our monoclonal antibodies in combination with conventional chemotherapy, which can result in synergistic antitumor activity.

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Genetically Engineered Monoclonal Antibodies

Our antibodies are genetically engineered to reduce non-human protein sequences, thereby lowering the potential for patients to develop a neutralizing immune response and extending the duration of their use in therapy. In general, there are three types of genetically engineered monoclonal antibodies being developed for human therapeutic use: chimeric, humanized and fully-human. A chimeric antibody contains a mixture of mouse and human sequences, usually 30 percent mouse and 70 percent human. Rituxan, the largest selling antibody product for cancer therapy, and Erbitux are both chimeric antibodies. Humanized antibodies contain over 90 percent human protein sequences, while fully-human monoclonal antibodies contain 100 percent human sequences. Herceptin, Campath and Avastin are other examples of humanized antibodies approved by the U.S. Food and Drug Administration (FDA) for the treatment of cancer. Our product development pipeline includes both chimeric and humanized monoclonal antibodies. We have substantial expertise in humanizing antibodies and have non-exclusive licenses to PDL BioPharma’s antibody humanization patents.

Some monoclonal antibodies kill cancer cells without being conjugated to a toxin either by directly sending a cell-killing signal or by activating an immune response that leads to cell death. These antibodies can be effective in tumor regression and have the advantage of low systemic toxicity. For example, antibodies targeted to antigens such as CD20 (Rituxan), HER2 (Herceptin), CD52 (Campath), VEGF (Avastin) and EGFR (Erbitux) can kill tumor cells in this manner. SGN-30, SGN-40 and SGN-33 also fall into this category of genetically engineered antibodies that have intrinsic antitumor activity without conjugation to a toxin.

Antibody-Drug Conjugates (ADCs)

ADCs are monoclonal antibodies that are linked to potent cell-killing drugs. Our ADCs utilize monoclonal antibodies that internalize within target cells upon binding to their cell-surface receptors. The environment inside the cell causes the cell-killing drug to be released from the monoclonal antibody, allowing it to have the desired effect. A key component of an ADC is the linker that attaches the drug to the monoclonal antibody until internalized within the target cell where exposure to the intracellular environment results in drug release. We have a variety of linker technologies including enzyme-cleavable linkers that are designed to be very stable in blood, thereby minimizing toxicity to normal tissues. We use highly potent cell-killing drugs, such as auristatin derivatives, that are synthetically produced and readily scaleable, in contrast to natural product drugs that are more difficult to produce and link to antibodies. SGN-35 and SGN-75 utilize our proprietary, auristatin-based ADC technology. We hold exclusive or partially-exclusive licenses to several issued patents and have filed multiple patent applications covering our ADC technology. We continue to create and evaluate new linkers and novel classes of potent, cell-killing drugs for use in our ADC program.

Our Strategy

Our goal is to become a leading developer and marketer of monoclonal antibody-based therapies for cancer and immunologic diseases. Key elements of our strategy are to:

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Development Programs

The following table summarizes the status of our internal product pipeline:

SGN-30

We have evaluated SGN-30 in phase I and phase II clinical trials for the treatment of three types of lymphoma: systemic ALCL, cutaneous ALCL and Hodgkin’s disease. SGN-30 is a monoclonal antibody targeting the CD30 antigen, which is expressed on hematologic malignancies including Hodgkin’s disease and several types of T-cell non-Hodgkin’s lymphomas. CD30 is an attractive target for cancer therapy because it has minimal expression on normal tissues. We have received orphan drug designation from the FDA for SGN-30 in both Hodgkin’s disease and T-cell lymphomas.

Market Opportunity

Lymphoma is the most common type of hematologic malignancy. Of the nearly 500,000 people in the United States with lymphoma, approximately 128,000 have Hodgkin’s disease. According to the American Cancer Society, approximately 7,800 cases of Hodgkin’s disease will be diagnosed in the United States during 2006, and an estimated 1,490 people will die of the disease. The prevalence of ALCL in the United States is not known, but worldwide ALCL accounts for approximately five percent of all non-Hodgkin’s lymphoma. Advances made in the use of combined chemotherapy and radiotherapy for malignant lymphomas have resulted

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in durable remission rates for front-line therapy in early stage lymphomas. However, the therapeutic options for refractory or relapsed patients are limited, and there are significant opportunities for new treatments in these patient populations.

