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MMRGlobal, Inc. – IPO: ‘424B4’ on 2/3/05

On:  Thursday, 2/3/05, at 11:04am ET   ·   Accession #:  1047469-5-2234   ·   File #:  333-114299

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/03/05  MMRGlobal, Inc.                   424B4                  1:1.1M                                   Merrill Corp/New/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                          HTML    978K 

Prospectus

Filed Pursuant to Rule 424(B)(4)
Reg. Statement No. 333-114299

6,000,000 shares

Common Stock

        This is the initial public offering of Favrille, Inc. No public market currently exists for our common stock.

Our common stock has been approved for quotation on the Nasdaq National Market under the symbol "FVRL."

Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 7.

        We have granted the underwriters a 30-day option to purchase up to 900,000 additional shares to cover any over-allotments.

Delivery of shares will be made on or about February 7, 2005.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is February 2, 2005.

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

PROSPECTUS SUMMARY

This summary highlights information about our business and this offering contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. Before deciding to invest in our common stock, you should read this entire prospectus carefully, including the section entitled "Risk Factors" and our financial statements and accompanying notes included elsewhere in this prospectus.

Our Business

We are a biopharmaceutical company focused on the research, development and commercialization of targeted immunotherapies for the treatment of cancer and diseases of the immune system. We have developed a proprietary technology that enables us to manufacture active immunotherapy product candidates that are designed to stimulate a patient's immune system to mount a specific and sustained response to disease.

Our lead product candidate, FavId, is an active immunotherapy for the treatment of indolent B-cell non-Hodgkin's lymphoma, or NHL, that is based upon unique genetic information extracted from a patient's tumor. FavId is being developed to be used following treatment with existing standards of care to induce more durable remissions for patients with indolent B-cell NHL. In May 2004, we received a Special Protocol Assessment, or SPA, from the FDA for our randomized, double-blind, placebo-controlled Phase 3 clinical trial evaluating FavId, which we initiated in July 2004. To date, FavId has been evaluated in two multi-center, open-label Phase 2 clinical trials involving over 120 patients. Preliminary results from these trials suggest that FavId can induce remissions when used alone and may increase time to disease progression, or TTP, following treatment with the approved product Rituxan. Six additional Phase 2 clinical trials of FavId in other types of B-cell NHL are either ongoing or expected to begin during 2005. Two of these clinical trials will be conducted under separate physician-sponsored Investigational New Drug Applications, or INDs, in the United States. One of these will be conducted as a physician-sponsored clinical trial in Switzerland. We currently retain exclusive worldwide commercialization rights to FavId.

Researchers have been conducting clinical trials of active immunotherapies in patients with B-cell NHL for more than a decade. The results of clinical trials at the Stanford University Medical Center and the National Cancer Institute, or NCI, suggest that active immunotherapies similar to FavId, when used following chemotherapy, may induce long-term remission and improve survival time among indolent B-cell NHL patients. Despite the promising results of these trials, we believe manufacturing limitations have hindered commercialization of these immunotherapies. We have developed a proprietary technology that we believe enables us to overcome historical limitations to the manufacturing and commercialization of active immunotherapies for B-cell NHL. We believe that our technology will enable us to manufacture FavId in a timely and cost-effective manner and allow us to offer a treatment option not currently available to physicians and patients.

We believe our active immunotherapy expertise and proprietary manufacturing technology will enable us to develop additional product candidates for other oncology indications, such as T-cell lymphoma, and for autoimmune diseases. We are currently developing a second product candidate, FAV-201, for the treatment of T-cell lymphoma and intend to initiate a Phase 1/2 clinical trial in the second half of 2005. We also intend to initiate preclinical studies to identify additional product candidates for the treatment of autoimmune diseases, with an initial focus on multiple sclerosis, during the first half of 2005.

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Market Opportunity for FavId

The American Cancer Society estimates that 54,370 people will be diagnosed with NHL in the United States in 2004, and the NCI has most recently estimated that approximately 332,000 patients suffer from this disease. Approximately 85% of NHL patients have B-cell NHL. We believe that approximately half of these patients have the slow-growing, or indolent, form of the disease. The majority of the remaining patients have a faster growing form of the disease, commonly referred to as aggressive NHL. A number of therapies are used to treat indolent B-cell NHL, including Rituxan, which had sales in the United States of over $1.3 billion in 2003 for indolent B-cell NHL and other indications. Despite the benefits of current therapies, indolent B-cell NHL remains an incurable disease that is inevitably fatal.

Our Clinical Development Program

We initiated a pivotal Phase 3 clinical trial of FavId in July 2004. We anticipate this trial will be conducted at 65 or more sites and require 342 evaluable patients. Similar to our Phase 2 clinical trial involving Rituxan, this trial is open to patients with the most prevalent form of indolent lymphoma, known as follicular B-cell NHL. Eligible patients include those who have received no prior treatment, referred to as treatment-naïve, and those who are relapsed from or refractory to prior therapies. Patients are considered relapsed if their lymphoma has returned after a response to prior therapy. Patients are considered refractory if they have not responded to prior treatments. Our Phase 3 clinical trial is designed to evaluate FavId's ability to extend the TTP in patients following treatment with Rituxan. We believe this regimen will provide patients with indolent B-cell NHL the option of an all-biologic therapy that avoids many of the side effects associated with chemotherapy.

We initiated a multi-center, open-label Phase 2 clinical trial of FavId in patients who were eligible for treatment with Rituxan in June 2002. Initially, this trial was limited to relapsed or refractory patients who had previously undergone treatment with Rituxan, chemotherapy or both. In April 2003, we expanded the entry criteria to include treatment-naïve patients. Patient enrollment for the trial was completed in December 2003. Out of a total of 103 patients who received Rituxan in this study, sufficient quantities of FavId were available for 99 patients. At a median observation time of approximately one year, 70% of these patients were progression free.

A comparison of the time to progression for 26 patients in our Phase 2 clinical trial who were relapsed or refractory to chemotherapy and who then received Rituxan followed by FavId can be made with the results of a study in a similar patient population treated with Rituxan alone as reported by Dr. Thomas E. Witzig in the Journal of Clinical Oncology in May 2002. In Dr. Witzig's study, 58 follicular B-cell NHL patients relapsed or refractory from prior chemotherapy were treated with Rituxan alone. A preliminary analysis of our data show a positive trend to a longer TTP in patients treated with Rituxan followed by FavId compared to patients treated with Rituxan alone. FavId was also generally safe and well-tolerated, with injection site reactions as the most frequent side effect.

A similar comparison of the 39 treatment-naïve patients enrolled in our Phase 2 clinical trial can be made with the results of a study published by Dr. John D. Hainsworth in the Journal of Clinical Oncology in October 2002. In this publication, Dr. Hainsworth reported results for 60 treatment-naïve patients who received Rituxan every six months for two years or until their disease progressed. We believe our preliminary data show a trend towards an equivalent TTP in patients treated with one course of Rituxan followed by FavId compared to patients treated with a course of Rituxan alone every six months for two years. The positive interim results found in our Phase 2 clinical trial do not guarantee final results, and our positive initial assessment of FavId in this clinical trial could differ from our assessment following completion of the clinical trial.

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In September 2002, we completed patient enrollment in a multi-center, open-label Phase 2 clinical trial evaluating FavId as a single agent. The trial included 27 evaluable indolent B-cell NHL patients who were either relapsed from or refractory to prior treatments. The trial was designed to determine whether the use of FavId alone could stimulate an immune response and whether the response would result in a clinical benefit. One patient had a complete response and three patients had partial responses, meaning at least a 50% reduction in tumor size. Four patients demonstrated a minor response, defined as a 25% to 50% reduction in their tumor burden, and 15 additional patients demonstrated stable disease. The median TTP for these 27 patients was determined to be 12.3 months. As of December 6, 2004, six patients remained progression free and are continuing to receive FavId injections. At 28 months from the start of FavId, one patient, while in remission, died from a non- lymphoma-related cause. The progression free status of these patients ranges from 23 months to 38 months. FavId was generally safe and well-tolerated, with injection site reactions as the most frequent side effect.

We consider these results to be encouraging compared to results from similar patients treated with other therapies. In the clinical trial conducted by Dr. Witzig, patients with indolent B-cell NHL treated with Rituxan alone had a median TTP of 10.1 months. Similarly, in a trial involving indolent B-cell NHL reported by Dr. Peter McLaughlin in the Journal of Clinical Oncology in August 1998, patients treated with Rituxan alone had a TTP of 9.0 months. Our data suggest that FavId results in a TTP that is at least as long as that reported for Rituxan.

Our Strategy

Our goal is to become a leading biopharmaceutical company focused on the research, development and commercialization of targeted immunotherapies for the treatment of cancer and other diseases of the immune system. Key elements of our strategy for achieving this goal are to:

•

complete clinical development and obtain regulatory approval for FavId;



•

utilize our proprietary technology to develop additional product candidates;



•

retain commercialization rights to our oncology products; and



•

expand our oncology product portfolio through in-licensing and acquisitions.

Risks Related to Our Business

We are at an early stage in the development of our company with a limited operating history and have had no revenues derived from operations. We have experienced significant operating losses since our inception, and we expect to incur substantial additional losses. If we are unable to successfully commercialize our lead product candidate, FavId, we may never be profitable and may have to cease operations.

Corporate Information

We were incorporated in the State of Delaware in January 2000. Our principal executive offices are located at 10421 Pacific Center Court, Suite 150, San Diego, California 92121. Our telephone number is (858) 526-8000. Our website is www.favrille.com. Information contained in our website is not incorporated by reference into and does not constitute part of this prospectus.

FavId®, Favrille and our logo are our trademarks, and we have applied to register Favrille and our logo with the United States Patent and Trademark office and to register some of our trademarks in other countries. All other trademarks or tradenames appearing in this prospectus are the property of their respective owners.

Unless the context indicates otherwise, as used in this prospectus, the terms "Favrille," the "Company," "we," "us" and "our" refer to Favrille, Inc.

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The Offering

The number of shares of common stock to be outstanding immediately after the offering is based on the number of shares of common stock outstanding as of September 30, 2004. This number does not include, as of September 30, 2004:

•

1,052,360 shares of common stock issuable upon the exercise of stock options outstanding, with a weighted-average exercise price of approximately $0.63 per share. From October 1, 2004 through January 24, 2005, we granted options to purchase an aggregate of 120,910 shares of common stock with a weighted-average exercise price of approximately $0.73 per share;



•

47,057 shares of common stock issuable upon the exercise of warrants outstanding, with a weighted-average exercise price of approximately $5.01 per share;



•

216,436 additional shares of common stock reserved for future issuance under our Amended and Restated 2001 Equity Incentive Plan. In October and December 2004, our board of directors authorized a 559,036 share increase to the existing option pool. As such, as of December 31, 2004, 683,282 shares of common stock remained available for future issuance or grant under our equity incentive plan. The share reserve as of December 31, 2004 has not been reduced by the 28,430 committed shares noted above; and



•

720,000 shares of common stock reserved for future issuance under our 2005 Non-Employee Directors' Stock Option Plan and 2005 Employee Stock Purchase Plan, which we have adopted effective upon completion of this offering.

Except as otherwise indicated, all information contained in this prospectus assumes:

•

a 1-for-5.1875 reverse split of our common stock effected on January 21, 2005;



•

the automatic conversion of all of our outstanding shares of preferred stock into 12,177,316 shares of common stock upon the completion of this offering;



•

no exercise of the underwriters' over-allotment option; and



•

the filing of our amended and restated certificate of incorporation upon completion of this offering.

Certain of our existing stockholders, including Alloy Corporate 2000, L.P., Forward Ventures IV L.P., Sanderling Venture Partners V, L.P., William Blair Capital Partners VII, and their affiliates, have indicated an interest in purchasing up to an aggregate of $18.6 million of common stock in this offering. However, because indications of interest are not binding agreements or commitments to purchase, these stockholders may elect not to purchase any shares in this offering.

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SUMMARY FINANCIAL DATA

The following summary financial data should be read in conjunction with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and accompanying notes included elsewhere in this prospectus. The summary financial data for the years ended December 31, 2001, 2002 and 2003 and the summary balance sheet data as of December 31, 2003 are derived from our audited financial statements, which are included elsewhere in this prospectus. The summary financial data for the period from January 21, 2000 (inception) to December 31, 2000 are derived from our audited financial statements, which are not included in this prospectus. The financial information for the nine months ended September 30, 2003, and as of and for the nine months ended September 30, 2004, was derived from our unaudited financial statements for such periods and dates, which appear elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.

The pro forma as adjusted balance sheet data reflect the balance sheet data as of September 30, 2004 adjusted for the sale of 6,000,000 shares of common stock in this offering at an initial public offering price of $7.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the automatic conversion of all preferred stock into common stock upon completion of this offering.

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⁽¹⁾

See Note 1 of Notes to Financial Statements for a description of the method used to compute pro forma basic and diluted net loss per share and number of shares used in computing historical and pro forma basic and diluted net loss per share.

6

RISK FACTORS

You should consider carefully the risk factors described below, together with the other information contained in this prospectus, before you decide whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment in our common stock.

Risks Related to the Development of Our Product Candidates

We are dependent on the success of our lead product candidate, FavId, and we cannot be certain that it will be commercialized.

We have expended significant time, money and effort in the development of our lead product candidate, FavId, which is still in clinical development, has not yet received regulatory approval and may never be commercialized. In order to commercialize FavId, we will need to demonstrate to the FDA and other regulatory agencies that it satisfies rigorous standards of safety and effectiveness. We initiated a pivotal Phase 3 clinical trial of FavId for the treatment of follicular B-cell NHL in July 2004.

We are also evaluating FavId for use in other B-cell NHL indications. However, even if we were to receive regulatory approval of FavId for the treatment of indolent B-cell NHL or the other indications we are exploring, our ability to successfully commercialize FavId could be jeopardized by the emergence of a competitive product that exhibits greater efficacy, longer duration of response or other benefits. In addition, because our initial regulatory and marketing strategy contemplates the administration of FavId to patients following treatment with Rituxan, the commercial opportunity for FavId may be limited by the degree to which oncologists continue to use Rituxan to treat indolent B-cell NHL. Furthermore, to the extent FavId fails to gain market acceptance for its initial indication, it may be more difficult for us to generate sufficient credibility with physicians and patients to commercialize FavId for other indications.

Other than FavId, we have only two other product development programs, which are at significantly earlier stages of development. We plan to initiate a Phase 1/2 clinical trial evaluating the safety and preliminary efficacy of a product candidate, FAV-201, from one of these programs in patients with T-cell lymphoma in the second half of 2005. During the first half of 2005, we intend to initiate preclinical studies to assess the applicability of our technology to autoimmune diseases, with an initial focus on multiple sclerosis. We cannot be certain that we will be able to successfully develop any product candidate from these development programs. We cannot be certain that the clinical development of FavId or any other product candidate in preclinical testing or clinical trials will be successful, that it will receive the regulatory approvals required to commercialize it, or that any of our other research programs will yield a product candidate suitable for entry into clinical trials. If we are unable to commercialize FavId or our other product candidates, we may be unable to generate sufficient revenues to attain or maintain profitability, our ability to raise additional capital will be impaired and our stock price may be negatively affected.

Failure to obtain product approvals by the FDA could harm our business.

We are subject to rigorous and extensive regulation by the FDA. In the United States, our product candidates cannot be marketed until they are approved by the FDA. Our biologic product candidates are in the preclinical and clinical stages of development and have not been approved for marketing in the United States. Obtaining FDA approval involves the submission, among other information, of the results of preclinical studies and clinical trials of the product candidates. We may not be able to obtain FDA approval, and, even if we are able to do so, the approval process typically takes many years and

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requires the commitment of substantial effort and financial resources. The FDA can delay, limit or deny approval of a biologic for many reasons, including:

•

the FDA may not find that the biologic product candidate is sufficiently safe or effective;



•

FDA officials may interpret data from preclinical testing and clinical trials in different ways than we do; and



•

the FDA may not find our manufacturing processes or facilities satisfactory.

In addition, the specific active immunotherapy technology on which FavId is based is a relatively new form of cancer therapy that presents novel issues for the FDA to consider, which may make the regulatory process especially difficult.

We cannot assure you that any of our product candidates in development will be approved in the United States in a timely fashion, or at all. Failure to obtain regulatory approval of our product candidates in a timely fashion would prevent or delay us from marketing or selling any products and, therefore, from generating revenues from their sale. If this occurs, we may be unable to generate sufficient revenues to attain or maintain profitability, our ability to raise additional capital will be impaired and our stock price may be negatively affected. In addition, both before and after approval, we are subject to numerous FDA requirements covering, among other things, testing, manufacturing, quality control, labeling, advertising, promotion and export of biologics. Failure to comply with the law, including statutes and regulations, administered by the FDA, could result in, among others, any of the following actions:

•

warning letters;



•

fines and other civil penalties;



•

unanticipated expenditures;



•

delays in approving or refusal to approve a product candidate;



•

product recall or seizure;



•

interruption of production;



•

operating restrictions;



•

injunctions; and



•

criminal prosecution.

