Edgar Filing: ANTIGENICS INC /DE/

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

---------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NUMBER: 000-29089

ANTIGENICS INC.
(exact name of registrant as specified in its charter)

DELAWARE 06-1562417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

630 FIFTH AVENUE, SUITE 2100,NEW YORK, NEW YORK 10111
(Address of principal executive offices including zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 332-4774

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NONE NONE
(Title of each Class) (Name of each exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

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

The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 19, 2002 was: $295,564,618. There were 33,066,017 shares
of the registrant's Common Stock outstanding as of March 19, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement of the registrant's 2002 Annual
Meeting of Shareholders to be held on May 22, 2002, which definitive proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the registrant's fiscal year of December 31, 2001, are
incorporated by reference into Part III of this Annual Report on Form 10-K.

================================================================================

This Annual Report on Form 10-K contains forward-looking statements, including
statements regarding the timing of clinical trials, the safety and efficacy of
our product candidates, our future research and development activities,
estimates of the potential markets for our products, estimates of the capacity
of manufacturing and other facilities to support our products, our expected
future revenues, operations and expenditures, the timing of sales, and projected
cash needs. These statements are subject to risks and uncertainties that could
cause our actual results to differ materially from those that are projected in
these forward-looking statements. These risks and uncertainties include, among
others:

- our ability to successfully complete pre-clinical and clinical development
of our products, 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 products for clinical
trials and commercialization activities;

- our ability to obtain, maintain and successfully enforce adequate patent
and other proprietary rights protection of our products;

- 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 sales and marketing staff and the success of their
selling efforts;

- the accuracy of our estimates of the size and characteristics of the
markets to be addressed by our products; and

- our ability to obtain reimbursement for our products from third-party
payers, and the extent of such coverage.

We have included more detailed descriptions of these risks and uncertainties and
other risks and uncertainties applicable to our business in Exhibit 99.1, "Risk
Factors," to this Annual Report on Form 10-K. We encourage you to read those
descriptions carefully. We caution investors not to place undue reliance on
forward-looking statements contained in this document; such statements need to
be evaluated in light of all the information contained in the document.
Furthermore, the statements speak only as of the date of this document, and we
undertake no obligation to update or revise these statements.

PART I

ITEM 1. BUSINESS

OUR BUSINESS

OVERVIEW

Through our core expertise in cancer, immunology and personalized
medicine, we are focused on therapeutic vaccines and treatments for cancer,
infectious diseases and autoimmune disorders. Our products are designed to
improve on conventional treatments by prolonging survival, reducing side effects
and enhancing quality of life. Our lead development programs include
immunotherapeutics that are based on a specific class of proteins known as heat
shock proteins, also referred to as HSPs, and an immune system adjuvant called
QS-21. In addition, we are developing Aroplatin and ATRA-IV, unique liposomal
formulations of anticancer drugs that are designed to offer improvements over
existing cancer drugs. Aroplatin and ATRA-IV fit our long-term goal of creating
novel therapies for serious diseases that represent advanced alternatives to
conventional cancer treatments.

OUR PRODUCTS UNDER DEVELOPMENT

INTRODUCTION

Through our internal discovery efforts and our recent acquisitions, we have
developed a robust pipeline of products for the treatment of cancers and
infectious diseases. Additionally, we have a receptor-based technology with
which we intend to develop additional products, particularly in the fields of
autoimmune disorders. Our lead product, Oncophage(R), uses our proprietary heat
shock protein technology to stimulate a powerful T cell-based immune response
capable of targeting and killing cancer cells. We believe that our HSP-based
products will be able to treat all cancer types and several types of infectious
diseases. We also believe that HSPs are applicable to the treatment of
autoimmune disorders.

Oncophage is currently in Phase III trials in renal cell carcinoma and melanoma,
and we intend to initiate an additional Phase III trial in melanoma in 2002.
Oncophage is the first personalized therapeutic cancer vaccine to receive Fast
Track designation from the U.S. Food and Drug Administration (FDA) and has
received this designation in both renal cell carcinoma and in melanoma.