Clinical Results and Status

We have two ongoing phase II clinical trials of SGN-30, one for patients with systemic ALCL and one for patients with cutaneous ALCL. Each of these studies is designed to evaluate the antitumor activity, safety and immunogenicity of SGN-30 in up to 40 patients at multiple sites in the United States and Europe. In both studies, SGN-30 has demonstrated multiple objective responses at well-tolerated doses. SGN-30-related adverse events have been mild and consistent with antibody administration.

We reported preliminary data from our phase II systemic ALCL study at the American Society of Hematology (ASH) annual meeting in December 2005. In the systemic ALCL study, five of the first 20 evaluable patients had objective antitumor responses, including two complete responses and three partial responses. Two patients had stable disease and 13 had progressive disease. Patients received six weekly doses of 6 milligrams per kilogram (mg/kg) of SGN-30. Given the favorable tolerability profile, we have escalated the dose to 12 mg/kg, and patient accrual is ongoing at more than 40 sites in both the United States and Europe. We plan to report final phase II data from our ongoing SGN-30 systemic ALCL study at the ASH annual meeting in December 2006. We also are collaborating with the National Cancer Institute (NCI) in a phase II combination trial of SGN-30 plus a chemotherapy regimen comprised of cyclophosphamide, doxorubicin, vincristine and prednisone (CHOP), which we expect the NCI to initiate in 2006.

In the cutaneous ALCL study, we have reported that five of the first six evaluable patients achieved objective antitumor responses, including one complete response and four partial responses. Patients received SGN-30 at monthly doses of 4 mg/kg for a maximum of six consecutive doses. In the absence of an objective response after two doses, patients are eligible to receive an escalated dose of 12 mg/kg for the remaining infusions. This study was recently amended to include two other related CD30-positive indications: transformed mycosis fungoides and lymphomatoid papulosis (LyP). Accrual to this phase II clinical trial is ongoing at multiple sites in the United States. We plan to present preliminary data from our SGN-30 cutaneous ALCL study at the Society of Investigative Dermatology meeting in May 2006.

In Hodgkin’s disease, we have treated 68 patients with SGN-30 in phase I and phase II clinical trials. In our completed SGN-30 phase II single-agent trial in Hodgkin’s disease, we observed multiple patients with reductions in tumor size, but in general the antibody was not sufficiently active as a single agent in this heavily-pretreated patient population to meet the criteria for objective tumor response. Our strategy for investigating SGN-30 as a treatment for Hodgkin’s is now focused on combinations with chemotherapy. We are collaborating with the NCI in a phase II combination trial of SGN-30 plus three chemotherapy drugs: gemcitabine, vinorelbine and doxorubicin. We expect the NCI to initiate this study in 2006.

While our current development focus is to pursue SGN-30 in oncology indications, we believe that it may have applications in immunologic diseases such as atopic dermatitis, rheumatoid arthritis and multiple sclerosis. In immunologic disease, the body’s immune system malfunctions and attacks its own healthy cells. Many therapies for immunologic disease rely on suppressing the immune system to prevent further damage to normal tissues, but have the unwanted side effect of making the patient more susceptible to infection or cancer. The CD30 antigen is expressed only on activated T-cells but is absent on these cells when in a resting state. Since resting T-cells make up approximately 95 percent of those types of cells circulating in the body, SGN-30 may be able to prevent or reduce a damaging immune response without globally suppressing the patient’s immune system, thus leaving the patient better able to fight off infection.

SGN-40

We are currently conducting three phase I clinical trials of SGN-40 in patients with multiple myeloma, non-Hodgkin’s lymphoma or chronic lymphocytic leukemia (CLL). SGN-40 is a humanized monoclonal

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antibody that targets the CD40 antigen, which is expressed on many B-cell lineage hematologic malignancies, as well as solid tumors such as bladder, renal and ovarian cancer. We have generated extensive preclinical data demonstrating that SGN-40 has direct antitumor activity in both in vitro and in vivo models of multiple myeloma and non-Hodgkin’s lymphoma via multiple cell-killing mechanisms.