Before we can seek regulatory approval of any of our product candidates, we must successfully complete clinical trials, which are uncertain.

Conducting clinical trials is a lengthy, time-consuming and expensive process, and the results of these trials are inherently uncertain. We have completed enrollment of patients in two Phase 2 clinical trials of FavId involving over 120 indolent B-cell NHL patients and are currently conducting follow-up evaluation of those patients. We initiated a pivotal Phase 3 clinical trial of FavId for the treatment of follicular B-cell NHL in July 2004 and expect to initiate an additional Phase 2 clinical trial of FavId in the first half of 2005. We estimate an 18-month patient enrollment period and an additional 18-month evaluation period for our pivotal Phase 3 clinical trial for FavId. Six additional Phase 2 clinical trials of FavId are either ongoing or expected to begin during the first half of 2005. Two of these clinical trials will be conducted under separate physician-sponsored INDs in the United States. One of these will be conducted as a physician-sponsored clinical trial in Switzerland. Sponsorship for a physician-sponsored IND of an ongoing Phase 2 clinical trial was assumed in August 2004. We are also developing FAV-201

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for the treatment of T-cell lymphoma and expect to initiate a Phase 1/2 clinical trial evaluating the safety and preliminary efficacy of FAV-201 in the second half of 2005.

We have received a Special Protocol Assessment, or SPA, from the FDA for our recently-initiated Phase 3 clinical trial. In the SPA process, the FDA reviewed the design, size and planned analysis of our Phase 3 clinical trial and provided comments regarding the trial's adequacy to form a basis with respect to effectiveness for approval of a Biologics Licensing Application, or BLA, if the trial is successful in meeting its predetermined objectives. The FDA's written agreement is binding on its review decision, except in limited circumstances, such as when a substantial scientific issue essential to determining the safety or effectiveness of a product candidate is identified after the Phase 3 clinical trial is commenced. Even if a BLA is filed, there is no guarantee that the application will be approved. Any change to the protocol for our Phase 3 clinical trial included in the SPA would require prior FDA approval, which could delay our ability to implement such change.

In addition, despite having received an SPA, we may be required to conduct an additional Phase 3 clinical trial of FavId for the treatment of indolent B-cell NHL before we can apply for regulatory approval. Although the FDA typically requires successful results in two Phase 3 clinical trials to support marketing approval, the FDA has, on several occasions, approved products based on a single Phase 3 clinical trial that demonstrates a high level of statistical significance where there is an unmet need for a life-threatening condition. We currently plan to seek FDA approval of FavId based on our recently-initiated Phase 3 clinical trial alone. In the event that the FDA requires the results of a second Phase 3 clinical trial before accepting a BLA or before granting marketing approval of FavId, our launch of FavId would be delayed, possibly by several years, and we would incur significant costs in conducting the additional trial.

Completion of necessary clinical trials may take several years or more. Our commencement and rate of completion of clinical trials may be delayed by many factors, including:

•

ineffectiveness of the product candidate, or perceptions by physicians that the product candidate is not safe or effective for a particular indication;



•

inability to manufacture sufficient quantities of the product candidate for use in clinical trials;



•

delay or failure in obtaining approval of our clinical trial protocols from the FDA;



•

slower than expected rate of patient recruitment and enrollment;



•

inability to adequately follow and monitor patients after treatment;



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difficulty in managing multiple clinical sites;



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unforeseen safety issues; and



•

government or regulatory delays.

Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and positive results in early trials may not be indicative of success in later trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Negative or inconclusive results or adverse medical events during a clinical trial could cause us to repeat or terminate a clinical trial or require us to conduct additional trials. Our clinical trials may be suspended at any time for a variety of reasons, including if the FDA or we believe the patients participating in our trials are exposed to unacceptable health risks or if the FDA finds deficiencies in the conduct of these trials.

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Failures or perceived failures in our clinical trials will directly delay our product development and regulatory approval process, damage our business prospects, make it difficult for us to establish collaboration and partnership relationships, and negatively affect our reputation and competitive position in the pharmaceutical community.

Failure to enroll patients in our clinical trials may cause delays in developing FavId or any other product candidate.

We may encounter delays in development and commercialization, or fail to obtain marketing approval, of FavId or any other product candidate that we may develop if we are unable to enroll enough patients to complete clinical trials. Our ability to enroll sufficient numbers of patients in our clinical trials depends on many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the eligibility criteria for the trial and competing clinical trials. We have from time to time experienced slower-than-expected patient enrollment in our clinical trials. Delays in planned patient enrollment may result in increased costs and harm our ability to complete our clinical trials and obtain regulatory approval.

The development of FavId requires the continued availability of two FDA-approved drugs: GM-CSF and Rituxan.

Administration of FavId requires an adjuvant to enhance the immune response. An adjuvant is a substance that is used to enhance the immune response. We use a white blood cell growth factor known as GM-CSF, which is commercially available solely from Berlex Laboratories, Inc., as an adjuvant for FavId. We currently rely on purchase orders to purchase GM-CSF for use in our clinical trials and do not have a supply agreement with Berlex. GM-CSF is an FDA-approved and commercially available drug that may be purchased by physicians. Our current strategy for the initial commercialization of FavId involves the administration of FavId following treatment with Rituxan. Rituxan is a passive immunotherapy for patients with NHL, which is also FDA-approved and is commercially available solely from Genentech, Inc. and Biogen Idec Inc. We currently rely on physicians to order and administer Rituxan to patients prior to the administration of FavId in our registration trial. If GM-CSF or Rituxan were to become unavailable as a result of regulatory actions, supply constraints or other reasons, our ability to continue the clinical development of FavId would be jeopardized.

Risks Related to Our Financial Results and Need for Financing

We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial losses and negative cash flow from operations for the foreseeable future.

We are a development stage company with a limited operating history. We have financed our operations through private placements of preferred stock and equipment and leasehold debt financing. We have incurred losses in each year since our inception in 2000. Net losses were $18.4 million for the nine months ended September 30, 2004, $13.3 million in 2003, $7.2 million in 2002, $3.8 million in 2001 and $1.0 million in 2000. As of September 30, 2004, we had an accumulated deficit of $71.9 million. These losses, among other things, have had and will continue to have an adverse effect on our stockholders' equity and working capital. We expect to incur substantial operating losses for at least the next several years. This is due primarily to the expansion of our clinical trials and research and development programs and, to a lesser extent, general and administrative expenses. We also have substantial lease and debt obligations related to our new manufacturing and headquarters facilities impacting our operating expenses. We expect that our losses will fluctuate from quarter to quarter and that these fluctuations may be substantial. We cannot guarantee that we will successfully develop,

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manufacture, commercialize or market any products. As a result, we cannot guarantee that we will ever achieve or sustain product revenues or profitability.

We currently have no source of revenue and may never become profitable.

Our ability to become profitable will depend upon our ability to generate revenue. To date, FavId has not generated any revenue, and we do not know when or if FavId will generate revenue. Our ability to generate revenue depends on a number of factors, including our ability to:

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successfully complete clinical trials for FavId;



•

obtain regulatory approval for FavId, including regulatory approval for our commercial scale manufacturing facility and process;



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manufacture commercial quantities of FavId at acceptable cost levels; and



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successfully market and sell FavId.

We do not anticipate that we will generate revenues until 2008, at the earliest. Further, we do not expect to achieve profitability for at least several years after generating material revenues. If we are unable to generate revenue, we will not become profitable, and we may be unable to continue our operations.

We will need substantial additional funds to continue operations, which we may not be able to raise on favorable terms, or at all.

We will need substantial additional funds for existing and planned preclinical studies and clinical trials, to continue research and development activities, for lease and debt obligations related to our manufacturing and headquarter facilities, and to establish manufacturing and marketing capabilities for any products we may develop. In addition, because we do not expect to generate revenues from the sale of our product candidates for several years, or at all, we will also need to raise additional capital to fund our operations.

We believe that the net proceeds from this offering, together with interest thereon and our existing cash and cash equivalents, will be sufficient to meet our projected operating requirements for at least the next 24 months. We will need to raise additional funds in order to commercialize FavId, including the completion of the construction and qualification of a commercial scale manufacturing facility. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this "Risk Factors" section of this prospectus. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

Our future capital requirements and the adequacy of our available funds will depend on many factors, including, but not limited to:

•

magnitude and cost of our product development efforts and other research and development activities;



•

rate of progress toward obtaining regulatory approval for our product candidates;



•

costs of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

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•

our ability to establish and maintain collaborative, licensing or other arrangements for the development, sale, marketing or distribution of our product candidates and the terms of those arrangements;



•

effects of competing technological and market developments; and



•

the success of the commercialization of FavId.

Future capital requirements will also depend on the extent to which we acquire or invest in businesses, products and technologies, but we currently have no commitments or agreements relating to any of these types of transactions.

We may seek to access the public or private equity markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Additional funding may not be available to us, and, if available, may not be on acceptable terms. If we raise additional funds by issuing equity securities, stockholders will incur immediate dilution. If adequate funds are not available to us, we may be required to delay, reduce the scope of, or eliminate one or more of our research, development and clinical activities. Alternatively, we may need to seek funds through arrangements with collaborative partners or others that require us to relinquish rights to technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Any of these events could have a material adverse effect on our business, results of operations, financial condition or cash flow.

We are recording non-cash compensation expense that may result in an increase of our net losses for a given period.

Stock-based compensation represents an expense associated with the recognition of the difference between the deemed fair value of common stock at the time of an option grant or stock issuance and the option exercise price or price paid for the stock. Stock-based compensation is amortized over the vesting period of the option or issuance. As of September 30, 2004, deferred stock-based compensation related to option grants to our employees and non-employee directors totaled $8.2 million, which is being amortized to expense on a straight-line basis as the options or stock are earned, generally over a period of four years. Also, we have granted options to consultants which, for compensation purposes, must be remeasured at each reporting date during the vesting period. This remeasurement and the corresponding effect on the related expense may result in an increase in our net losses for a given period.

Other Risks Related to Our Business and Industry

We currently depend on single source suppliers for critical raw materials for manufacturing. The loss of these suppliers could delay our clinical trials or prevent or delay commercialization of FavId.

We currently depend on single source suppliers for critical raw materials used in the manufacture of FavId. In particular, our manufacturing process for FavId requires a foreign protein derived from shellfish that is known as keyhole limpet hemocyanin, or KLH. We purchase KLH from biosyn Arzneimittel GmbH, or biosyn, which is currently the only supplier of KLH that has submitted the required filing, known as a drug master file, with the FDA. In November 2004, we entered into an eight-year supply and license agreement with biosyn under which biosyn has agreed to supply us with KLH and we have committed to minimum initial and annual KLH purchase requirements. We made a $50,000 initial payment to biosyn under the agreement and we committed to purchase $30,000 of raw material in December 2004 and an additional $205,000 of raw material in January and May 2005. An additional aggregate of up to $300,000 will be due upon the achievement of certain milestones, the

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timing of which are not known at this time. Either party may terminate the supply agreement upon a breach by the other party that is not cured within 60 days or other events relating to insolvency or bankruptcy. If we identify another supplier of KLH of suitable quality for our purposes, we will not be able to use the supplier as a second source of KLH for the commercial manufacture of FavId unless the KLH is tested to be comparable to the existing KLH.

In addition, we depend on a single source supplier for the cell growth media we use to produce FavId. We purchase this material from Expression Systems LLC, which in turn obtains several of the components used in the cell growth media from sole suppliers. We currently rely on purchase orders to obtain this material and do not have a supply agreement with Expression Systems. We intend to qualify a second source for the cell growth media but may not be able to do so.

Establishing additional or replacement suppliers for these materials may take a substantial amount of time. In addition, we may have difficulty obtaining similar materials from other suppliers that are acceptable to the FDA. If we have to switch to a replacement supplier, we may face additional regulatory delays and the manufacture and delivery of FavId, or any other product candidates that we may develop, could be interrupted for an extended period of time, which may delay completion of our clinical trials or commercialization. If we are unable to obtain adequate amounts of these materials, our clinical trials will be delayed. In addition, we will be required to obtain regulatory clearance from the FDA to use different materials that may not be as safe or as effective. As a result, regulatory approval of FavId, or any other product candidates that we may develop, may not be received at all.

We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed or may not be able to obtain regulatory approval for or commercialize FavId or any other product candidates that we may develop.

We expect our pivotal Phase 3 clinical trial of FavId for the treatment of follicular B-cell NHL to be conducted at 65 or more sites in the United States and to require at least 342 evaluable patients. We expect that at least three clinical trials of FavId will be conducted under the direction of a physician sponsor, rather than under our supervision. We do not have the ability to independently conduct clinical trials for FavId, or any other product candidate that we may develop, and we must rely on third parties, such as medical institutions and clinical investigators, including physician sponsors, to conduct our clinical trials. In particular, we will rely on these parties to recruit and enroll patients in our clinical trials. We also rely on third-party couriers to transport patient tissue samples and FavId. If any of the third parties upon whom we rely to conduct our clinical trials or transport patient tissue samples and immunotherapies do not comply with applicable laws, successfully carry out their obligations or meet expected deadlines, and need to be replaced, our clinical trials may be extended, delayed or terminated.

If the quality or accuracy of the clinical data obtained by medical institutions and clinical investigators, including physician sponsors, is compromised due to their failure to adhere to applicable laws, our clinical protocols or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize FavId, or any other product candidates that we may develop. If any of our relationships with any of these organizations or individuals terminates, we believe that we would be able to enter into arrangements with alternative third parties. However, replacing any of these third parties would delay our clinical trials and could jeopardize our ability to commercialize FavId and our other product candidates on a timely basis, or at all.

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Even if we obtain regulatory approval, we will continue to be subject to extensive government regulation that may cause us to delay the introduction of our products or withdraw our products from the market.

Even if we obtain regulatory approval for FavId or our other product candidates, we will still be subject to extensive regulation. These regulations will impact many aspects of our operations, including production, record keeping, quality control, adverse event reporting, storage, labeling, advertising, promotion and personnel. In addition, the later discovery of previously unknown problems may result in restrictions of the product candidates, including their withdrawal from the market. Furthermore, regulatory approval may subject us to ongoing requirements for post-marketing studies. If we or any third party that we involve in our operations fail to comply with any continuing regulations, we may be subject to, among other things, product seizures, recalls, fines or other civil penalties, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution.

Before we can obtain marketing approval for or commercially distribute FavId, the FDA and the California Department of Health Services must find our manufacturing facility and process satisfactory.

Our manufacturing methods, equipment and processes must comply with the FDA's current Good Manufacturing Practices, or cGMP, requirements. We may also need to perform extensive audits of vendors, contract laboratories and suppliers. The cGMP requirements govern, among other things, record keeping, production processes and controls, personnel and quality control. We have only undertaken initial steps towards achieving compliance with these regulatory requirements. Additional steps will require expenditure of significant time, money and effort. We cannot predict the likelihood that the FDA will find our facility satisfactory, even if we believe that we have taken the necessary steps to achieve compliance. If we fail to comply with these requirements or fail to pass a pre-approval inspection of our manufacturing facility in connection with an application to obtain marketing approval for FavId or another product candidate, we would not receive regulatory approval, and we would be subject to possible regulatory action.

We plan to manufacture FavId for our recently-initiated Phase 3 and for the planned and ongoing Phase 1/2 clinical trials at our facility in San Diego. Our manufacturing facility is subject to the licensing requirements of the California Department of Health Services. Our facility was inspected and licensed by the California Department of Health Services. Our facility is subject to re-inspection at any time. Failure to maintain a license from the California Department of Health Services or to meet the inspection criteria of the California Department of Health Services would disrupt our manufacturing processes and prevent us from supplying FavId to patients. If an inspection by the California Department of Health Services indicates that there are deficiencies in our manufacturing process, we could be required to take remedial actions at potentially significant expense, and our facility may be temporarily or permanently closed.

We will need to construct and qualify a commercial scale manufacturing facility in order to commercialize FavId or any other product candidates that we may develop. Preparing a facility for commercial manufacturing may involve unanticipated delays and the costs of complying with FDA regulations may be significant. In addition, any material changes we make to the manufacturing process after approval may require approval by the FDA and state regulatory authorities. Obtaining these approvals is a lengthy, involved process, and we may experience delays that could limit our ability to manufacture commercial quantities, increase our costs and adversely affect our business.

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We may experience difficulties in manufacturing FavId or any other product candidates that we may develop, which could prevent us from completing our ongoing clinical trials and commercializing these product candidates.