Aroplatin is a liposomal formulation of a novel platinum compound similar to
oxaliplatin, a drug that is approved and marketed in Europe for the treatment of
colorectal cancer. Aroplatin has been designed to overcome the resistance often
associated with current platinum drugs as well as improve the side effect
profile. We are developing Aroplatin in a variety of cancers and plan to
initiate Phase II clinical trials of Aroplatin in colorectal and pancreatic
cancers in 2002. We are also developing a clinical strategy to investigate
Aroplatin in a Phase II trial in ovarian cancer in 2002.

ATRA-IV is a liposomal, intravenous formulation of all-trans-retinoic acid or
ATRA. ATRA is approved and marketed in an oral formulation for the treatment of
acute promyelocytic leukemia. Our

liposomal formulation of ATRA-IV is designed to increase its bioavailability.
We are developing a clinical strategy to investigate ATRA-IV in a Phase II
trial in one or more hematological malignancies in 2002.

AG-702 is our heat shock protein based therapy for genital herpes. Early studies
in animals show that HSPs induce disease-specific T-cell-mediated immune
responses. We initiated a Phase I trial for AG-702 in the fourth quarter of
2001.

QS-21 is a natural product that is used as an adjuvant, or companion compound,
in vaccines to significantly improve the quality of immune response. QS-21 is
used in products being developed by several pharmaceutical and biotechnology
companies for the treatment of several chronic and debilitating diseases
including malaria, hepatitis B, melanoma and HIV. FeLV/QA-21, our feline
leukemia product, is a recombinant subunit vaccine that uses an immune stimulant
in the same family as QS-21 and is marketed outside the U.S.

Through our discovery research programs, we intend to develop additional novel
compounds that are designed to be efficacious and less toxic than conventional
therapy. Our lead discovery program is focused on the CD91 receptor, the pathway
through which heat shock proteins activate cellular immune response. As a
therapeutic target, the CD91 receptor may present a unique opportunity for
controlling human immune response. The CD91 receptor may be relevant in shutting
down the inappropriate immune response of autoimmune diseases such as diabetes,
arthritis and multiple sclerosis. We have another discovery program involving
the study of the CD1 receptor and related proteins involved in lipid-antigen
presentation pathways. CD1 proteins have been identified as playing important
roles in regulating immunity to certain infectious diseases, cancers and
autoimmune disorders.

PRODUCT DEVELOPMENT PORTFOLIO

Below is a list of our product candidates under development.

------------------------------------------------------------------------------------------------------------------------
PRODUCT STATUS
------------------------------------------------------------------------------------------------------------------------
MARKET PHASE III PHASE II PHASE I DISCOVERY
------------------------------------------------------------------------------------------------------------------------

Oncophage Kidney cancer Colorectal cancer Pancreatic
cancer
Melanoma Gastric cancer

Non-Hodgkin's
lymphoma

------------------------------------------------------------------------------------------------------------------------
Aroplatin Colorectal cancer(1)

Pancreatic cancer(1)

------------------------------------------------------------------------------------------------------------------------
ATRA-IV Hematological
Malignancies(1)
------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------

AG-702 Genital herpes

------------------------------------------------------------------------------------------------------------------------
QS-21 Adjuvant(2) Melanoma HIV S. pneumoniae

Malaria Tuberculosis
Respiratory
Hepatitis B Virus

Breast Cancer

------------------------------------------------------------------------------------------------------------------------
CD91 Receptor-based
technology

------------------------------------------------------------------------------------------------------------------------
CD1 Receptor-based
technology

------------------------------------------------------------------------------------------------------------------------
FeLV/QA-21(veterinary Feline leukemia
vaccine)
------------------------------------------------------------------------------------------------------------------------

(1) Trials to begin in 2002
(2) All partnered programs with the exception of S. pneumonia

ONCOPHAGE

INTRODUCTION

Oncophage is our lead cancer product based on our pioneering work that
demonstrated that HSPs activate T-cells. Oncophage consists of two components:
(i) a variable component, consisting of fragments of proteins called peptides,
which are necessary for the specific targeting of diseased cells and (ii) a
constant component, consisting of a heat shock protein that activates the
targeted T-cell-based immune response.