Market Opportunity

Multiple Myeloma.    The American Cancer Society estimates that approximately 16,500 cases of multiple myeloma will be diagnosed in the United States during 2006, and approximately 11,300 people will die from the disease. Therapeutic advances over the past few years, such as the FDA’s approval of Velcade during 2003, have expanded the treatment options for patients with multiple myeloma. However, multiple myeloma remains an incurable disease, and current therapies have limited response duration and significant toxic side effects. Therefore, we believe that targeted therapy using a monoclonal antibody represents a substantial opportunity in this disease either as a single agent or in combination with other treatments.

Non-Hodgkin’s Lymphoma.    Non-Hodgkin’s lymphoma is the most common form of hematologic malignancy. The American Cancer Society estimates approximately 58,800 cases of non-Hodgkin’s lymphoma will be diagnosed in the United States during 2006, the majority of which are of B-cell origin. Approximately 18,800 people will die from the disease. Advances made in the use of combined chemotherapy and radiotherapy and the use of Rituxan have resulted in durable remission rates for front-line therapy in early stage disease. However, the therapeutic options for refractory or relapsed patients are still limited, and there are significant opportunities for new treatments in this patient population.

Chronic Lymphocytic Leukemia.    CLL is one of the most common types of leukemia. According to the American Cancer Society, approximately 10,000 new cases of CLL will be diagnosed and 4,600 patients will die of CLL in the United States during 2006. In recent years, the combination of chemotherapy agents with Rituxan has significantly increased the response rate and duration of remission in CLL patients. However, this therapy is not curative, has significant immunosuppression and often results in relapse within several years. Patients frequently cannot tolerate repeated treatments of these combination therapies, and Rituxan or Campath both have relatively low efficacy as a single agent for relapsed CLL. Therefore, there is significant need for new therapies that are active in this disease.

Clinical Results and Status

We are conducting ongoing phase I clinical trials of SGN-40 in multiple myeloma and non-Hodgkin’s lymphoma, and we recently initiated a phase I/II clinical trial in CLL in November 2005. Each study is an open-label, multi-dose, single-arm trial designed to accrue cohorts of three to six patients at escalating doses of SGN-40. As previously reported, we are treating patients in all three trials under protocols that utilize a dose loading regimen for each patient during the first two weeks to attenuate adverse events seen under the original dose schedule of the multiple myeloma clinical trial. All patients accrued to these studies are heavily pretreated and have relapsed or refractory disease. Patients who experience a clinical benefit are eligible for a second cycle of therapy. The objectives of these trials are to establish safety and pharmacokinetic profiles, evaluate effects on lymphocytes, determine whether patients develop an immune response to SGN-40 and assess antitumor activity of a multi-dose regimen of SGN-40.

We reported preliminary phase I data from our multiple myeloma and non-Hodgkin’s lymphoma studies at the ASH annual meeting in December 2005. In both studies, patients receive multiple doses of SGN-40 over five weeks and are followed for at least six weeks. In the SGN-40 non-Hodgkin’s lymphoma study, we reported data from the first twelve patients, six of whom received a dose of 2 mg/kg/week using the original schedule and six of whom received doses up to 3 mg/kg/week on the amended dosing schedule. Two of six non-Hodgkin’s lymphoma patients treated at 3 mg/kg/week demonstrated partial responses after 36 days on the study. Both patients continued on to a second cycle of therapy. In the multiple myeloma study, we reported data from the first 23 patients, seven of whom were treated under the amended dosing schedule. Three of these patients received doses up to 3 mg/kg/week and four received doses up to 4 mg/kg/week. Overall, two patients achieved stable

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disease at the conclusion of the first cycle and four patients had reductions in M-protein levels during therapy, although no patients met criteria for objective response. One multiple myeloma patient with stable disease advanced to a second cycle of therapy after clinical improvement.

We plan to report additional data from our phase I study of SGN-40 in non-Hodgkin’s lymphoma at the American Society of Clinical Oncology (ASCO) annual meeting in June 2006, and expect complete data from all three ongoing phase I studies to be available by the ASH annual meeting in December 2006. We are also exploring potential phase I combination studies of SGN-40 with Revlimid in multiple myeloma and with Rituxan in either non-Hodgkin’s lymphoma or Waldenström’s macroglobulinemia. We have preclinical data with both Revlimid and Rituxan that indicate potential synergy with SGN-40. We also believe SGN-40 may have applications in immunologic diseases because of its ability, in both our clinical trials and preclinical studies, to deplete activated B-cells. We are also investigating the use of SGN-40 in CD40-expressing solid tumors such as bladder, renal and non-small cell lung cancer.