Manufacturing FavId is a complex, multi-step process that requires us to expend significant time, money and effort in production, record keeping and quality systems to assure that FavId will meet product specifications and other regulatory requirements. To date, we have manufactured FavId only for use in Phase 2 clinical trials and have no experience in manufacturing FavId for the number of patients that we expect to enroll in our Phase 3 clinical trial or for the commercial quantities that might be required if we receive regulatory approval. In particular, we cannot be sure that we will be able to manufacture FavId at a cost that would enable commercial use. We may experience any of the following problems in our efforts to manufacture our product candidates for our expanding clinical trials or on a commercial scale:

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failure to obtain a sufficient supply of key raw materials;



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difficulties in completing the development and validation of the specialized assays required to ensure the consistency of our product candidates, including FavId;



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difficulties in obtaining adequate tumor samples from treating physicians and hospitals;



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difficulties in manufacturing FavId for multiple patients simultaneously;



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difficulties in the timely shipping of tumor samples to us or in the shipping of FavId to the treating physicians due to errors by third-party couriers, transportation restrictions or other reasons;



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failure to ensure adequate quality control and assurance in the manufacturing process as we increase the production quantities of FavId;



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difficulties in establishing and effectively managing a commercial-scale manufacturing facility;



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failure to comply with regulatory requirements, such as FDA regulations and environmental laws;



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significant changes in regulatory requirements;



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damage to or destruction of our manufacturing facility or equipment; and



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shortages of qualified personnel.

In addition, because our manufacturing process only begins upon our receipt of a patient's tumor biopsy, we cannot produce inventory reserves of our product candidate to be stored in anticipation of any of these potential manufacturing problems. The failure to produce an adequate supply of FavId could delay our clinical trials and, in turn, delay submission of a BLA for FavId and commercial launch. Similarly, any difficulties we experience in the manufacture and supply of other product candidates, such as FAV-201, would delay the clinical trials of those product candidates.

If our manufacturing facility is damaged or destroyed, our ability to manufacture products will be significantly affected, which could delay or prevent completion of our clinical trials and commercialization of FavId or any other product candidates that we may develop.

We currently rely on the availability and condition of our manufacturing facility in San Diego to manufacture FavId. We lease the property where this facility is located under a lease agreement that expires August 31, 2018 but may be extended at our option for two additional five-year periods. After

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that time, we may not be able to negotiate a new lease for our facility. If the facility or our equipment in the facility is damaged or destroyed, we will not be able to quickly or inexpensively replace our manufacturing capacity. This would significantly affect our ability to complete clinical trials of, and to manufacture and commercialize, FavId, or any other product candidates that we may develop.

In addition, our facilities have been subject to electrical blackouts as a result of a shortage of available electrical power. Although we have back-up emergency power generators to cover energy needs for key support systems, a lengthy outage could disrupt the operations of our facilities and clinical trials. While we carry business interruption insurance, this insurance may not be adequate. Any significant business interruption could cause delays in our product development and harm our business.

If we do not develop a sufficient sales and marketing force or enter into agreements with third parties to sell and market FavId, we may not be able to successfully commercialize our products, which would limit our ability to earn product revenues.

We plan to retain exclusive worldwide rights to FavId for oncology indications at least through the completion of our BLA filing with the FDA for approval to market FavId in the United States. If we are successful in obtaining BLA approval or foreign marketing approval for FavId, we will need to establish sales and marketing capabilities. In the United States, we plan to do this either by establishing our own sales force or by entering into a co-promotion arrangement with a sales and distribution partner. Outside of the United States, we plan to establish strategic collaborations for the development and marketing of FavId.

We do not presently possess the resources or experience necessary to market FavId or our other product candidates ourselves, and we currently have no arrangements for the promotion or distribution of our product candidates. Our future commercial success will depend on our ability to establish our own sales and marketing infrastructure or to collaborate with third parties that have greater sales and marketing experience and resources. Developing effective internal sales and marketing capabilities, which would include the hiring of a sales force, would require a significant amount of our financial resources and time. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, or at all, and any sales force we do establish may not be capable of generating demand for FavId or any other product candidate we may develop. In addition, if we cannot enter into co-promotion arrangements in the United States, or other strategic collaborations for the development and marketing of FavId in other countries, in a timely manner and on acceptable terms, we may not be able to successfully commercialize FavId or any other product candidate that we may develop.

To the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues are likely to be lower than if we directly marketed and sold FavId, or any other product candidates that we may develop. If we are unable to establish adequate sales, marketing and distribution capabilities, independently or with others, we will not be able to generate product revenue and will not become profitable.

If physicians and patients do not use any of our products that may be approved, our ability to generate revenue in the future will be limited.

If approved, FavId and other product candidates that we may develop may not gain market acceptance among physicians, healthcare payors, patients and the medical community. Demand for any approved product that we may develop will depend on many factors, including:

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our ability to provide acceptable evidence of safety and efficacy;



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convenience and ease of administration;

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•

availability of alternative treatments;



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cost effectiveness;



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continuing widespread use of Rituxan to treat our initial target disease market;



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effectiveness of our regulatory and marketing strategies;



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prevalence and severity of adverse side effects;



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publicity concerning our products or competitive products; and



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our ability to obtain third-party coverage or reimbursement.

Furthermore, to the extent FavId fails to gain market acceptance for its initial indication, it may be more difficult for us to generate sufficient credibility with physicians and patients to commercialize FavId for other indications.

If we are unable to obtain acceptable prices or adequate coverage and reimbursement from third-party payors for FavId, or any other product candidates that we may develop, our revenues and prospects for profitability will suffer.

Our ability to commercialize FavId, or any other product candidates that we may develop, depends on the extent to which coverage and reimbursement for FavId, or any other product candidates that we may develop, will be available from:

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governmental payors, such as Medicare and Medicaid;



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private health insurers, including managed care organizations; and



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other third-party payors.

Many patients will not be capable of paying for FavId, or any other product candidates that we may develop, themselves and will rely on third-party payors to pay for their medical needs. The federal and state governments, insurance companies, managed care organizations and other third-party payors are actively seeking to contain or reduce costs of health care in the United States and exert increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are scrutinizing newly approved medical products and services and may not cover or may limit coverage and reimbursement for our product candidates. In particular, third-party payors may limit the indications for which they will reimburse patients who use FavId, or any other product candidates that we may develop. Cost-control initiatives could cause us to decrease the price we might establish for FavId, or any other product candidates that we may develop, which would result in lower product revenues. If the prices for FavId, or any other product candidates that we may develop, decrease or if governmental and other third-party payors do not provide adequate coverage and reimbursement levels for FavId, or any other product candidates that we may develop, our revenue and prospects for profitability will suffer.

If we are unable to establish or manage strategic collaborations in the future, our revenue and product development may be limited.

Our strategy may include reliance on strategic collaborations for co-promotion of FavId in the United States. In addition, we expect to rely on strategic collaborators for commercialization of FavId outside of the United States and, to an even greater extent, for worldwide development and commercialization of product candidates and programs for chronic autoimmune diseases, such as multiple sclerosis. To

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date, we have not entered into any agreements with third parties for any of these services and do not plan to establish a collaboration for FavId until at least completion of a BLA filing.

Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the establishment of new collaborations on favorable terms, or at all. For example, potential partners may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. If we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of our product candidates or the generation of sales revenue. To the extent that we enter into co-promotion or other collaborative arrangements, our product revenues are likely to be lower than if we directly marketed and sold any products that we may develop.

Management of any collaborative relationship we may establish in the future will require:

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significant time and effort from our management team;



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coordination of our research and development programs with the research and development priorities of our collaborators; and



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effective allocation of our resources to multiple projects.

If we enter into development or commercialization collaborations, our success will in part depend on the performance of our corporate collaborators. We will not directly control the amount or timing of resources devoted by our corporate collaborators to activities related to our product candidates. Our corporate collaborators may not commit sufficient resources to our research and development programs or the commercialization, marketing or distribution of our product candidates. If any corporate collaborator fails to commit sufficient resources, our preclinical or clinical development related to the collaboration could be delayed or terminated. Also, our collaborators may pursue development or commercialization of other products, product candidates or alternative technologies in preference to our product candidates. Finally, our collaborators may terminate our relationships, and we may be unable to establish additional corporate collaborations in the future on acceptable terms, or at all.

Our efforts to discover, develop and commercialize new product candidates beyond FavId are at an early stage and are subject to a high risk of failure.

Our strategy is focused on the research, development and commercialization of targeted immunotherapies for the treatment of cancer and other diseases of the immune system. The process of successfully developing product candidates is very time-consuming, expensive and unpredictable. We have only recently begun to direct significant effort toward the development of product candidates in addition to FavId, such as FAV-201 for T-cell lymphoma and a preclinical product candidate for the treatment of multiple sclerosis. We do not know whether our planned preclinical studies or clinical trials for these other product candidates will begin on time or be completed on schedule, or at all. In addition, we do not know whether these clinical trials will result in marketable products. Typically, there is a high rate of attrition for product candidates in preclinical and clinical trials. We do not anticipate that any of our product candidates will reach the market for at least several years.

We may not identify, develop or commercialize any additional new product candidates from our proprietary active immunotherapy technology. Our ability to develop successfully any of these product candidates depends on our ability to demonstrate safety and efficacy in humans through extensive preclinical testing and clinical trials and to obtain regulatory approval from the FDA and other regulatory authorities. Development of our product candidates will also depend substantially upon the availability of funding for our research and development programs.

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If our competitors develop and market products that are more effective than our existing product candidates or others we may develop, or obtain marketing approval before we do, our commercial opportunity may be reduced or eliminated.

The development and commercialization of new pharmaceutical products for the treatment of cancer and autoimmune diseases is competitive, and we will face competition from numerous sources, including major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Many of our competitors have substantially greater financial and technical resources and development, production and marketing capabilities than we do. In addition, many of these companies have more experience than we do in preclinical testing, clinical trials and manufacturing of biologic therapeutics, as well as in obtaining FDA and foreign regulatory approvals. We will also compete with academic institutions, governmental agencies and private organizations that are conducting research in the fields of cancer and autoimmune disease. Competition among these entities to recruit and retain highly qualified scientific, technical and professional personnel and consultants is also intense.

We are aware of a number of companies that are developing active immunotherapies to treat B-cell NHL. Genitope Corporation and Large Scale Biology Corporation, or LSBC, are evaluating idiotype immunotherapies in clinical trials. Genitope is conducting a Phase 3 clinical trial of its active immunotherapy product candidate in patients with follicular B-cell NHL who are in remission following prior treatment with chemotherapy. LSBC completed a Phase 1 clinical trial of a personalized cancer immunotherapy candidate in B-cell NHL. Antigenics, Inc. completed a Phase 2 clinical trial evaluating its active immunotherapy candidate in indolent NHL patients. The NCI is also conducting a Phase 3 clinical trial of an active idiotype immunotherapy in collaboration with Accentia Biopharmaceuticals.

Several companies are engaged in the development and commercialization of passive immunotherapy products for the treatment of B-cell NHL that may compete with FavId. Genentech and Biogen Idec are co-marketing Rituxan for the treatment of relapsed or refractory, indolent B-cell NHL. Biogen Idec has also received FDA approval to market Zevalin, its passive radioimmunotherapy product. GlaxoSmithKline plc and Corixa Corporation have received FDA approval to market Bexxar, a passive radioimmunotherapy product.

The most recent advances in the treatment of B-cell NHL have involved the combination of existing products and changes to approved schedules and doses, particularly for Rituxan. Numerous clinical trials reported in recent years have indicated that additional doses of Rituxan and maintenance dosing of Rituxan can improve the TTP in patients who respond to therapy. Combination therapies involving chemotherapeutic or immunostimulatory drugs in combination with Rituxan at various doses and schedules may provide patients with an increase in TTP over that expected with Rituxan alone. Accordingly, we may face competition as a result of developments in this area.

We expect that our ability to compete effectively will depend upon our ability to:

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successfully and rapidly complete clinical trials and obtain all requisite regulatory approvals in a cost-effective manner;



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reliably and cost-effectively manufacture sufficient quantities of our products;



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maintain a proprietary position for our manufacturing process and other technology;



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price our products competitively;



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obtain appropriate reimbursement approvals for our products;



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establish an adequate sales and marketing force for our products; and



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attract and retain key personnel.

In addition, our ability to compete effectively will depend on the relative efficacy and safety of other active immunotherapy products approved for sale as compared to our own products.

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We are subject to new legislation, regulatory proposals and managed care initiatives that may increase our costs of compliance and adversely affect our ability to market our products, obtain collaborators and raise capital.

There have been a number of legislative and regulatory proposals aimed at changing the healthcare system and pharmaceutical industry, including reductions in the cost of prescription products and changes in the levels at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products. For example, the Prescription Drug and Medicare Improvement Act of 2003 was recently enacted. This legislation provides a new Medicare prescription drug benefit beginning in 2006 and mandates other reforms. Although we cannot predict the full effects on our business of the implementation of this new legislation, it is possible that the new benefit, which will be managed by private health insurers, pharmacy benefit managers and other managed care organizations, will result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce the prices charged for prescription drugs. This could harm our ability to market our products and generate revenues.

We depend on attracting and retaining key scientific and management personnel to advance our technology, and the loss of these personnel could impair the development of our products.

Our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists. We are highly dependent upon our senior management and scientific staff, particularly John P. Longenecker, Ph.D., our President and Chief Executive Officer, and Daniel P. Gold, Ph.D., one of our co-founders and our Chief Scientific Officer. The loss of services of Dr. Longenecker or Dr. Gold, or one or more of our other members of senior management, could delay or prevent the successful completion of our pivotal Phase 3 clinical trial or the commercialization of FavId. Although we have employment agreements with each of our executives, their employment with us is "at will," and each executive can terminate his or her agreement with us at any time. We do not carry "key person" insurance covering members of senior management, other than Drs. Longenecker and Gold. This insurance may not continue to be available on commercially reasonable terms and may prove inadequate to compensate us for the loss of their services.

The competition for qualified personnel in the biotechnology field is intense. In particular, our manufacturing process depends on our ability to attract and retain qualified manufacturing and quality control personnel. We will need to hire additional personnel as we continue to expand our manufacturing, research and development activities. We may not be able to attract and retain quality personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and other companies. We are not aware of any key personnel planning to retire or terminate their employment in the near future.

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

As of December 31, 2004, we had 102 full-time employees, consisting of 58 employees in manufacturing, quality control and quality assurance, 25 in research and development, and 19 in senior management and administration. We will need to expand our financial, managerial, operational and other resources in order to continue our clinical trials and commercialize FavId, FAV-201, or any other product candidates that we may develop. Future growth will impose significant added responsibilities on our management team, including the need to identify, recruit, maintain and integrate additional employees. Our ability to commercialize FavId, FAV-201, or any other product candidates that we may

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develop, and our future financial performance in general, will depend in part on our ability to manage any future growth effectively. In order to meet these challenges, we will need to:

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manage our clinical trials effectively;



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manage our research and development efforts effectively;



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develop our administrative, accounting and management information systems and controls; and



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hire, train and integrate additional management, administrative, manufacturing and sales and marketing personnel.

We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our business or future prospects.

If we use biological and hazardous materials in a manner that causes injury or violates laws, we may be liable for damages.

Our research and development and manufacturing activities involve the use of biological and hazardous materials that could be dangerous to human health, safety or the environment. Although we believe our safety procedures for handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources. We currently maintain property and casualty insurance coverage in the amount of $1.0 million per occurrence and $2.0 million in the aggregate, which covers liability for hazardous and controlled materials, at a cost of approximately $57,000 per year. However, this insurance coverage may not be sufficient to cover our liability and we may not be able to obtain sufficient coverage in the future at a reasonable cost. In addition, we may incur significant costs complying with both existing and future environmental laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration, or OSHA, and the Environmental Protection Agency, or EPA, and to regulation under the Toxic Substances Control Act and the Resource Conservation and Recovery Act. OSHA, the EPA or other agencies may adopt regulations that adversely affect our research and development programs.

We face a risk of product liability claims and may not be able to obtain adequate insurance.

Our business exposes us to potential liability risks that may arise from the clinical testing of our product candidates and the manufacture and sale of any approved products. These risks will exist even with respect to those product candidates that are approved for commercial sale by the FDA and manufactured in facilities regulated by the FDA. Any product liability claim or series of claims brought against us could significantly harm our business by, among other things, reducing demand for our products, injuring our reputation and creating significant adverse media attention and costly litigation. Plaintiffs have received substantial damage awards in some jurisdictions against pharmaceutical companies based upon claims for injuries allegedly caused by the use of their products. Any judgment against us that is in excess of our insurance policy limits would have to be paid from our cash reserves, which would reduce our capital resources. We currently maintain clinical trial insurance in the amount of $6.0 million per occurrence and in the aggregate, which covers liability for up to 251 patients in our clinical trials, at a cost of approximately $59,000 per year. Although we believe this insurance is adequate, we cannot be certain that it will be sufficient. Furthermore, we cannot be certain that our current insurance coverage will continue to be available, or that increased coverage, which will be necessary if we are able to commercialize our products, will be available in the future on reasonable

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terms, or at all. Further, we may not have sufficient capital resources to pay a judgment, in which case our creditors could levy claims against our assets, including our intellectual property.