SGN-33

We are currently conducting a phase I clinical trial of SGN-33 in patients with acute myeloid leukemia (AML) and myelodysplastic syndromes (MDS). SGN-33 is a humanized monoclonal antibody that targets the CD33 antigen, which is highly expressed on a number of hematologic malignancies, such as AML, MDS and several myeloproliferative disorders. We in-licensed this program from PDL BioPharma in April 2005 and commenced our phase I trial in November 2005.

Market Opportunity

Acute Myeloid Leukemia.    Acute myeloid leukemia is the most common type of acute leukemia in adults. AML results in uncontrolled growth and accumulation of malignant cells, or “blasts”, which fail to function normally and block the production of normal blood cells, leading to a deficiency of red cells (anemia), platelets (thrombocytopenia) and normal white cells (neutropenia) in the blood. According to the American Cancer Society, approximately 11,900 new cases of AML will be diagnosed in the United States during 2006, and 9,000 people will die of the disease. Current therapies for AML include chemotherapy drugs such as cytarabine and daunarubicin or mitoxantrone and an antibody-drug conjugate, Mylotarg. However, these therapies have low cure rates and relatively short remissions, as well as significant side effects. In addition, hematapoietic stem cell transplantation, which offers a higher probability of cure, is not an option for many patients due to the toxicity or absence of an appropriate stem cell donor. As such, there is a significant need for well-tolerated, targeted therapies, especially in the relapsed and refractory setting and for elderly, untreated patients who cannot tolerate chemotherapy or stem cell transplant.

Myelodysplastic Syndromes.    Myelodysplastic syndromes include a heterogeneous group of hematologic myeloid malignancies. MDS occurs when blood cells remain in an immature stage within the bone marrow and never develop into mature cells capable of performing their necessary functions. Eventually, the bone marrow may be filled with immature cells suppressing normal cell development. According to the American Cancer Society, 10,000 to 15,000 new cases of MDS are diagnosed each year in the United States, with this number increasing each year. Mean survival rates range from approximately six months to six years for the different stages of MDS, with approximately 30 percent of MDS cases eventually transforming into AML. MDS patients must often rely on blood transfusions or growth factors to manage symptoms of fatigue, bleeding and frequent infections. The fact that most MDS patients die from complications of the disease prior to developing acute leukemia underscores the critical need for new therapies targeting the cause of the condition and helping to restore normal blood production as well as delay the onset of leukemia.

Status

Our phase I trial is designed to evaluate the safety, pharmacokinetic profile and antitumor activity of escalating doses of SGN-33, and is expected to enroll up to 60 patients at multiple centers in the United States. The patient population will include those individuals with AML and MDS who are not eligible for intensive chemotherapy or stem cell transplantation as well as those who have failed previous therapy. We plan to report

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preliminary data from the dose-escalation portion of our phase I study at the ASCO annual meeting in June 2006 and at the ASH annual meeting in December 2006.

SGN-35

SGN-35 is an ADC composed of the anti-CD30 monoclonal antibody used in our SGN-30 product candidate attached by our proprietary, enzyme-cleavable linker to a derivative of the highly potent class of cell-killing drugs called auristatins. In preclinical models, SGN-35 has induced complete regressions of tumors at doses as low as 0.5 mg/kg. We are currently completing manufacturing and IND-enabling toxicology studies of SGN-35, and plan to submit an IND for the treatment of CD30-expressing hematologic malignancies such as Hodgkin’s disease in mid-2006.

SGN-70

SGN-70 is a humanized anti-CD70 monoclonal antibody with potent effector function and intrinsic cell-killing ability. The CD70 antigen is expressed on renal cancer, nasopharyngeal carcinoma and certain hematologic malignancies. Since CD70 is expressed on recently activated T- and B-cells, but not while those cells are in a resting, inactive state, SGN-70 may also have applications in immunologic and inflammatory diseases. We have generated preclinical data demonstrating that SGN-70 has potent antitumor activity in models of hematologic malignancies and are initiating manufacturing activities and toxicology studies to support a 2007 IND for this program.

SGN-75

SGN-75 is an ADC comprised of the SGN-70 monoclonal antibody linked to an auristatin derivative using our proprietary ADC technology. SGN-75 is highly effective and well tolerated in preclinical models of human renal cell cancer. In preclinical studies, SGN-75 has been shown to selectively eliminate activated T-cells without affecting resting T-cells. SGN-75 is a future clinical candidate.

SGN-15

SGN-15 is a first-generation ADC that utilizes a hydrazone linker to target the cell-killing drug doxorubicin to tumor tissues expressing the Lewis-Y-related antigen. In a completed, randomized, 60-patient phase II study of SGN-15 plus Taxotere versus Taxotere alone for patients with non-small cell lung cancer (NSCLC) who had failed front-line therapy, we observed an overall survival advantage for patients who received the combination therapy although the data did not demonstrate statistical significance. Following this study, we conducted additional phase II studies testing whether sequencing the administration of SGN-15 three days prior to Taxotere results in greater synergy and drug effect than when the combination is administered simultaneously as was done in the completed phase II NSCLC trial. Although the trends in these data are encouraging, in July 2005 we announced our decision to discontinue internal development of SGN-15 to enable us to focus on our other product candidates and technologies. We are currently pursuing potential partnerships for future advancement of SGN-15.

Research Programs

In addition to our pipeline of product candidates and antibody-based technologies, we have internal research programs directed towards identifying novel antigen targets and monoclonal antibodies, advancing our antibody engineering initiatives and developing new classes of stable linkers and potent, cell-killing drugs.

Novel Antigen Targets and Monoclonal Antibodies.    We are actively engaged in internal efforts to identify and develop antigen targets and monoclonal antibodies with novel specificities and activities. We focus on genes and proteins that are highly expressed in cancer to identify molecules that are located on the surface of cancer cells that may serve as targets for monoclonal antibodies. We then create and screen panels of cancer-reactive monoclonal antibodies in our laboratories to identify those with the highest specificity. We supplement these internal efforts by evaluating opportunities to in-license targets and antibodies from academic groups and other biotechnology and pharmaceutical companies, such as our ongoing collaboration with Celera Genomics. The resulting monoclonal antibodies may represent product candidates on their own or may be utilized as part of our ADC technology.

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Antibody Engineering.    We have substantial internal expertise in antibody engineering, both for antibody humanization and engineering of antibodies to improve drug linkage sites for use with our ADC technology. By modifying the number and type of drug-linkage sites found on our antibodies, we can improve the robustness and cost-effectiveness of our manufacturing processes for conjugation of ADCs.

New Cell-Killing Drugs.    We continue to research new cell-killing drugs that can be linked to antibodies, such as the auristatins that we use in our second generation ADC technology. We are evaluating multiple auristatin derivatives, as well as other classes of cell-killing drugs, for potential applications as ADCs.

Corporate Collaborations

Part of our business strategy is to establish corporate collaborations with biotechnology and pharmaceutical companies and academic institutions. We license our ADC technology to collaborators to improve the efficacy of their own monoclonal antibodies. These deals benefit us several ways, including generating revenues that partially offset expenditures on our internal research and development programs, expanding our knowledge base regarding ADCs and leveraging the resources of our collaborators to evaluate our ADC technology across multiple targets and antibodies. We also seek collaborations to add to our pipeline and to advance the development and commercialization of our own product candidates. When partnering, we 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.

ADC Collaborations

We have entered into agreements with seven collaborators to allow them to use our proprietary ADC technology with their monoclonal antibodies:

PSMA Development Company.     In June 2005, we entered into an ADC collaboration with PSMA Development Company, which is a joint venture between Progenics and Cytogen. Under the terms of the multi-year agreement, PSMA Development Company paid us a $2.0 million upfront fee for an exclusive license to our technology for the PSMA antigen. PSMA Development Company is paying service and reagent fees and has agreed to make milestone payments and pay royalties on net sales of any resulting products. PSMA Development Company is responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of this collaboration.

MedImmune.    In April 2005, we entered into an ADC collaboration with MedImmune, Inc. Under the terms of the multi-year agreement, MedImmune paid us a $2.0 million upfront fee for an exclusive license to our technology for a single antigen. MedImmune also has an option to take a license to a second antigen by paying an additional fee. MedImmune is paying service and reagent fees and has agreed to make milestone payments and pay royalties on net sales of any resulting products. MedImmune is responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of this collaboration.

Bayer.    In September 2004, we entered into an ADC collaboration with Bayer Corporation. Under the terms of the multi-year agreement, Bayer paid us a $2.0 million upfront fee for an exclusive license to our technology for a single antigen. Bayer is also paying service and reagent fees and has agreed to make milestone payments and pay royalties on net sales of any resulting products. Bayer is responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of this collaboration.