We could be negatively impacted by future interpretation or implementation of federal and state fraud and abuse laws, including anti-kickback laws and other federal and state anti-referral laws.

If we are able to commercialize FavId or any other product candidates that we may develop, we will be subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state healthcare programs, including Medicare, Medicaid and Veterans Administration health programs. Because of the far-reaching nature of these laws, we may be required to alter one or more of our practices to be in compliance with these laws. Healthcare fraud and abuse regulations are complex, and even minor, inadvertent irregularities can potentially give rise to claims that a statute or prohibition has been violated. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our business, financial condition and results of operations. If there is a change in law, regulation or administrative or judicial interpretations, we may have to change our business practices or our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business, financial condition and results of operations. In addition, some allegations under these laws have been claimed to violate the False Claims Act, discussed in more detail below.

In addition, if we are able to commercialize FavId or any other product candidates that we may develop, we could become subject to false claims litigation under federal statutes, which can lead to civil money penalties, criminal fines and imprisonment, and exclusion from participation in Medicare, Medicaid and other federal and state healthcare programs. These false claims statutes include the False Claims Act, which allows any person to bring suit on behalf of the federal government alleging the submission of false or fraudulent claims, or causing to present such false or fraudulent claims, under federal programs or contracts claims or other violations of the statute and to share in any amounts paid by the entity to the government in fines or settlement. These suits against biotechnology companies have increased significantly in recent years and have increased the risk that a healthcare company will have to defend a false claim action, pay fines or be excluded from the Medicare, Medicaid or other federal and state healthcare programs as a result of an investigation arising out of such action. We cannot assure you that we will not become subject to such litigation or, if we are not successful in defending against such actions, that such actions will not have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that the costs of defending claims or allegations under the False Claims Act will not have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Intellectual Property and Potential Litigation

If we are unable to obtain and maintain protection for our intellectual property, the value of our technology and products may be adversely affected.

Our business and competitive positions are dependent upon our ability to protect our proprietary technology. Because of the substantial length of time and expense associated with development of new products, we, along with the rest of the biopharmaceutical industry, place considerable importance on obtaining and maintaining patent protection for new technologies, products and processes. The patent positions of pharmaceutical, biopharmaceutical and biotechnology companies, including us, are

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generally uncertain and involve complex legal and factual questions. Our patent applications may not protect our technologies and products because, among other things:

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there is no guarantee that any of our pending patent applications will result in issued patents;



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we may develop additional proprietary technologies that are not patentable;



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there is no guarantee that any patents issued to us, our collaborators or our licensors will provide a basis for a commercially viable product;



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there is no guarantee that any patents issued to us or our collaborators or our licensors will provide us with any competitive advantage;



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there is no guarantee that any patents issued to us or our collaborators or our licensors will not be challenged, circumvented or invalidated by third parties; and



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there is no guarantee that any patents previously issued to others or issued in the future will not have an adverse effect on our ability to do business.

We attempt to protect our intellectual property position by filing United States patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. Currently we own five pending United States patent applications covering methods of treating immune system diseases, including B-cell and T-cell lymphomas, using our proprietary immunotherapy production methods, as well as methods for combining the idiotype or T-cell receptor-based immunotherapies with other therapies that are used to treat diseases of the immune system.

We also have 19 patent applications pending outside of the United States. Limitations on patent protection in some countries outside the United States, and the differences in what constitutes patentable subject matter in these countries, may limit the protection we have under patents issued to us outside of the United States. In addition, laws of foreign countries may not protect our intellectual property to the same extent as would laws of the United States. In determining whether or not to seek a patent or to license any patent in a particular foreign country, we weigh the relevant costs and benefits, and consider, among other things, the market potential of our product candidates in the jurisdiction, and the scope and enforceability of patent protection afforded by the law of the jurisdiction. Failure to obtain adequate patent protection for our proprietary product candidates and technology would impair our ability to be commercially competitive in these markets.

We are not able to prevent others, including potential competitors, from using certain types of patient-specific idiotype protein-KLH conjugates, like those we use in our lead product candidate, FavId, for the treatment of indolent B-cell NHL.

Certain types of patient-specific idiotype-KLH conjugates, comprising single idiotype proteins, and their use for the treatment of indolent B-cell NHL are in the public domain and therefore cannot be patented. Consequently, we may only be able to seek patent protection for methods of treating immune system diseases, including B-cell and T-cell lymphomas, using our proprietary immunotherapy production methods for making idiotype protein conjugates and compositions comprising such conjugates, as well as methods for combining the idiotype or T-cell receptor-based immunotherapies with other therapies that are used to treat diseases of the immune system. As a result, we may not be able to prevent other companies using different manufacturing processes from developing active immunotherapies that directly compete with FavId.

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We may have to engage in costly litigation to enforce our proprietary rights or to defend challenges to our intellectual property by our competitors, which may harm our business, results of operations, financial condition and cash flow.

The pharmaceutical field is characterized by a large number of patent filings involving complex legal and factual questions, and, therefore, we cannot predict with certainty whether our patents will be enforceable. Competitors may have filed applications for or have been issued patents and may obtain additional patents and proprietary rights related to products or processes that compete with or are similar to ours. We may not be aware of all of the patents potentially adverse to our interests that may have been issued to others. Litigation may be necessary to protect our patent position, and we cannot be certain that we will have the required resources to pursue litigation or otherwise to protect our patent rights. In addition, our efforts to protect our patents may not be successful.

Our ability to market our products may be impaired by the intellectual property rights of third parties.

Our commercial success will depend in part on not infringing the patents or proprietary rights of third parties. We are aware of competing intellectual property relating to active idiotype immunotherapies for cancer. Competitors or third parties may be issued patents that may cover subject matter that we use in developing the technology required to bring our product candidates to market, that we use in producing our product candidates, or that we use in treating patients with our product candidates. In addition, from time to time we receive correspondence inviting us to license patents from third parties. While we currently believe we have freedom to operate in these areas, others may challenge our position in the future. There has been, and we believe that there will continue to be, significant litigation in the pharmaceutical industry regarding patent and other intellectual property rights.

For example, we are aware of patents held by Genentech relating to the expression of recombinant antibodies, by Genitope relating to immunotherapy using idiotype proteins produced using T-lymphoid cells for the treatment of B-cell lymphoma, by Texas A&M University relating to the production of proteins in insect cells, and by Schering Corp. relating to the use of GM-CSF as a vaccine adjuvant for use against infectious diseases. While we believe that our pre-commercialization activities fall within the scope of an available exemption against patent infringement provided by 35 U.S.C. §271(e), and that our subsequent manufacture of our commercial products will also not require the license of any of these patents, claims may be brought against us in the future based on these or other patents held by others. Third parties could bring legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected product or products. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product, in which case we may be required to pay substantial royalties or grant cross-licenses to our patents. However, there can be no assurance that any such license will be available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of patent infringement claims, which could harm our business.

If we are not able to protect and control unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm.

We also rely on trade secrets to protect our technology, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect. We attempt to protect our trade secrets by requiring each of our employees, consultants and advisors to execute a

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non-disclosure and assignment of invention agreement before beginning his or her employment, consulting or advisory relationship with us. We cannot guarantee that these agreements will provide meaningful protection, that these agreements will not be breached, that we will have an adequate remedy for any such breach, or that our trade secrets will not otherwise become known or independently developed by a third party. Our trade secrets, or those of our future collaborators, may become known or may be independently discovered by others, which could adversely affect the competitive position of our product candidates.

Risks Related to the Securities Markets and Ownership of Our Common Stock

There has been no prior public market for our common stock, and the price of our common stock may be volatile and could decline significantly.

Prior to this offering, there has been no public market for our common stock and an active public market for these shares may not develop or be sustained after this offering. The initial public offering price for our common stock has been determined by negotiations between the underwriters and us and may not be representative of the price that will prevail in the open market.

The stock market in general has been experiencing dramatic fluctuations that have often been unrelated to the operating performance of companies. The market prices for securities of biotechnology companies in general have been highly volatile and may continue to be highly volatile in the future. If market-based or industry-based volatility continues, the trading price of our common stock could decline significantly, independent of our actual operating performance, and you could lose all or part of your investment. The market price of our common stock could fluctuate significantly as a result of several factors, including:

•

announcements of technological innovations or new products by us or our competitors;



•

announcement of FDA approval or non-approval of FavId or any other product candidates that we may develop, or delays in the FDA review process;



•

actions taken by regulatory agencies with respect to FavId and FAV-201, or any other product candidates that we may develop, or our clinical trials, manufacturing process or sales and marketing activities;



•

regulatory developments in the United States and foreign countries;



•

success of our research efforts and clinical trials;



•

any intellectual property infringement lawsuit in which we may become involved;



•

announcements concerning our competitors, or the biotechnology or biopharmaceutical industries in general;



•

actual or anticipated fluctuations in our operating results;



•

changes in financial estimates or recommendations by securities analysts;



•

sales of large blocks of our common stock;



•

sales of our common stock by our executive officers, directors and significant stockholders;



•

changes in accounting principles; and



•

loss of any of our key scientific or management personnel.

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Specifically, you may not be able to resell your shares at or above the initial public offering price. In addition, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs and a diversion of management's attention and resources, which could hurt our business, operating results and financial condition.

Concentration of ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions and depress our stock price.

As of December 31, 2004, our officers, directors and those stockholders owning at least five percent of our outstanding capital stock together beneficially held approximately 77.1% of our outstanding common stock on an as-converted basis. Following this offering, these stockholders, including certain of our existing stockholders that have indicated an interest in purchasing up to an aggregate of $18.6 million of common stock in this offering and based upon an initial public offering price of $7.00 per share, will beneficially own, in the aggregate, approximately 67.8% of our common stock. If some or all of these officers, directors and principal stockholders act together, they will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors, the merger, consolidation or sale of all or substantially all of our assets, and any other significant corporate transaction. The interests of this concentration of ownership may not always coincide with our interests or the interests of our other stockholders. For instance, officers, directors and principal stockholders, acting together, could cause us to enter into transactions or agreements that we would not otherwise consider. Similarly, this concentration of ownership may have the effect of delaying or preventing a change in control of us otherwise favored by our other stockholders. This concentration of ownership also could depress our stock price.

A large number of shares of our common stock may be sold in the market following this which may depress the market price of our common stock.

Our current stockholders hold a substantial number of shares of our common stock that they will be able to sell in the public market in the near future. Significant portions of these shares are held by a small number of stockholders. After this offering, we will have 20,016,030 shares of common stock outstanding. All of the shares offered under this prospectus, including up to an aggregate of $18.6 million of common stock that certain of our existing stockholders have indicated an interest in purchasing in this offering, will be freely tradable without restriction or further registration under the federal securities laws, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act of 1933. The remaining 14,016,030 shares outstanding upon the closing of this offering may be sold pursuant to Rule 144, 144(k) and 701 of the Securities Act upon the expiration of the lock-up agreements discussed below. Sales by our current stockholders of a substantial number of shares after this offering, or the expectation that such sale may occur, could significantly reduce the market price of our common stock.

Moreover, after this offering, the holders of approximately 12,199,437 shares of common stock, including shares issued upon conversion of our preferred stock, will have rights, subject to certain conditions, to require us to file registration statements to permit the resale of their shares in the public market or to include their shares in registration statements that we may file for ourselves or other stockholders. The holders of 8,389,081 shares of our outstanding capital stock have agreed with the underwriters of this offering to be bound by a 365-day lock-up agreement that prohibits these holders from selling or transferring their stock other than in specific circumstances. The holders of substantially all of our remaining outstanding capital stock have agreed with the underwriters of this offering to be

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bound by a 180-day lock-up agreement that prohibits these holders from selling or transferring their stock, other than in specific circumstances. These lock-up agreements are subject to limited extension under certain circumstances to allow analysts to publish reports about our company. However, Bear, Stearns & Co. Inc., on behalf of the underwriters, at its discretion, can waive the restrictions of the lock-up agreement at an earlier time without prior notice or announcement and allow our stockholders to sell their shares of our common stock in the public market. If the restrictions of the lock-up agreement are waived, shares of our common stock will be available for sale into the market, subject only to applicable securities rules and regulations, which may cause our stock price to decline. In addition, certain of our directors and executive officers may choose to establish programmed selling plans under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or Exchange Act, for the purpose of effecting sales of common stock after the expiration of the lock-up period.

Promptly following this offering, we intend to register approximately 2.4 million shares of common stock that are authorized for issuance under our employee benefits plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to vesting provisions, restrictions under the securities laws and the lock-up agreements described above. If any of our stockholders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital.

New investors in this offering will experience immediate and substantial dilution.

The initial price to the public in this offering is substantially higher than the net tangible book value per share of our common stock and the prices per share paid by all prior investors in our company. After we sell the shares in this offering, our net tangible book value per share will be $3.71, which is below the initial per share price to the public. This dilution is due in large part to earlier investors in our company having paid substantially less than the initial public offering price when they purchased their shares. Gross proceeds from the sale of common stock in this offering will represent approximately 35% of the total amount we have raised to fund our operations, but this common stock will represent only approximately 30% of our total common stock. If we issue additional common stock in the future or outstanding options or warrants to purchase our common stock are exercised, there will be further dilution.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and applicable Delaware law may prevent or discourage third parties or our stockholders from attempting to replace our management or influencing significant decisions.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change in control of us or our management, even if doing so would be beneficial to our stockholders. These provisions include:

•

dividing our board of directors into three classes serving staggered three-year terms;



•

authorizing our board of directors to issue preferred stock without stockholder approval;



•

prohibiting cumulative voting in the election of directors;



•

prohibiting stockholder actions by written consent;



•

limiting the persons who may call special meetings of stockholders;



•

prohibiting our stockholders from making certain changes to our certificate of incorporation or bylaws except with 66.7% stockholder approval; and

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•

requiring advance notice for raising business matters or nominating directors at stockholders' meetings.

We are also subject to provisions of the Delaware corporation law that, in general, prohibit any business combination with a beneficial owner of 15% or more of our common stock for five years unless the holder's acquisition of our stock was approved in advance by our board of directors. Together, these charter and statutory provisions could make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock.

Because we do not intend to pay any cash dividends on our shares of common stock, our stockholders will not be able to receive a return on their shares unless they sell them.

We have never paid or declared any cash dividends on our capital stock and intend to retain any future earnings to finance the development and expansion of our business. The payment of dividends by us on our common stock is limited by our debt agreements. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.

We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations.

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules related to corporate governance and other matters subsequently adopted by the SEC and the Nasdaq Stock Market, could result in increased costs to us. The new rules and any related regulations that may be proposed in the future could make it more difficult or more costly for us to obtain certain types of insurance, including directors' and officers' liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

We have broad discretion to use the offering proceeds, and our investment of these proceeds may not yield a favorable return.

Our management will have considerable discretion in applying the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds of this offering may be used for corporate purposes that do not enhance our results of operations or do not yield a favorable return.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, including statements regarding the progress and timing of clinical trials, the safety and efficacy of our product candidates, the goals of our research and development activities, estimates of the potential markets for our product candidates, estimates of the capacity of manufacturing and other facilities to support our products, our expected future revenues, operations and expenditures and projected cash needs. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, among others:

•

our ability to successfully complete preclinical and clinical development of our product candidates on expected timetables, or at all, which includes enrolling sufficient patients in our clinical trials and demonstrating the safety and efficacy of our product candidates in such trials;



•

our ability to manufacture sufficient amounts of our product candidates for clinical trials and, if approved, products for commercialization activities;



•

our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of our manufacturing process and any of our product candidates that may be approved for sale;



•

the content and timing of submissions to and decisions made by the FDA and other regulatory agencies, including demonstrating to the satisfaction of the FDA the safety and efficacy of our product candidates;



•

our ability to develop a sufficient sales and marketing force or enter into agreements with third parties to sell and market any of our product candidates that may be approved for sale;



•

the accuracy of our estimates of the size and characteristics of the markets to be addressed by our product candidates;



•

the success of our competitors;



•

our ability to obtain reimbursement for any of our product candidates that may be approved for sale from third-party payors, and the extent of such coverage;



•

the success of the development and commercialization efforts of licensees of our technology;



•

our ability to enter into collaborations and strategic alliances; and



•

our ability to raise additional funds in the capital markets, through arrangements with corporate partners or from other sources.

Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or the negative of those terms, and similar expressions and comparable terminology intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you

29

should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

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USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately $38.0 million, based upon an initial public offering price of $7.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds from this offering will be approximately $43.8 million.

We estimate that it will cost approximately $71.0 million to complete the development and file for regulatory approval of FavId. Based on this estimate, we intend to use approximately $26.0 million of the net proceeds from this offering and approximately $26.0 million from our existing cash and cash equivalents for this purpose. We expect that we will need to raise an additional estimated $19.0 million to complete the development and file for regulatory approval of FavId after this offering. We may seek to raise the additional capital through the public or private equity markets, arrangements with collaborative partners or other alternatives. However, there can be no assurance that we will be able to raise additional capital on terms favorable to us, or at all. In addition, we intend to use approximately $3.1 million for principal and interest payments on the existing $6.3 million in debt as of September 30, 2004 under the terms of our equipment and leasehold debt financing arrangements. The remaining debt repayment will be made from our current cash. These obligations are secured by certain of the purchased equipment and leasehold improvements and are due in monthly installments through July 2007. They bear interest at effective rates ranging from approximately 9.34% to 14.66% and include terminal payments at the end of the loans ranging from 5.75% to 12.75%.

We intend to allocate the remaining net proceeds from this offering as follows: 21% for the development of our other product candidates; 69% for general and administrative expenses and 10% for working capital, including the purchase of equipment for the expansion of our current manufacturing capabilities to support production of clinical trial material and prepare for commercial launch of our lead product candidate.

We believe that the net proceeds from this offering, together with interest thereon and our existing cash and cash equivalents, will be sufficient to meet our projected operating costs for at least the next 24 months.

The amount and timing of our use of the net proceeds from this offering will depend on a number of factors, including the status of our development and commercialization efforts, the amount of proceeds actually raised in this offering and the amount of proceeds generated, if any, by entering into future partnerships or collaborations with third-parties. We may also use a portion of the proceeds for the acquisition of, or investment in, companies, technologies or products that complement our technology or business. However, we have no present understandings, commitments or agreements to enter into any potential acquisitions or investments at this time. We will have broad discretion to determine the ultimate use of the net proceeds from this offering, which may differ substantially from the estimated uses outlined above.

We intend to invest the net proceeds of the offering, pending their use, in short-term and medium-term interest-bearing, investment grade instruments, money market funds, certificates of deposit or direct or guaranteed obligations of the United States government. Our goal with respect to the investment of the net proceeds of this offering is capital preservation and liquidity so that such funds are readily available to fund our research and development operations and other working capital needs.

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. The payment of dividends by us on our common stock is limited by our debt agreements. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2004 (unaudited), and is presented on an actual basis and pro forma as adjusted basis. The pro forma as adjusted column reflects the balance sheet data as of September 30, 2004 adjusted for the sale of 6,000,000 shares of common stock in this offering at an initial public offering price to the public of $7.00 per share, after deducting estimated underwriting discounts and commissions and offering expenses payable by us and the automatic conversion of all preferred stock into common stock upon the completion of this offering. You should read this table in conjunction with "Use of Proceeds," "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and accompanying notes included elsewhere in this prospectus.

The number of shares of common stock to be outstanding immediately after the offering is based on the number of shares of common stock outstanding as of September 30, 2004. This number does not include, as of September 30, 2004:

•

1,052,360 shares of common stock issuable upon the exercise of stock options outstanding, with a weighted-average exercise price of approximately $0.63 per share. From October 1, 2004 through January 24, 2005, we granted options to purchase an aggregate of 120,910 shares of common stock with a weighted-average exercise price of approximately $0.73 per share;

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•

47,057 shares of common stock issuable upon the exercise of warrants outstanding, with a weighted-average exercise price of approximately $5.01 per share;



•

216,436 additional shares of common stock reserved for future issuance under our Amended and Restated 2001 Equity Incentive Plan, or 2001 plan. In October and December 2004, our board of directors authorized a 559,036 share increase to the existing option pool. As such, as of December 31, 2004, 683,282 shares of common stock remained available for future issuance or grant under our equity incentive plan. The share reserve as of December 31, 2004 has not been reduced by the 28,430 committed shares noted above; and



•

720,000 shares of common stock reserved for future issuance under our 2005 Non-Employee Directors' Stock Option Plan, or directors' plan, and our 2005 Employee Stock Purchase Plan, or purchase plan, which we have adopted effective upon completion of this offering.

We effected a 1-for-5.1875 reverse split of our common stock on January 21, 2005.

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DILUTION

If you buy our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. As of September 30, 2004, we had a historical net tangible book value of $35.8 million, or $21.22 per share of common stock. Net tangible book value per share is equal to our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of shares of our outstanding common stock. Pro forma net tangible book value of $35.8 million, or $2.58 per share of common stock, represents our historical net tangible book value, taking into account the automatic conversion of our preferred stock upon completion of this offering.

After giving effect to the conversion of all of our preferred stock and the sale of 6,000,000 shares of common stock offered by this prospectus at an initial public offering price of $7.00 per share, and after deducting the underwriting discounts and commissions and our estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2004 was approximately $73.7 million, or $3.71 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $1.13 per share held by our stockholders before this offering and an immediate dilution of $3.29 per share to investors in this offering. The following table illustrates this per share dilution:

The following table sets forth, as of September 30, 2004, on the pro forma as adjusted basis discussed above, the number of shares of our common stock purchased from us, the total consideration paid to us and the average price per share paid to us by stockholders before this offering and by investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:

The number of shares of common stock to be outstanding immediately after the offering is based on the number of shares of common stock outstanding as of September 30, 2004. This number does not include, as of September 30, 2004:

•

1,052,360 shares of common stock issuable upon the exercise of stock options outstanding, with a weighted-average exercise price of approximately $0.63 per share. From October 1,

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2004 through January 24, 2005, we granted options to purchase an aggregate of 120,910 shares of common stock with a weighted-average exercise price of approximately $0.73 per share;

•

47,057 shares of common stock issuable upon the exercise of warrants outstanding, with a weighted-average exercise price of approximately $5.01 per share;



•

216,436 additional shares of common stock reserved for future issuance under our 2001 plan. In October and December 2004, our board of directors authorized a 559,036 share increase to the existing option pool. As such, as of December 31, 2004, 683,282 shares of common stock remained available for future issuance or grant under our equity incentive plan. The share reserve as of December 31, 2004 has not been reduced by the 28,430 committed shares noted above; and



•

720,000 shares of common stock reserved for future issuance under our directors' plan and our purchase plan, which we have adopted effective upon completion of this offering.

If the underwriters exercise their over-allotment option in full, pro forma as adjusted net tangible book value as of September 30, 2004 will increase to $79.6 million, or $3.83 per share, representing an increase to existing stockholders of $1.25 per share, and there will be an immediate dilution of $3.17 per share to new investors.

Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. New investors will experience further dilution if any of these outstanding options or warrants are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock in the future.

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SELECTED FINANCIAL DATA

The following selected financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and accompanying notes included elsewhere in this prospectus. The selected financial data in this section are not intended to replace the financial statements and accompanying notes. The selected statement of operations data for the years ended December 31, 2001, 2002 and 2003, and the selected balance sheet data as of December 31, 2002 and 2003 are derived from our audited financial statements, which are included elsewhere in this prospectus. The selected statement of operations data for the period from January 21, 2000 (inception) to December 31, 2000 and the selected balance sheet data as of December 31, 2000 and 2001 are derived from our audited financial statements, which are not included in this prospectus. The financial information for the nine months ended September 30, 2003, and as of and for the nine months ended September 30, 2004, was derived from our unaudited financial statements for such periods and dates, which are included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.

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⁽¹⁾

See Note 1 of Notes to Financial Statements for a description of the method used to compute pro forma basic and diluted net loss per share and the number of shares used in computing historical and pro forma basic and diluted net loss per share.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our financial statements and accompanying notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of several factors, including those set forth under "Risk Factors" and elsewhere in this prospectus, our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements.

Overview

We are a biopharmaceutical company focused on the research, development and commercialization of targeted immunotherapies for the treatment of cancer and other diseases of the immune system. We have developed a proprietary technology that enables us to manufacture active immunotherapy product candidates that are designed to stimulate a patient's immune system to mount a specific and sustained response to disease. Our lead product candidate, FavId, is an active immunotherapy for the treatment of indolent B-cell non-Hodgkin's lymphoma, or NHL, which entered a Phase 3 clinical trial in July 2004. To date, FavId has been evaluated in two multi-center, open-label Phase 2 clinical trials involving over 120 patients.

We believe FavId may also be effective in treating other types of B-cell NHL. Six additional Phase 2 clinical trials of FavId are either ongoing or expected to begin in 2005. Two of these clinical trials will be conducted under separate physician-sponsored INDs in the United States. One of these will be conducted as a physician-sponsored clinical trial in Switzerland. Moreover, we believe our active immunotherapy expertise and proprietary manufacturing technology will enable us to develop additional product candidates for other oncology indications and for autoimmune diseases. We are currently studying a second product candidate, FAV-201, for the treatment of T-cell lymphoma and intend to initiate a Phase 1/2 clinical trial evaluating the safety and preliminary efficacy of FAV-201 during the second half of 2005. We also intend to initiate preclinical studies to identify additional product candidates for the treatment of autoimmune diseases, with an initial focus on multiple sclerosis, during the first half of 2005. We have retained worldwide commercialization rights to all of our product candidates.

We were incorporated in Delaware in January 2000. To date, we have not generated any revenues, and we have financed our operations and internal growth through private placements of our preferred stock and equipment and leasehold debt financings. We are a development stage company and have incurred significant losses since our inception in 2000, as we have devoted substantially all of our efforts to research and development activities, including clinical trials. As of September 30, 2004, our accumulated deficit was approximately $71.9 million. We expect to incur substantial and increasing losses for the next several years as we:

•

continue to develop and prepare for the commercialization of our lead product candidate, FavId;



•

expand our research and development programs;



•

expand our current manufacturing capabilities to support our operations; and



•

acquire or in-license oncology products that are complementary to our own.

Financial Operations Overview

Research and Development Expense.    Research and development expense consists primarily of costs associated with clinical trials of our product candidates, including the costs of manufacturing our

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product candidates, compensation and other expenses related to research and development personnel, facilities costs and depreciation. We charge all research and development expenses to operations as they are incurred. Our research and development activities are primarily focused on the development of FavId. We have completed enrollment in two Phase 2 clinical trials and continue to evaluate the results. We initiated our pivotal Phase 3 clinical trial in July 2004. We estimate an 18-month patient enrollment period and an additional 18-month evaluation period for our Phase 3 clinical trial. Patient enrollment in the Phase 2 clinical trial will depend upon the rate of completion of patient participation in the Phase 3 clinical trial. Six additional Phase 2 clinical trials of FavId are either ongoing or expected to begin during 2005. Two of these clinical trials will be conducted under separate physician-sponsored INDs in the United States. One of these will be conducted as a physician-sponsored clinical trial in Switzerland. We estimate average enrollment periods of 12 to 24 months and evaluation periods ranging from six to 36 months for these Phase 2 clinical trials.

From inception through September 30, 2004, we incurred costs of approximately $32.1 million associated with the research and development of FavId which represents substantially all of our research and development costs to date. We expect our research and development costs to increase as we advance FavId and new product candidates into later stages of clinical development. While difficult to predict, we estimate that research and development costs required to complete the development of and file a BLA for FavId will be an additional $75 million. We are unable to estimate with any certainty the costs we will incur in the continued development of other product candidates for commercialization. On an ongoing basis, we expect to expand our research and development activities to include clinical development of FAV-201 and preclinical research of treatments for autoimmune diseases, primarily multiple sclerosis.

Clinical development timelines, likelihood of success and total costs vary widely. Although we are currently focused primarily on FavId, we anticipate that we will make determinations as to which research and development projects to pursue and how much funding to direct toward each project on an on-going basis in response to the scientific and clinical success of each product candidate.

At this time, due to the risks inherent in the clinical trial process, product candidate completion dates and costs vary significantly for each product candidate and are difficult to estimate. The lengthy process of seeking regulatory approvals and the subsequent compliance with applicable regulations require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals for our product candidates could cause our research and development expenditures to increase and, in turn, have a material adverse effect on our results of operations. We cannot be certain when any cash flows from our current product candidates will commence.

General and Administrative Expense.    General and administrative expenses consist primarily of compensation and other expenses related to our corporate administrative employees, legal fees and other professional services expenses. After this offering, we anticipate increases in general and administrative expenses as we add personnel, become subject to reporting obligations applicable to publicly-held companies and continue to develop and prepare for commercialization of our product candidates.

Stock-Based Compensation Expense.    Stock-based compensation expense represents the amortization of deferred compensation resulting from the difference between the exercise price and the deemed fair value, as estimated by us for financial reporting purposes, of our common stock on the date stock options were granted to employees and non-employee directors.

Interest Income.    Interest income primarily consists of interest earned on our cash reserves, money markets and certificates of deposit.

Interest Expense.    Interest expense represents interest on our debt, including capital leases.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could differ from those estimates. While our significant accounting policies are described in more detail in Note 1 of Notes to Financial Statements included elsewhere in this prospectus, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:

Deferred Tax Asset Valuation Allowance.    Our estimate for the valuation allowance for deferred tax assets requires us to make significant estimates and judgments about our future operating results. Our ability to realize the deferred tax assets depends on our future taxable income as well as limitations on utilization. A deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized prior to its expiration. The projections of our operating results on which the establishment of a valuation allowance is based involve significant estimates regarding future demand for our products, competitive conditions, product development efforts, approvals of regulatory agencies and product cost. We have recorded a full valuation allowance on our net deferred tax assets as of December 31, 2002 and 2003, and September 30, 2004, due to uncertainties related to our ability to utilize our deferred tax assets in the foreseeable future. These deferred tax assets primarily consist of certain net operating loss carryforwards and research and development tax credits.

Deferred Stock-Based Compensation.    In connection with the grant of stock options during the nine months ended September 30, 2004, we recorded $8.4 million in deferred stock-based compensation within stockholders' equity. These options were considered compensatory because the deemed fair value of the underlying common stock for financial reporting purposes was greater than the exercise prices determined by the board of directors on the date of grant. In determining the fair value of the underlying shares of common stock, a variety of company and industry-specific factors were considered by our board of directors. As a result, the amount of the compensatory charge is not based on an objective measure such as the trading price of the common stock. As of September 30, 2004, we had an aggregate of $8.2 million of deferred stock-based compensation remaining to be amortized. This deferred stock-based compensation balance will be amortized as follows: $683,000 in 2004; $2.6 million in 2005; $2.6 million in 2006; $2.0 million in 2007; and $287,000 in 2008. We are amortizing the deferred compensation on a straight-line basis over the vesting period of the related options, which is generally four years. The amount of stock-based compensation amortization actually recognized in future periods could decrease if options for which accrued but unvested compensation has been recorded are forfeited.

Results of Operations

Comparison of the Nine Months Ended September 30, 2003 to 2004

Research and Development.    Research and development expense increased from approximately $7.2 million for the nine months ended September 30, 2003 to $12.9 million for the nine months ended September 30, 2004. The increase of $5.7 million, or 79%, was due primarily to an increase of $2.2 million associated with ongoing operating expenses for our new manufacturing facility which our research and development staff began occupying in October 2003; an increase of $1.6 million associated with an increase in personnel from 52 full-time equivalent employees to 80 full-time equivalent employees to support our Phase 3 clinical trial initiated in July 2004; an increase of $1.2 million associated with supplies to support continued process and formulation development and the purchase of supplies for our manufacturing facility in anticipation of the Phase 3 clinical trial requirements;

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approximately $445,000 paid to third party vendors providing support services for our Phase 3 clinical trial, including randomization of patients, radiology and laboratory management services.

General and Administrative.    General and administrative expense increased from approximately $1.7 million for the nine months ended September 30, 2003 to $3.5 million for the nine months ended September 30, 2004. The increase of $1.8 million, or 106%, was primarily due to an increase of $563,000 associated with an increase in personnel from eight full-time equivalent employees to 14 full-time equivalent employees; an increase of $222,000 associated with our new manufacturing facility, which our administrative staff began occupying in May 2003 and $746,000 in deferred initial public offering costs expensed in accordance with Staff Accounting Bulletin Topic 5A.