CuraGen.    In June 2004, we entered into an ADC collaboration with CuraGen Corporation. Under the terms of the multi-year agreement, CuraGen paid us a $2.0 million upfront fee for an exclusive license to our technology for a single antigen. In February 2005, CuraGen paid us an additional fee for an exclusive license to a second antigen. CuraGen is also paying service and reagent fees and has agreed to make milestone payments and pay royalties on net sales of any resulting products. CuraGen is responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of this collaboration. CuraGen has announced that it is planning an IND for CR011, an ADC for the treatment of metastatic melanoma, in 2006, as well as conducting preclinical development of another ADC, CR014, for ovarian and renal cell cancer.

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Genentech.    In April 2002, we entered into an ADC collaboration with Genentech. Upon entering into the multi-year agreement, Genentech paid us a $2.5 upfront fee and purchased $3.5 million of our common stock. We have subsequently expanded this collaboration on several occasions to include additional antigens, including in December 2003 when Genentech paid us a $3.0 million fee and purchased an additional $7.0 million of our common stock and in November 2004 when Genentech paid us a $1.6 million fee. The total payments we have received from Genentech under this collaboration, including upfront fees, equity investments, technology access and research fees, exceed $25 million. Genentech has also agreed to pay progress-dependent milestone payments and royalties on net sales of any resulting products. Genentech is responsible for research, product development, manufacturing and commercialization of any products resulting from the collaboration. In March 2005, we achieved a milestone under this collaboration based on Genentech’s continued progress in preclinical development with an ADC utilizing our technology. During 2005 we received fees and milestone payments for assisting Genentech with process development and manufacturing of a HER2-targeted ADC to support potential IND-enabling studies and possible future clinical trials. Genentech is also utilizing our technology to conduct research on ADCs targeting multiple other antigens.

UCB Celltech.    In March 2002, we entered into an ADC collaboration with Celltech Group. The collaboration was assumed by UCB Celltech in 2004 upon UCB S.A.’s acquisition of Celltech. Under the terms of the multi-year agreement, UCB Celltech paid us an upfront technology access fee, is paying service and reagent fees and has agreed to make milestone payments and pay royalties on net sales of any resulting products. UCB Celltech is responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of this collaboration. During the past few years, we have achieved several preclinical milestones under our ADC collaboration with UCB Celltech, which have triggered payments to us.

PDL BioPharma.    In June 2001, we entered into an ADC collaboration with Eos Biotechnology. This collaboration was assumed by PDL BioPharma (formerly Protein Design Labs) in 2003 upon its acquisition of Eos Biotechnology, and we agreed to expand the collaboration in January 2004. Under the expanded agreement, we agreed to provide additional support to PDL in exchange for PDL paying us increased fees, milestones and royalties on net sales of any ADC products resulting from the collaboration. PDL also granted us a license and options for two additional licenses under their antibody humanization patents. As part of the in-license of our anti-CD33 program from PDL in April 2005, we further amended our ADC collaboration to reduce the royalties payable by PDL to us with respect to ADCs targeting several antigens. PDL is responsible for all costs associated with the development, manufacturing and marketing of any products generated as a result of our ADC collaboration.

Celera Genomics Co-Development Agreement

Celera Genomics.    In July 2004, we formed a collaboration with Celera Genomics Group, an Applera Corporation business, to jointly discover and develop antibody-based therapies for cancer. Products developed under the collaboration may include either genetically engineered monoclonal antibodies or ADCs. Pursuant to the terms of the multi-year agreement, we will jointly designate with Celera a number of cell-surface antigens discovered and validated through Celera’s proprietary proteomic platform. We will carry out initial screening to generate and select the appropriate corresponding antibodies or ADCs for joint development and commercialization, after which preclinical and clinical product development will be co-funded and we will jointly share any profits resulting from collaboration products. Either party may opt out of co-development of a particular product and receive royalties on net sales. Celera will also pay us progress-dependent commercialization milestones for any co-developed ADCs. In August 2005, we announced that we had selected a Celera antigen for further preclinical development.