Amortization of Stock-Based Compensation.    Deferred stock-based compensation for stock options has been determined as the difference between the exercise price and the estimated fair value of our common stock on the date of grant as determined by our board of directors. In connection with the grant of stock options to employees and non-employee directors, we recorded deferred stock-based compensation of $837,000 and $8.4 million for the nine months ended September 30, 2003 and 2004, respectively. We recorded these amounts as components of stockholders' equity and are amortizing the amounts, on a straight-line basis, as a non-cash charge to operations over the vesting period of the options. We recorded amortization of stock-based compensation of $78,000 and $1.7 million for the nine months ended September 30, 2003 and 2004. We anticipate recording additional amortization of deferred stock-based compensation related to employee stock option grants of approximately $683,000, $2.6 million, $2.6 million, $2.0 million and $287,000 for the years ending December 31, 2004, 2005, 2006, 2007 and 2008, respectively.

Interest Expense.    Interest expense increased from approximately $191,000 for the nine months ended September 30, 2003 to $602,000 for the nine months ended September 30, 2004. The increase of $411,000, or 215%, was primarily due to interest payments on our $7.0 million line of credit entered into in March 2003.

Interest Income.    Interest income increased from approximately $85,000 for the nine months ended September 30, 2003 to $229,000 for the nine months ended September 30, 2004. The increase of $144,000, or 169%, was primarily a result of the $43.6 million in net proceeds received from the sale of our Series C preferred stock in March and April 2004.

Comparison of Fiscal Years Ended December 31, 2002 to 2003

Research and Development.    Research and development expense increased from approximately $5.3 million in 2002 to $10.5 million in 2003. The increase of $5.2 million, or 98%, was due primarily to costs associated with conducting two ongoing Phase 2 clinical trials in 2002 with combined enrollment of 45 patients compared to combined enrollment of 80 patients in 2003. As a result of increased patient enrollment, we increased personnel from 37 full-time equivalent employees to 60 full-time equivalent employees resulting in increased costs of $1.8 million. In addition, there was a $1.4 million increase in depreciation expense and facility-related costs as a result of the increase in expenditures for leasehold improvements and equipment for our manufacturing facility.

General and Administrative.    General and administrative expense increased from approximately $2.0 million in 2002 to approximately $2.4 million in 2003. The increase of $400,000, or 20%, was due primarily to a $90,000 increase in consulting services related to business development, a $60,000 increase in property and liability insurance and a $113,000 increase in the depreciation expense and facility related costs associated with our new manufacturing facility, which our administrative staff began occupying in May 2003.

Amortization of Stock-Based Compensation.    Deferred stock-based compensation for stock options has been determined as the difference between the exercise price and the estimated fair value of our

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common stock on the date of grant as determined by our board of directors. In connection with the grant of stock options to employees and non-employee directors, we recorded deferred stock-based compensation of $1.6 million for the year ended December 31, 2003. We recorded this amount as a component of stockholders' equity and are amortizing the amount, on a straight-line basis, as a non-cash charge to operations over the vesting period of the options. We recorded amortization of stock-based compensation of $155,000 for the year ended December 31, 2003.

Interest Income.    Interest income decreased from approximately $167,000 in 2002 to $108,000 in 2003. The decrease of $59,000, or 35%, was primarily attributable to lower average cash balances and lower interest rates.

Interest Expense.    Interest expense increased from approximately $88,000 in 2002 to $332,000 in 2003. The increase of $244,000, or 277%, was a result of interest expense related to draws in 2003 of approximately $5.4 million on a $7.0 million line of credit.

Comparison of Fiscal Years Ended December 31, 2001 to 2002

Research and Development.    Research and development costs increased from approximately $2.6 million in 2001 to $5.3 million in 2002. The increase of $2.7 million, or 104%, was due primarily to costs associated with one Phase 2 clinical trial in 2001 for which eight patients were enrolled, compared to two ongoing Phase 2 clinical trials in 2002 for which a combined total of 45 patients were enrolled. As a result of increased patient enrollment, we increased personnel from 23 full-time equivalent employees to 37 full-time equivalent employees resulting in increased costs of $1.2 million.

General and Administrative.    General and administrative costs increased from approximately $1.2 million in 2001 to $2.0 million in 2002. The increase of $827,000, or 69%, was due primarily to an increase of $200,000 associated with an increase in personnel from three full-time equivalent employees to five full-time equivalent employees; an increase of $242,000 in costs associated with market research, financial and strategic consulting services; and an increase of $208,000 in recruiting and relocation costs associated with the hiring of three executive officers.

Interest Income.    Interest income increased from approximately $134,000 in 2001 to $167,000 in 2002. The increase of $33,000, or 25%, was primarily attributable to higher average cash balances as a result of net proceeds of $16.1 million received from the sale of our Series B preferred stock in the second quarter of 2002.

Interest Expense.    Interest expense increased from $67,000 in 2001 to $88,000 in 2002. The increase of $21,000, or 31%, was a result of 12 months of interest expense in 2002 on our $1.0 million equipment line of credit, compared to nine months of interest expense in 2001.

Liquidity and Capital Resources

Sources of Liquidity

We have historically funded our operations primarily through the sale of our equity securities and equipment and leasehold debt financing. As of September 30, 2004, we had received proceeds from the sale of preferred stock of approximately $76.8 million, net of stock issuance costs of approximately $686,000. As of September 30, 2004, we had financed the purchase of equipment and leasehold improvements through loans totaling approximately $9.2 million, of which $6.3 million was outstanding at that date. The debt agreements subject us to certain financial and non-financial covenants. As of September 30, 2004, we were in compliance with the terms of the debt agreements.

These obligations are secured by certain purchased equipment and leasehold improvements and are due in monthly installments through February 2008. They bear interest at effective rates ranging from

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approximately 9.34% to 14.66% and include terminal payments at the end of the loans ranging from 5.75% to 12.75%.

Cash Flows

As of September 30, 2004, cash and cash equivalents totaled approximately $32.8 million as compared to $5.6 million at December 31, 2003, an increase of approximately $27.2 million. The increase resulted primarily from net proceeds of $43.6 million from the sale of 6.1 million shares of Series C preferred stock in March and April 2004. Net cash used in operating activities was approximately $14.7 million for the nine months ended September 30, 2004 reflecting the net loss occurring for this period of $18.4 million offset by non-cash charges for depreciation and amortization of $1.0 million, issuance of options and warrants related to consulting agreements of $169,000, stock-based compensation of $1.7 million and deferred rent of $448,000 and an increase in accounts payable and accrued liabilities of $546,000. Net cash used in investing activities totaled $3.4 million reflecting primarily the purchase of property and equipment. Net cash provided by financing activities totaled $45.3 million reflecting primarily the net proceeds of $43.6 million from the sale of Series C preferred stock and the net proceeds of $2.8 million from debt offset by $1.5 million in principal payments on the debt.

As of December 31, 2003, cash and cash equivalents totaled approximately $5.6 million compared to $10.0 million as of December 31, 2002, a decrease of approximately $4.4 million. The decrease resulted primarily from our operating loss of $13.3 million and principal payments of $1.0 million on loans, partially offset by net proceeds of $10.5 million from the sale of our Series B-2 preferred stock.

Net cash used in operating activities was approximately $3.7 million, $6.6 million and $12.1 million for the years ended December 31, 2001, 2002 and 2003, respectively. The increase in net cash used in operating activities during those years was primarily due to the increase in our clinical development activities for FavId, including enrollment and completion of two Phase 2 clinical trials and the associated costs of manufacturing product for those trials.

Net cash used in investing activities was approximately $817,000, $854,000 and $7.4 million for the years ended December 31, 2001, 2002 and 2003, respectively. For the years ended December 31, 2001 and 2002, the primary use of cash was related to the purchase of equipment used in our operations of approximately $735,000 and $853,000, respectively. The increase in cash used from investing activities between 2002 and 2003 is the result of construction of leasehold improvements for our new manufacturing facility and the related equipment purchases of approximately $5.6 million in 2003. In addition, in 2003 we purchased approximately $1.6 million in money market fund investments to collateralize a letter of credit related to the lease agreement for our new facility.

Net cash provided by financing activities was approximately $878,000, $16.5 million and $15.0 million for the years ended December 31, 2001, 2002 and 2003, respectively. These activities consisted primarily of proceeds from debt in 2001 of $1.0 million, which were partially offset by principal payments of $168,000. In 2002, these activities consisted primarily of net proceeds of $16.1 million from the sale of our Series B preferred stock and $650,000 in convertible bridge loans, which were converted into Series B preferred stock, partially offset by the principal payments on our debt of $296,000. In 2003, the financing activities consisted primarily of $5.4 million in proceeds from a line of credit for certain equipment and leasehold improvements and approximately $10.5 million in net proceeds from the sale of our Series B-2 preferred stock, partially offset by principal payments on our debt of $1.0 million.

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Funding Requirements

Our future capital uses and requirements depend on numerous forward-looking factors. These factors include but are not limited to the following:

•

magnitude and cost of our product development efforts and other research and development activities;



•

rate of progress toward obtaining regulatory approval for our product candidates;



•

costs of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;



•

our ability to establish and maintain collaborative, licensing or other arrangements for the development, sale, marketing or distribution of our product candidates and the terms of those arrangements;



•

effects of competing technological and market developments; and



•

the success of the commercialization of FavId.

We believe that the net proceeds from this offering, together with interest thereon and our existing cash and cash equivalents, will be sufficient to meet our projected operating requirements for at least the next 24 months.

Until we can generate significant cash from our operations, we expect to continue to fund our operations with existing cash resources that were primarily generated from the proceeds of offerings of our equity securities and from equipment and leasehold improvement debt financing. In addition, we may finance future cash needs through the sale of other equity securities, strategic collaboration agreements and debt financing. However, we may not be successful in obtaining collaboration agreements, or in receiving milestone or royalty payments under those agreements. In addition, we cannot be sure that our existing cash and cash equivalents will be adequate or that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our stockholders. Having insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Failure to obtain adequate financing may also adversely affect our ability to operate as a going concern. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.

As of September 30, 2003 and 2004, and December 31, 2001, 2002 and 2003, we do not believe that we have invested in any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. We do not have relationships or transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties other than what is disclosed in Note 8 of Notes to Financial Statements included elsewhere in this prospectus.

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Contractual Obligations

The following summarizes our long-term contractual obligations as of December 31, 2003:

⁽¹⁾

Includes monthly principal and interest payments, as well as terminal payments on the loans. The effective annual rates of interest on the loans range from 9.84% to 14.66%. In January and February 2004, we borrowed the remaining principal of $1.6 million available under our $7.0 million loan and security agreement.

⁽²⁾

Includes monthly principal and interest payments on the capital lease. The effective annual rate of interest on the capital lease is 6.57%.

⁽³⁾

Includes an annual fee of $10,000 through our period of clinical development. Additional amounts due under the agreement beyond the clinical development period are based upon certain events occurring. As the timing of those events is unknown they have been excluded from the table.

We also enter into agreements with clinical sites that conduct our clinical trials. We make payments to sites based upon the number of patients enrolled. For the years ended December 31, 2002 and 2003, we had made aggregate payments of $457,000 and $738,000, respectively, to clinical sites in connection with our Phase 2 clinical trials. At this time, due to the variability associated with these agreements, we are unable to estimate with certainty the future patient enrollment costs we will incur and therefore have excluded these costs from the above table.

As of December 31, 2004, we had $1.6 million in restricted cash associated with our facility lease.

In July 2004, we entered into a loan and security agreement under which the lender agreed to extend us a line of credit equal to $2.5 million. As of December 31, 2004, we had borrowings under the loan and security agreement totaling $1.9 million. Borrowings under the line of credit bear interest at 9.34% per annum and are collateralized by certain of the financed equipment. Principal and interest, related to each draw, are payable monthly over 36 months or 42 months.

In November 2004, we entered into an eight-year supply and license agreement with one of our vendors in which we made a $50,000 payment and we committed to purchase $30,000 of raw material in December 2004 and an additional $205,000 of raw material in January and May 2005. An additional aggregate of up to $300,000 will be due upon the achievement of certain milestones, the timing of which are not known at this time.

Quantitative and Qualitative Disclosures about Market Risk

The primary objective of our cash management activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. As of September 30, 2004, we had cash equivalents consisting primarily of money market investments. Due to the liquidity of our money market investments, a 1%

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movement in market interest rates would not have a significant impact on the total value of our cash equivalents. We do not have any holdings of derivative financial or commodity instruments, or any foreign currency denominated transactions.

Related Party Transactions

For a description of our related party transactions, see "Certain Transactions."

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board, or FASB, issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, in November 2002. FIN 45 requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation it assumes under that guarantee. The initial recognition and measurement requirements of FIN 45 is effective for guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for interim and annual periods ending after December 15, 2002, and are applicable to certain guarantees issued before December 31, 2002. We adopted FIN 45 disclosure requirements as of December 31, 2002. The adoption of the provisions for recognition and initial measurement did not have a material impact on our financial position or results of operations.

The FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, in January 2003 and amended the Interpretation in December 2003. FIN 46 requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling financial interest or the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from the other parties. Development stage entities that have sufficient equity invested to finance the activities they are currently engaged in and entities that are businesses, as defined in the Interpretation, are not considered VIEs. The provisions of FIN 46 were effective immediately for all arrangements entered into with new VIEs created after January 31, 2003. The adoption of FIN 46 did not have a material effect on our financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity, including redeemable convertible preferred stock. This statement is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the interim period commencing July 1, 2003, except for mandatory redeemable financial instruments of nonpublic companies. As of and for the year ended December 31, 2003, the adoption of SFAS No. 150 did not have a material effect on our financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and is effective for public companies for interim or annual periods beginning after June 15, 2005. We will be analyzing our options for the adoption of SFAS No. 123(R), which would be effective as of July 1, 2005 assuming the completion of this offering.

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BUSINESS

Overview

We are a biopharmaceutical company focused on the research, development and commercialization of targeted immunotherapies for the treatment of cancer and diseases of the immune system. We have developed a proprietary technology that enables us to manufacture active immunotherapy products that are designed to stimulate a patient's immune system to mount a specific and sustained response to disease. Our lead product candidate, FavId, is an active immunotherapy for the treatment of indolent B-cell non-Hodgkin's lymphoma, or NHL. FavId entered a pivotal Phase 3 clinical trial in July 2004.

The American Cancer Society estimates that 54,370 people will be diagnosed with NHL in the United States in 2004, and the National Cancer Institute, or NCI, has most recently estimated that approximately 332,000 patients suffer from this disease. Approximately 85% of NHL patients have B-cell NHL. We believe that approximately half of these patients have the slow-growing, or indolent, form of the disease. The majority of the remaining patients have a faster growing form of the disease, commonly referred to as aggressive NHL. A number of therapies are used to treat indolent B-cell NHL, including Rituxan, which had sales in the United States of over $1.3 billion in 2003 for indolent B-cell NHL and other indications. Despite the benefits of current therapies, patients with indolent B-cell NHL still relapse following treatment, and the disease is considered to be incurable.

Our lead product candidate, FavId, is being developed to be used following treatment with existing standards of care to induce more durable remissions in patients with indolent B-cell NHL. Our Phase 3 clinical trial is designed to evaluate FavId's ability to extend the time to disease progression, or TTP, in patients following treatment with Rituxan. We believe this regimen will provide patients with indolent B-cell NHL the option of an all-biologic therapy that avoids many of the side effects associated with chemotherapy. To date, FavId has been evaluated in two multi-center, open-label Phase 2 clinical trials involving over 120 patients. Preliminary results from these trials suggest that FavId can induce remissions when used alone and may increase TTP following treatment with Rituxan.

Researchers have been conducting clinical trials of active immunotherapies in patients with B-cell NHL for more than a decade. The results of clinical trials at the Stanford University Medical Center and the NCI suggest that active immunotherapies similar to FavId, when used following chemotherapy, may induce long-term remission and improve survival time among indolent B-cell NHL patients. Despite the promising results of these trials, we believe manufacturing limitations have hindered commercialization of these immunotherapies. We believe that our proprietary technology will enable us to manufacture FavId in a timely and cost-effective manner and will therefore allow us to offer a treatment option not currently available to physicians and patients.

We believe FavId may be effective in treating other types of B-cell NHL. Six additional Phase 2 clinical trials of FavId are either ongoing or expected to begin during 2005. Two of these clinical trials will be conducted under separate physician-sponsored INDs in the United States. One of these will be conducted as a physician-sponsored clinical trial in Switzerland. Moreover, we believe our active immunotherapy expertise and proprietary manufacturing technology will enable us to develop additional product candidates for other oncology indications, such as T-cell lymphoma, and for autoimmune diseases, with an initial focus on multiple sclerosis. We are currently developing a second product candidate, FAV-201, for the treatment of T-cell lymphoma and intend to initiate a Phase 1/2 clinical trial evaluating the safety and preliminary efficacy of FAV-201 in the second half of 2005. We have retained exclusive worldwide commercialization rights to all of our product candidates.

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The Immune System

The immune system is the body's major defense against foreign pathogens, such as viruses and bacteria. The principal cells that make up the immune system are termed white blood cells. A subset of white blood cells known as lymphocytes is essential in generating an effective immune response to disease-causing agents. Lymphocytes consist primarily of B-cells and T-cells, which normally recognize and respond to antigens found within proteins derived from foreign pathogens. The B-cell receptor that recognizes an antigen is called an antibody. Once B-cells recognize antigens, they initiate a sequence of events that results in the immune system's production of large amounts of antibodies specific to that antigen. These antibodies then circulate throughout the body and bind to their target antigen, thereby flagging pathogens for destruction. This type of immune response is known as the antibody-based, or humoral, immune response.

T-cells are responsible for carrying out what is known as the cell-mediated immune response. T-cell receptors recognize antigens presented on the surface of other cells. When a T-cell recognizes its target, it responds in one of two ways. Either it destroys the target directly, or it produces a variety of proteins that cause the growth and activation of itself and other T-cells and B-cells, which can then destroy the target.

Although any one B-cell or T-cell can recognize and respond to only a single antigen, the human immune system has evolved such that the collective B-cell and T-cell populations can respond to virtually every possible foreign pathogen that a person may encounter in his or her lifetime. Furthermore, the humoral and cell-mediated immune responses have an additional feature of "memory," which enables B-cells and T-cells to recall an interaction with a foreign antigen and to respond to this antigen in a more rapid and aggressive fashion in the future.

The immune system is generally very effective in destroying pathogens that it recognizes as foreign. For this reason, a properly functioning immune system is highly regulated to ensure that its destructive power is not directed against normal tissue. If this regulation breaks down, an immune response may be generated against normal tissue, which can lead to autoimmune diseases, such as multiple sclerosis, rheumatoid arthritis and lupus. In the case of cancer, this strict regulation of the immune system may prevent an effective immune response from being mounted because of the body's inability to distinguish the cancer as foreign. Researchers believe that teaching the immune system to recognize the proteins associated with cancer cells as foreign will enable the immune system to identify and eliminate cancers, such as lymphoma.

Immunotherapy

Immunotherapy is designed to use a person's immune system to fight diseases, including cancer. Immunotherapy enables the immune system to target and destroy diseased cells and has far fewer side effects than other therapies, such as surgery, chemotherapy and radiation therapy. There are two types of immunotherapy used to treat cancer: passive immunotherapy and active immunotherapy.

Passive immunotherapy utilizes large doses of infused antibodies that bind to antigens primarily expressed by a tumor cell and by few or no normal cells. These antibodies circulate throughout the bloodstream, binding to antigens on their targeted cell, thereby flagging it for destruction. One of the most widely used passive immunotherapies for the treatment of B-cell NHL is Rituxan. Rituxan has demonstrated the ability to induce a clinical response—at least a 50% reduction in tumor burden—in approximately 50% of patients with indolent B-cell NHL with few side effects. In patients who respond to Rituxan, this response lasts on average approximately 12 months. Despite their widespread use in fighting cancer, passive immunotherapies such as Rituxan suffer from significant limitations, including a limited duration of efficacy and the development of resistance. Additional passive immunotherapies

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have attempted to overcome the shortcomings of Rituxan by linking antibodies to radioactive molecules that can directly destroy the cell to which the antibody is bound. However, improvements in time to disease progression, if any, have been modest.

Active immunotherapy teaches the patient's own immune system to recognize and fight the growing cancer. Active immunotherapy is designed to program the immune system to generate a sustained and robust humoral and cell-mediated immune response. Idiotype immunotherapy, including our product candidate, FavId, for the treatment of indolent B-cell NHL, is an example of active immunotherapy. In the case of B-cell NHL, the antibody protein made by a person's B-cell NHL is used as a target for immune attack. The unique antigens in this antibody protein are referred to as the idiotype. The immune system can differentiate between lymphoma cells and normal B-cells based on their idiotype. As a result, following successful idiotype immunotherapy, a patient's immune response is specific to their B-cell lymphoma.

Development of Active Idiotype Immunotherapy

Active idiotype immunotherapy has been studied in patients with B-cell NHL since the late 1980's and has shown substantial promise in clinical trials. Trials conducted at the Stanford University Medical Center and the NCI evaluated the use of active idiotype immunotherapy in treating indolent B-cell NHL patients. The results suggest that active idiotype immunotherapy significantly increases the duration of response in patients previously placed into remission with chemotherapy. Remission is defined as at least a 50% reduction in tumor burden. The immunotherapy administered in both the Stanford and NCI trials was similar to FavId in that it involved the combination of an idiotype protein derived from a patient's tumor with a foreign protein, keyhole limpet hemocyanin, or KLH. KLH is a protein derived from shellfish that elicits a strong immune response.

In the Stanford trial, 21 of 41 patients treated with idiotype immunotherapy mounted an immune response to their idiotype protein. The median TTP in these patients was calculated to be 7.9 years, compared to a median TTP of 1.3 years for the patients who failed to mount an immune response. For purposes of this trial, TTP was defined as the interval between the date of last dose of chemotherapy and the recurrence of disease. The median TTP for the responding patients was calculated based on available data using a statistical method known as Kaplan-Meier analysis, which allows for the estimation of a median time when not all of the patients have reached the event being measured at the time of analysis. The results from this trial were published in the medical journal Blood in May 1997.

In an attempt to increase the idiotype-specific immune response, the NCI trial supplemented the idiotype immunotherapy with GM-CSF, a white blood cell growth factor designed to enhance the immune response. Lymphoma-specific immune responses were reported for 19 of the 20 patients in the trial, and the most recent update from this trial in August 2003 indicates that with a median follow-up time of 7.2 years, 50% of patients remain in continuous complete remission with an overall survival rate of 90%. The trial also showed that the immunotherapy converted eight of 11 patients tested to a molecular remission, which means no evidence of tumor could be seen even at a more fundamental and precise DNA level. The preliminary results from the NCI trial were published in the medical journal Nature Medicine in October 1999, and the most recent update from this trial was published in the medical journal Blood in November 2003.

Barriers to Commercialization

Although the Stanford and NCI clinical trials demonstrated favorable results, substantial manufacturing difficulties have limited further development of an active idiotype immunotherapeutic approach to the treatment of B-cell NHL. The manufacturing process used to produce the idiotype immunotherapies studied at Stanford and the NCI has lengthy and inconsistent production timelines and is

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labor-intensive, with a reported manufacturing failure rate as high as 15%. As a result, we believe this process would be difficult to commercialize.

Our Solution for the Commercial Production of Active Idiotype Immunotherapy

We have developed a proprietary technology that we believe enables us to overcome historical limitations to the manufacturing and commercialization of active idiotype immunotherapies. Our technology utilizes an insect-cell virus that carries genetic information we identify as unique to a patient's lymphoma. By introducing this virus into an insect cell line, we can produce sufficient quantities of idiotype protein for our immunotherapy. We believe our manufacturing process will have the following benefits:

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Rapid Production Cycle. We believe our production cycle time is a number of months shorter than previously reported cycle times for manufacturing idiotype immunotherapies for B-cell NHL. Our production timeline allows us to administer FavId at what we believe is the optimal time following treatment with Rituxan.



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Reliable Manufacturing. To date, our production process for FavId used in our clinical trials has been reliable, with a manufacturing failure rate of less than 5%. Our underlying production method for each patient will not change regardless of the number of units of FavId produced. This small-scale unit operation is easily replicated to produce multiple patient therapies simultaneously without the risks associated with traditional scale-up for commercial production.



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Automation. This small-scale unit operation is amenable to automation. The time required to identify the genetic information used to construct the insect-cell expression vector has been reduced by technological advances, including automation, some of which are the result of the human genome project. We believe that many other steps in the production of FavId can be automated.

Our production process requires only standardized small volumes, is readily reproducible, and requires limited production time. As a result, we believe our cost of production can allow for a commercially viable product with gross margins similar to those seen for other biopharmaceuticals and enable physicians to use FavId in concert with all existing standards of care for indolent B-cell NHL, including Rituxan.

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Our Development Programs

The chart below summarizes the status of ongoing, recently completed and currently planned clinical and preclinical development programs. We have retained exclusive worldwide commercialization rights to all of our product candidates.

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Patients are considered relapsed if their lymphoma has returned after a response to prior therapy. Patients are considered refractory if they have not responded to prior treatments.

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This trial is physician-sponsored, which means that a physician, rather than Favrille, will be responsible for managing the conduct of the trial and the resulting data. The responsible physician has filed or is expected to file an Investigational New Drug application, or IND, with the FDA for the study and is or will be the owner of that IND. We will provide FavId at our own expense for use in physician-sponsored trials and, in some cases, funding.

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FavId for Indolent B-Cell NHL

Overview

Our lead product candidate, FavId, is an active immunotherapy that is based upon unique genetic information extracted from a patient's tumor. We initiated a pivotal Phase 3 clinical trial evaluating FavId in treatment-naïve or relapsed or refractory follicular B-cell NHL patients following treatment with Rituxan in July 2004. Follicular lymphoma accounts for the majority of all indolent B-cell NHL cases. To date, we have conducted two multi-center, open-label Phase 2 clinical trials of FavId involving over 120 indolent B-cell NHL patients. Six additional Phase 2 clinical trials of FavId are either ongoing or expected to begin during 2005. Two of these clinical trials will be conducted under separate physician-sponsored INDs in the United States. One of these will be conducted as a physician-sponsored clinical trial in Switzerland. We currently retain exclusive worldwide commercialization rights to FavId.

Market Opportunity

The American Cancer Society cites NHL as the sixth most common form of cancer and the sixth leading cause of death among cancers in the United States. The American Cancer Society estimated that 54,370 people will be diagnosed with NHL in the United States in 2004, and the NCI has most recently estimated that approximately 332,000 patients suffer from this disease. B-cell NHL is a cancer of B-cell lymphocytes, the body's white blood cells principally responsible for fighting disease. Approximately 85% of NHL patients in the United States have B-cell NHL. We believe that approximately half of these patients have the indolent form of the disease. Although indolent B-cell NHL is slow-growing, it is incurable with existing therapies and inevitably fatal. The median survival time for patients diagnosed with advanced stages of indolent B-cell NHL is estimated to be between seven and ten years.

Current Treatments

Chemotherapy has traditionally been used as the primary therapy for treating patients with indolent B-cell NHL. Chemotherapy is typically administered in repeated cycles for three to eight months and can substantially reduce the tumor mass and achieve remission. These remissions are generally temporary, however, and patients with indolent B-cell NHL typically relapse within one and one-half to three years of initial chemotherapy treatment. Furthermore, as the cancer becomes increasingly resistant to chemotherapy, patients may eventually become refractory. Patients undergoing chemotherapy treatments generally suffer from a number of side effects, including fatigue, nausea, hair loss and increased risk of serious infection. These side effects may result in the need for supportive care, including additional therapies and hospitalization. The toxicity and inconvenience of these chemotherapy treatments can impose a heavy strain on a patient's overall quality of life.

Several passive immunotherapy products have recently been approved for the treatment of NHL, including Rituxan, Zevalin and Bexxar. Rituxan is currently the leading passive immunotherapy approved for the treatment of indolent B-cell NHL. Rituxan is a monoclonal antibody that has demonstrated the ability to induce a remission in approximately 50% of patients with indolent B-cell NHL with few side effects. In the 50% of patients who respond to Rituxan, the remission generally lasts approximately 12 months. Standard treatment with Rituxan typically involves four weekly intravenous infusions over a 22-day period. Rituxan is considered to be significantly less toxic to the bone marrow than chemotherapy. As a result, patients treated with Rituxan enjoy a much improved quality of life versus those undergoing chemotherapy. Unfortunately, like patients who undergo chemotherapy, patients treated with Rituxan eventually relapse. Several clinical trials have suggested that additional doses of Rituxan as a maintenance therapy can improve the TTP in patients with follicular NHL. In addition, combinations of Rituxan and chemotherapeutic or immunostimulatory

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drugs at various doses and schedules may provide patients with an increase in TTP over that expected with Rituxan alone.

We believe that the standard of care for the treatment of B-cell NHL patients increasingly involves the use of Rituxan. Sales of Rituxan in the United States have grown from $162 million in 1998 to over $1.3 billion in 2003. Our clinical registration strategy involves the administration of FavId in the group of patients who would otherwise receive Rituxan. We believe this approach will provide patients with indolent B-cell NHL the option of an all-biologic therapy that avoids many of the side effects associated with chemotherapy.

Clinical Development

Pivotal Phase 3 Clinical Trial—FavId Following Rituxan.    We initiated a randomized, double-blind, placebo-controlled Phase 3 clinical trial of FavId in patients with follicular B-cell NHL in July 2004. The trial is open to patients who are treatment-naive and to patients who have relapsed from, or are refractory to, prior therapies. We anticipate that this trial will be conducted at 65 or more sites and require at least 342 evaluable patients. The chart below summarizes the treatment schedule of patients in this trial:

We obtain tumor cells via biopsy from each patient to establish the genetic profile of the tumor for our use in manufacturing the patient's FavId. In addition, a CT scan is conducted in order to measure tumor burden before Rituxan treatment. Each patient then receives four doses of Rituxan alone at one-week intervals while the patient's FavId is being manufactured. Five weeks after the last dose of Rituxan is administered, the patient is re-evaluated and a CT scan is conducted to assess the patient's response to Rituxan. A patient whose disease remains stable or improves following treatment with Rituxan is randomized to receive either FavId with GM-CSF or placebo with GM-CSF. During the induction phase, randomized patients receive monthly injections of FavId or placebo for six months. If a patient's lymphoma remains under control after the induction phase, the patient receives maintenance injections of FavId or placebo given every other month for a year and then every third month until the time of disease progression. Throughout the trial, patients receive CT scans every three months to determine whether their lymphoma is under control. During the trial, patients do not receive any cancer therapy other than that administered in the trial. However, once a patient's disease progresses, the patient's participation in the trial terminates.

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The primary endpoint of the trial is TTP, which in this protocol is the time that elapses between randomization and disease progression. The trial is designed to demonstrate a statistically significant improvement in median TTP in those patients treated with FavId compared to those patients treated with placebo. We estimate an 18-month patient enrollment period and an additional 18-month evaluation period for our pivotal Phase 3 clinical trial for FavId. The trial will include an interim analysis based on a secondary endpoint, which we expect will occur approximately nine months into the follow-up period.

In May 2004, we received a Special Protocol Assessment, or SPA, from the FDA for our Phase 3 clinical trial. In the SPA process, the FDA reviewed the design, size and planned analysis of our Phase 3 clinical trial and provided comments regarding the trial's adequacy to form a basis for approval of a Biologics Licensing Application, or BLA, if the trial is successful in meeting its predetermined objectives. The FDA's comments are binding on its review decision, except in limited circumstances, such as when a substantial scientific issue essential to determining the safety or effectiveness of a product candidate is identified after the Phase 3 clinical trial is commenced. We also intend to apply for fast track designation from the FDA for FavId during the first half of 2005, which, if obtained, may result in an expedited review of our BLA.

Phase 2 Clinical Trial—FavId Following Rituxan.    We initiated a Phase 2 clinical trial of FavId in patients with follicular B-cell NHL who were candidates for Rituxan therapy in June 2002. Initially, this trial was limited to relapsed or refractory patients who had previously undergone treatment with Rituxan, chemotherapy or both. In April 2003, we expanded the entry criteria for this trial to include patients with no prior treatment for their lymphoma. The trial was conducted at 20 sites. Enrollment in this trial was completed in December 2003.

We obtained tumor cells via biopsy from each patient to establish the genetic profile of the tumor for our use in manufacturing the patient's FavId. In addition, a CT scan was conducted in order to measure tumor burden before Rituxan treatment. Each patient then received four doses of Rituxan alone at one-week intervals while the patient's FavId was being manufactured. Approximately eight weeks after the last dose of Rituxan, the patient was re-evaluated and a CT scan was conducted to assess the patient's response to Rituxan. Patients whose disease remained stable or improved following Rituxan treatment received monthly injections of FavId and GM-CSF for six months. If a patient remains progression free after this induction period, the patient continues to receive maintenance injections of FavId given every other month for a year and then every third month until the time of disease progression. Throughout the trial, patients receive CT scans every three months to determine whether their lymphoma is under control. During the trial, patients do not receive any cancer therapy other than that administered in the trial. However, once a patient's disease progresses, the patient's participation in the trial terminates.

Out of a total of 103 patients who received Rituxan in this trial, sufficient quantities of FavId were available for 99 patients which comprised the intent to treat, or ITT, population. Eleven of these patients had disease progression following their Rituxan treatment resulting in an evaluable population of 88 patients. At a median observation time of approximately one year for ITT population, approximately 70% were progression free.