License Agreements

Bristol-Myers Squibb.    In March 1998, we obtained rights to some of our technologies and product candidates, portions of which are exclusive, through a license agreement with Bristol-Myers Squibb. Through this license, we secured rights to monoclonal antibody-based cancer targeting technologies, including patents,

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monoclonal antibodies, chemical linkers, a ribosome-inactivating protein and enabling technologies. We also received a substantial supply of vialed, clinical-grade SGN-15, which has been used in our clinical trials. Under the terms of the license agreement, we are required to pay royalties on net sales of future products incorporating technology licensed from Bristol-Myers Squibb.

Genentech.    In March 2003, we entered into license agreements with Genentech providing us with rights relating to our SGN-40 product candidate, including a license under Genentech’s Cabilly patents covering the recombinant expression of antibodies. We paid Genentech an upfront license fee and have agreed to make a progress-dependent milestone payment and pay royalties on net sales of anti-CD40 products that use Genentech’s technology.

PDL BioPharma.    In January 2004, as part of the expansion of our ADC collaboration, PDL BioPharma granted us one license and options for two additional licenses under PDL’s antibody humanization patents. We have used the initial antibody humanization license for our SGN-40 product candidate. Under the terms of the license agreements, we are required to pay annual maintenance fees and royalties on net sales of products using PDL’s technology. In April 2005, we in-licensed an anti-CD33 program from PDL, which is the basis for SGN-33. We paid PDL an upfront fee and have agreed to pay progress-dependent milestones and royalties on net sales of anti-CD33 products incorporating technology in-licensed from PDL, which includes an antibody humanization license for the CD33 antigen. As part of the agreement, we also agreed to reduce the royalties payable by PDL to us with respect to several targets under our ongoing ADC collaboration. We and PDL have also granted each other a co-development option for second generation anti-CD33 antibodies with improved therapeutic characteristics developed by either party.

ICOS Corporation.    In October 2000, we entered into a license agreement with ICOS Corporation for non-exclusive rights to use ICOS’ CHEF expression system. We have used this system to manufacture clinical supplies of SGN-30, and we may also use it for other monoclonal antibodies in the future. Under the terms of this agreement, we are required to make progress-dependent milestone payments and pay royalties on net sales of products manufactured using the CHEF expression system.

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 SGN-30 and the antibody component of SGN-35. Under the terms of this license, we made an upfront payment and are required to pay annual maintenance fees, progress-dependent milestone payments and royalties on net sales of products incorporating technology licensed from the University of Miami.

Mabtech AB.    In June 1998, we obtained exclusive, worldwide rights to a monoclonal antibody targeting the CD40 antigen, which is the basis for SGN-40, from Mabtech AB, located in Sweden. Under the terms of this license, we are required to make a progress-dependent milestone payment and pay royalties on net sales of products incorporating technology licensed from Mabtech.

CLB-Research and Development.    Pursuant to a license agreement we entered into in July 2001, we obtained an exclusive license to specific monoclonal antibodies that target cancer and immunologic disease targets from CLB-Research and Development, located in the Netherlands. One of these antibodies is the basis for SGN-70 and the antibody component of SGN-75. Under the terms of this agreement, we have made upfront and option exercise payments and are required to make progress-dependent milestone payments and pay royalties on net sales of products incorporating technology licensed from CLB-Research and Development.

Arizona State University.    In February 2000, we entered into a license agreement with Arizona State University for a worldwide, exclusive license to the cell-killing agent Auristatin E. We subsequently amended this agreement in August 2004. Under the terms of the amended agreement, we are required to pay annual maintenance fees to Arizona State University until expiration of their patents covering Auristatin E. We are not, however, required to pay any progress-dependent milestone payments or royalties on net sales of products

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incorporating the Auristatin derivatives currently used in our ADC technology, and thus we do not expect to pay any milestones or royalties to Arizona State University with respect to products employing our current ADC technology.

Patents and Proprietary Technology

We seek appropriate patent protection for our proprietary technologies by filing patent applications in the United States and other countries. As of December 31, 2005, we owned or held exclusive or partially exclusive licenses to 34 United States and corresponding foreign patents and owned 74 pending United States and corresponding foreign patent applications.