As this Phase 2 clinical trial enrolled both patients that were relapsed or refractory from prior treatment and patients who had received no prior treatment for their lymphoma, we can only compare our preliminary results for subsets of our patient population with available published data. One study published by Dr. Thomas E. Witzig in the Journal of Clinical Oncology in May 2002 reported results for 58 follicular B-cell NHL patients relapsed from or refractory to chemotherapy who were subsequently treated with Rituxan alone. In our Phase 2 clinical trial we treated 26 follicular B-cell NHL patients relapsed from or refractory to chemotherapy whom we believe to be comparable with respect to the

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patient characteristics in the Witzig study. A comparison of the results published by Witzig with our preliminary results is illustrated in the Kaplan-Meier analysis below.

TTP in Patients Relapsed or Refractory from Prior Chemotherapy

The median TTP for the subset of follicular patients in the Witzig trial was 10.2 months. At a median observation period of 11 months, approximately 70% of the 26 patients relapsed or refractory from chemotherapy in our Phase 2 clinical trial shown in the figure above were free from disease progression. Though it is not yet possible to estimate a median TTP for this population, we believe these data show a positive trend to a longer TTP in patients treated with Rituxan followed by FavId compared to patients treated with Rituxan alone.

We have also compared our 39 treatment-naïve patients with the results of a study published by Dr. John D. Hainsworth in the Journal of Clinical Oncology in October 2002. In this publication,

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Hainsworth reported results for treatment-naïve patients who received Rituxan every six months for two years or until their disease progressed.

TTP in Treatment Naïve Patients

        *Administered in Hainsworth trial only

The median observation period for the treatment-naïve patients in our Phase 2 clinical trial was 12 months and at this time approximately 80% of these patients are free from disease progression. We believe these data show a trend towards an equivalent TTP in patients treated with one course of Rituxan followed by FavId compared to patients treated with a course of Rituxan alone every 6 months for 2 years.

The positive interim results found in this Phase 2 clinical trial do not guarantee final results, and our positive initial assessment of FavId in this clinical trial could differ from our assessment of FavId following completion of the clinical trial. An analysis of the characteristics of those patients in our trial whose disease relapsed, compared to those whose disease had not, has allowed us to refine the design of our planned Phase 3 clinical trial. FavId was generally well tolerated, with injection site reactions as the most frequent side effect. Other side effects, when they did occur, were generally of mild or moderate severity and resolved within a week.

Phase 2 Clinical Trial—FavId as a Single Therapeutic Agent in Relapsed or Refractory NHL Patients.    In September 2002, we completed enrollment of a Phase 2 clinical trial evaluating FavId as a single therapeutic agent in indolent B-cell NHL patients who were either relapsed from, or refractory to, prior treatments. The trial was conducted at multiple sites and was designed to determine whether use of FavId alone could stimulate an immune response and whether this response would result in a clinical benefit.

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We obtained tumor cells via biopsy from each patient to establish the genetic profile of the tumor for our use in manufacturing the patient's FavId. In addition, a CT scan was conducted in order to measure tumor burden before FavId treatment. Each patient received monthly injections of FavId and GM-CSF for six months. If a patient's lymphoma remains under control after the induction period, the patient receives maintenance injections of FavId given every other month for a year and then every third month until TTP. Throughout the trial, patients receive CT scans every three months to determine whether their lymphoma is under control. During the trial, patients do not receive any cancer therapy other than that administered in the trial. However, once a patient's disease progresses, the patient's participation in the trial terminates.

Results from the 27 evaluable patients in the trial showed one patient with a complete response and three patients with partial responses, meaning at least a 50% reduction in tumor size, for an overall response rate of 15%. In addition, four patients demonstrated a 25% to 50% reduction in their total lymphoma burden, a minor response, and 15 patients demonstrated stable disease. The other four patients demonstrated disease progression. The median TTP for the 27 patients was 12.3 months using a Kaplan-Meier analysis. As of December 6, 2004, six patients remain progression free and are continuing with FavId injections. The progression free status of these patients ranges from 23 to 38 months as of December 6, 2004. Among the four patients who demonstrated a complete or partial response, the current median TTP, defined as the time from the start of FavId until the time that the patient has progressive disease, was estimated to be at least 29 months. Only one of these four patients' disease had progressed as of such date, at 26 months. The other three responding patients remained in remission from 28 to 33 months from the start of treatment with FavId through December 6, 2004. At 28 months from the start of FavId, one of the three responding patients, while in remission, died from a non- lymphoma-related cause.

These results are encouraging compared to results from similar patients treated with other lymphoma biologic therapies. In a clinical trial conducted by Witzig and reported in the May 2002 issue of the Journal of Clinical Oncology, patients with follicular NHL treated with Rituxan alone had a median TTP of 10.2 months and a median duration of response of 12.1 months. In addition, patients with follicular NHL treated with Zevalin had a median TTP of 12.6 months with a median duration of response of 18.5 months. Similarly, in a trial conducted by McLaughlin and reported in the August 1998 issue of the Journal of Clinical Oncology, patients treated with Rituxan alone had a TTP of 9.0 months. Median duration of response in that trial was 11.2 months.

This clinical trial demonstrated that FavId as a single agent is well tolerated and has activity in pretreated patients with relapsed indolent B-cell NHL. Patients with two or fewer prior therapies and with tumor burdens of less than 50 square centimeters at initiation of the trial appeared more likely to respond to administration of FavId than more heavily pretreated patients or patients with larger tumors.

FavId was generally safe and well-tolerated. Adverse events were infrequent, with injection site reactions being the most common. Seven serious adverse events were reported, one of which—transformation—was reported by the patient's physician as possibly related to FavId. Transformation is an evolution of an indolent lymphoma to an aggressive lymphoma that is known to occur spontaneously in patients with low-grade lymphomas. In response to this serious adverse event, we reviewed the rate

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of transformation across all trials using FavId and found no evidence that transformation is more frequent in patients receiving FavId.

Phase 2 Clinical Trial—FavId Following Autologous Stem Cell Transplantation.    Patient enrollment for a physician-sponsored Phase 2 clinical trial evaluating FavId in patients with indolent B-cell NHL following autologous stem cell transplantation, began in November 2000. Autologous stem cell transplantation involves the removal of important blood cells from a patient before the patient receives large doses of chemotherapy. After chemotherapy, the blood cells are returned to the patient to speed recovery from the chemotherapy treatment. This trial is currently being conducted at two sites. The trial is closed to patient enrollment with several patients remaining in the study.

This trial is designed to evaluate the ability of FavId to induce humoral and cell-mediated immune responses, and to induce or maintain complete clinical or molecular remission, following autologous stem cell transplantation. In addition, the trial will evaluate the correlation of specific T-cell populations with immune responsiveness to FavId, as well as the safety of FavId following autologous stem cell transplantation. After we obtain tumor cells via biopsy from each patient to establish the genetic profile of the tumor for our use in manufacturing the patient's FavId, patients undergo autologous stem cell transplantation using standard regimens. At three months following transplantation, patients receive the first of five monthly injections of FavId. Patients are assessed at fixed intervals for safety, development of immune responses to their tumor idiotype, and for evidence of molecular remissions.

Interim data on the first six patients entered in this trial were presented at the ASH meetings in December 2003. Interim data demonstrated that patients developed a rapid immune response to both KLH and their idiotype. As of December 10, 2004, 13 patients in this trial have been treated with FavId. T-cell responses to both KLH and idiotype have developed rapidly in these patients, often following a single FavId injection.

Phase 2 Clinical Trial—FavId Combined with a Maintenance Rituxan Schedule.    Patient enrollment for a multi-center, physician-sponsored Phase 2 clinical trial evaluating FavId in combination with maintenance Rituxan for the treatment of indolent B-cell NHL began in May 2004. We assumed sponsorship of the IND in August 2004. The trial is open to treatment-naïve patients with indolent B-cell NHL and is designed to enroll a total of 56 patients over a two-year period.

This trial is intended to demonstrate an improvement over the results of prior trials using maintenance Rituxan for the treatment of indolent B-cell NHL. These prior trials demonstrated a median TTP of 34 months for patients with indolent B-cell NHL treated with maintenance Rituxan. Despite this long TTP, patients still experienced a high relapse rate and do not appear to be cured of their disease. We believe that by incorporating FavId into a schedule of maintenance Rituxan, patients may experience an increased TTP beyond what would be expected from maintenance Rituxan alone.

This trial is designed to evaluate the safety of this regimen, and to assess its efficacy, based on the endpoints of response rate and event-free survival. Event-free survival is defined as the time period from the start of Rituxan to the time of disease progression or death. We obtain tumor cells via biopsy from each patient to establish the genetic profile of the tumor for our use in manufacturing the patient's FavId. In addition, a CT scan is conducted in order to measure tumor burden before the start of Rituxan treatment. Patients receive the same dose and schedule of maintenance Rituxan as was administered in the prior trials of maintenance Rituxan. FavId is incorporated into this treatment regimen starting on the third month and is administered monthly for the first 12 months, every other month for the second 12 months, and every three months thereafter. FavId is not administered during those months when patients receive Rituxan. With each FavId administration, GM-CSF is administered on four consecutive days beginning on the day of such FavId administration. Throughout the trial,

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patients receive CT scans every three months to determine whether their lymphoma is under control. During the trial, patients do not receive any cancer therapy other than that administered in the trial. However, once a patient's disease progresses, the patient's participation in the trial terminates.

Phase 2 Clinical Trial—FavId in Indolent Non-follicular NHL.    Patient enrollment for a physician-sponsored Phase 2 clinical trial evaluating FavId in patients with non-follicular indolent NHL is expected to begin in the first quarter of 2005. This trial is expected to be conducted at two sites. The trial is open to patients with various non-follicular indolent lymphomas who are either treatment-naïve for their lymphoma, relapsed or refractory following prior chemotherapy for their lymphoma, or relapsed following a prior response to Rituxan. The trial is expected to enroll 15 patients, but enrollment may be expanded if activity is seen in any specific patient subset.

This trial is designed to evaluate the efficacy of FavId in patients with non-follicular indolent NHL, based on overall response rate, duration of response, time to progression and event-free survival. We will obtain tumor cells via biopsy from each patient to establish the genetic profile of the tumor for our use in manufacturing the patient's FavId. In addition, a CT scan will be conducted in order to measure tumor burden before FavId treatment. FavId will be administered monthly for the first six months, every other month for the next 12 months, and every three months thereafter until disease progression. With each FavId administration, GM-CSF will be administered on four consecutive days beginning on the day of such FavId administration. Patients in the trial who need immediate therapy may receive Rituxan prior to administration of FavId and GM-CSF, while patients with more indolent disease that is not in need of immediate treatment may receive FavId and GM-CSF administered as a single agent. Throughout the trial, patients will receive CT scans every three months to determine whether their lymphoma is under control. During the trial, patients will not receive any cancer therapy other than that administered in the trial. However, once a patient's disease progresses, the patient's participation in the trial will terminate.

Phase 2 Clinical Trial—FavId in Dendritic Cells.    Patient enrollment for a physician-sponsored Phase 1/2 clinical trial evaluating reinfused dendritic cells exposed to FavId in patients with follicular B-cell NHL is expected to begin in the first half of 2005. This trial is expected to be conducted at one site. The trial is open to patients with follicular NHL who are relapsed or refractory following prior chemotherapy for their lymphoma and is expected to enroll approximately 20 patients over a two-year period.

The trial is designed to assess the safety and early efficacy of reinfused dendritic cells exposed to FavId in patients with follicular indolent NHL, based on overall response rate. We will obtain tumor cells via biopsy from each patient to establish the genetic profile of the tumor for our use in manufacturing the patient's FavId. In addition, a CT scan will be conducted in order to measure tumor burden before treatment. Dendritic cells will then be harvested from a blood sample taken from the patient. These dendritic cells will be exposed to FavId in the laboratory and then reinfused into the patient approximately one week, five weeks and nine weeks after such exposure. If a patient's lymphoma remains under control after this induction period, the patient will receive injections of FavId with GM-CSF approximately 20, 24, 28, 32 and 40 weeks after the patient's dendritic cells were exposed to FavId. Throughout the trial, we expect that patients will receive CT scans every three months to determine whether their lymphoma is under control. During the trial, patients will not receive any cancer therapy other than that administered in the trial. However, once a patient's disease progresses, the patient's participation in the trial will terminate.

Phase 2 Clinical Trial—FavId Following Response to Prior Therapy.    In the first half of 2005, we expect to enroll the first patients in our Phase 2 clinical trial of FavId in patients who have responded to therapy for their follicular B-cell NHL. This trial will be conducted at all the sites participating in our Phase 3 clinical trial. Patients in the trial will have completed their participation in our Phase 3 clinical trial by

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virtue of progressing after receiving Rituxan or progressing after receiving Rituxan followed by placebo. As such, none of these patients will have received the FavId that was manufactured for them during the Phase 3 clinical trial. Following progression, these patients will return to their oncologist for administration of additional therapy. The majority of patients are expected to receive some form of chemotherapy as their next treatment. Those patients who respond to therapy will then be eligible to enter this Phase 2 clinical trial and receive their previously manufactured FavId at the same dose and schedule as in the Phase 3 clinical trial.

Phase 2 Clinical Trial—Following Chemotherapy/Rituxan in Patients with Aggressive NHL.    In the second half of 2005, we expect to enroll the first patient in a Phase 2 clinical trial of FavId in patients with aggressive NHL who have received prior treatment with a chemotherapy/Rituxan combination. This multi-center clinical trial will serve as a pilot trial that will evaluate the ability of FavId to increase the disease-free survival of patients with this disease compared to historical controls.

FAV-201 for T-cell Lymphoma

Our product candidate FAV-201 is a patient-specific T-cell receptor-based immunotherapy. We intend to initiate a Phase 1/2 clinical trial evaluating the safety and preliminary efficacy of FAV-201 in patients with T-cell lymphoma during the second half of 2005. This trial builds upon preclinical data that suggest activity of an immunotherapy based on a T-cell receptor. Patients will be observed for evidence of specific cell-mediated and humoral immune responses to FAV-201, and any clinical responses will also be documented.

Autoimmune Disease Candidate

Autoimmune disease occurs when the body's immune system mistakenly attacks and destroys body tissue that it believes to be foreign. In certain instances, autoimmune disease can result from an outgrowth of a limited number of disease-causing lymphocytes that recognize self antigens. Preclinical studies have shown that immunotherapies may prevent or treat autoimmune diseases. In the first half of 2005, we intend to initiate preclinical studies to evaluate whether immunotherapies manufactured in a fashion similar to FAV-201 will be effective in preventing or treating autoimmune disease, with an initial focus on multiple sclerosis.

Strategy

Our goal is to become a leading biopharmaceutical company focused on the research, development and commercialization of targeted immunotherapies for the treatment of cancer and other diseases of the immune system. Key elements of our strategy for achieving this goal are to:

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Complete Clinical Development and Obtain Regulatory Approval for FavId. We initiated a pivotal Phase 3 clinical trial evaluating FavId for the treatment of follicular B-cell NHL in July 2004 under an SPA from the FDA. We intend to seek fast track status for FavId from the FDA during the first half of 2005, which, if obtained, may result in an expedited review by the FDA.



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Utilize Our Proprietary Technology to Develop Additional Product Candidates. We believe that active immunotherapy may have applications in a number of additional diseases beyond B-cell NHL, such as T-cell lymphoma and autoimmune diseases, including multiple sclerosis. For example, we are currently studying a second product candidate, FAV-201, for the treatment of T-cell lymphoma and intend to initiate a Phase 1/2 clinical trial in the second half of 2005. In addition, we intend to initiate a preclinical development program to identify active immunotherapies for the treatment of multiple sclerosis in the first half of 2005.

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Retain Commercialization Rights to Our Oncology Products. We intend to focus our internal development efforts on FavId and other oncology product candidates. We hold exclusive worldwide commercialization rights to FavId without any obligation to pay royalties to any third party on sales. We plan to retain commercialization rights to these product candidates at least through completion of BLA filing. At that point, we will assess whether to market and sell FavId and future products in the United States directly through an internal sales force or together with a co-promotion partner. We intend to seek one or more collaborators to develop and commercialize our product candidates and programs for chronic autoimmune diseases, such as multiple sclerosis, in exchange for license fees, milestone payments and royalties.



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Expand our Product Portfolio Through In-Licensing and Acquisitions. We intend to capitalize upon our expertise in immunology, oncology, immunotherapy, clinical development and regulatory affairs to in-license or acquire complementary product candidates in various stages of development.

Manufacturing and Supply

Our Proprietary Manufacturing Process

Our process begins upon receipt of a patient's lymphoma biopsy, which the treating physician sends to our manufacturing facility. The process can be divided into the three phases described below.

Gene Identification and Cloning

First, we perform a genetic profile of a sample of the patient's tumor to identify and isolate the unique antibody genes that correspond to the patient's tumor idiotype. We then insert these antibody genes

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