Our patents and patent applications are directed to product candidates, monoclonal antibodies, antigen targets, linker technologies, our ADC technology and other antibody-based and/or enabling technologies. Although we believe our patents and patent applications provide us with a competitive advantage, the patent positions of biotechnology and pharmaceutical companies can be uncertain and involve complex legal and factual questions. We and our corporate collaborators may not be able to develop patentable products or processes or 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 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 to 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. We cannot determine with certainty whether patents or patent applications of other parties may materially affect our 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 assignment agreement before beginning their employment, consulting or advisory relationship with us. These agreements 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 provide that we shall own all inventions conceived by the individual in the course of rendering services to us.

Government Regulation

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

Product development and approval within this regulatory framework is uncertain, can take many years and requires the expenditure of substantial resources. The nature and extent of the governmental review process for our potential products will vary, depending on the regulatory categorization of particular products and various other factors.

The necessary steps before a new biopharmaceutical product may be sold in the United States ordinarily include:

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Clinical trials generally are conducted in three sequential phases that may overlap. In phase I, the initial introduction of the product into humans, 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 product candidates. Similarly, suggestions of safety or efficacy in earlier stage trials do not necessarily predict findings of safety and effectiveness in subsequent trials. Furthermore, the FDA, 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 preclinical studies, pharmaceutical development and clinical trials are submitted to the FDA in the form of a new drug application (NDA) or a biologics license application (BLA) for approval of the manufacture, marketing and commercial shipment of the pharmaceutical 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 review of an application or not approve an 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. Also, after marketing approval, comprehensive federal and state regulatory compliance obligations exist for the manufacture, labeling, distribution, promotion and pricing of pharmaceutical products. Failure to comply with ongoing regulatory obligations can result in warning letters, product seizures, criminal penalties, and withdrawal of approved products, among other enforcement remedies.

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 various approaches to cancer therapy. They include pharmaceutical companies, biotechnology companies, academic institutions and other research organizations.

Many of our 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 are 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.

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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:

We are aware of specific companies that have technologies that may be competitive with ours, including Wyeth, ImmunoGen and Medarex, all of which have antibody-drug conjugate technology. Wyeth markets the antibody-drug conjugate Mylotarg for patients with acute myeloid leukemia, which targets the same antigen as our SGN-33 product candidate. ImmunoGen has several antibody-drug conjugates in development that may compete with our product candidates. ImmunoGen has also established partnerships with other pharmaceutical and biotechnology companies to allow those other companies to utilize ImmunoGen’s technology. Medarex announced during 2005 that they have developed their own technology for linking antibodies to cytotoxic payloads. We are also aware of a number of companies developing monoclonal antibodies directed at the same antigen targets or for the treatment of the same diseases as our product candidates. For example, Medarex is developing an anti-CD30 antibody that may be competitive with SGN-30, and Chiron and Pfizer are each developing anti-CD40 antibodies that may be competitive with SGN-40. In addition, many other pharmaceutical and biotechnology companies are developing and/or marketing therapies for the same types of cancer and immunologic diseases that our product candidates are designed to treat. These include antibodies such as Genentech’s Rituxan and Imclone’s Erbitux, proteosome inhibitors such as Millennium’s Velcade, cancer vaccines such as Genitope’s MyVax, small molecule drugs such as Bayer’s/Onyx’s Nexavar and a variety of traditional chemotherapy drugs.

Manufacturing

We rely on contract manufacturers to supply drug product for our IND-enabling studies and clinical trials. For SGN-30, we have contracted with ICOS to manufacture preclinical and early-stage clinical supplies and with Abbott Laboratories for late-stage clinical and commercial supplies. For SGN-40, Genentech manufactured substantial quantities of clinical grade material that have been transferred to us, and we have entered into a manufacturing agreement with Abbott to supplement our clinical supplies. For SGN-33, we received material sufficient to supply our ongoing phase I clinical trials as part of our license from PDL BioPharma, and plan to enter into an agreement with a contract manufacturer during 2006 to supplement our supplies of SGN-33 as necessary for future studies. For SGN-70, we also plan to enter into a contract manufacturing agreement during 2006 to supply clinical-grade material to enable our initiation of SGN-70 clinical trials in 2007. For our ADC technology, we have contracted with Albany Molecular for drug-linker manufacturing and with several other contract manufacturers for conjugation. We have also entered into a preferred provider agreement with Albany Molecular to enable our ADC collaborators to order drug-linker materials directly from Albany Molecular to support their development of ADCs utilizing our technology. In addition, we rely on other third parties to perform additional steps in the manufacturing process, including vialing and storage of our product candidates.

We believe that our contract manufacturing relationsh