Heat shock proteins are present in all cells of all organisms from bacteria to
mammals, and their structure and function are similar across these diverse life
forms. Heat shock proteins are a class of proteins that play a major role in
transporting peptides, including antigenic peptides, within a cell and are thus
often called chaperones. In this capacity, heat shock proteins bind to the broad
antigenic repertoire or fingerprint of the cell in which they reside.

The ability of heat shock proteins to chaperone peptides is key to our
technology and to Oncophage. When we purify heat shock proteins from tumor cells
or pathogen-infected cells, the heat shock proteins remain bound to the broad
repertoire of peptides produced by the tumor or pathogen. When these purified
heat shock protein-peptide complexes are injected into the skin, they stimulate
a powerful T-cell-based immune response capable of targeting and killing the
cancer cells or infected cells from which these complexes were derived. These
purified heat shock protein-peptide complexes are the active component of
Oncophage.

We are evaluating Oncophage in six different cancers in eight separate clinical
trials. Because cancer is a highly variable disease from one patient to another,
we purify from each patient's tumor tissue heat shock proteins that are bound,
or complexed, to peptides specific to each patient's cancer. Each Oncophage
cancer product is therefore a personalized product. After a surgeon removes a
patient's tumor, the hospital or clinic ships a frozen portion of the tumor
tissue by overnight courier to our facility. Depending on the dose, we require a
minimum of one to five grams of tumor tissue to yield a sufficient amount of
Oncophage for a typical course of treatment.

We formulate Oncophage in sterile saline solution and package it in standard
single injection vials in our manufacturing facility. We subject the final
product to extensive quality control testing, including sterility testing of
each lot. We ship the product frozen via overnight courier back to the hospital.
We have developed sophisticated tracking systems and procedures designed to
ensure correct delivery of Oncophage to the appropriate patient.

A medical professional initially administers Oncophage to a patient four to six
weeks after a doctor surgically removes the patient's primary or metastatic
tumor. The typical course of treatment consists of an injection into the skin
administered once per week for four weeks and every other week thereafter. An
oncologist may recommend treating a patient with more than one course of
Oncophage.

Although we believe Oncophage will be able to treat all cancer types, our
initial focus is on cancers that are resistant to available treatment and that
typically yield tumors that physicians can surgically remove. Additionally, in
order to complete clinical trials rapidly and file for regulatory approvals, we
have selected cancers and stages of disease that allow us to evaluate Oncophage
in clinical trials with near term endpoints.

We filed an IND for Oncophage in November 1996 that the FDA allowed on December
20, 1996. We started enrolling patients in our first clinical trial at Memorial
Sloan-Kettering Cancer Center in New York, New York in November 1997. To date,
we have treated over 300 cancer patients with Oncophage in our clinical trials.

We believe that the collective results from these clinical trials show that
Oncophage is generally safe and well tolerated by patients with little side
effects. We also believe that these results demonstrate that treatment with
Oncophage can generate immunological and anti-tumor responses and prolong
survival.

ONCOPHAGE CLINICAL PROGRAMS

RENAL CELL CARCINOMA

BACKGROUND. Renal cell carcinoma is the most common type of kidney cancer. The
American Cancer Society estimates that physicians will diagnose about 31,800 new
cases of kidney cancer in the United States in 2002 and that the disease will
kill approximately 11,600 people in 2002. Approximately 70% of the 31,800
patients newly diagnosed with kidney cancer will have the specific type of
kidney cancer known as renal cell carcinoma. By the time renal cell carcinoma is
diagnosed in these patients, about one-third of them will have developed
metastatic disease.

The median survival of patients with metastatic renal cell carcinoma is
approximately 12 months. For patients with metastatic disease, the only FDA
approved treatment is intravenous high-dose interleukin-2, a human cytokine. The
response rate, which includes partial responses and complete responses, of
patients who are treated with high-dose interleukin-2 is approximately 15%.
Treatment with high-dose interleukin-2 often causes severe adverse side effects.
These side effects often can lead to discontinuation of treatment. Although not
FDA-approved for the treatment of renal cell carcinoma, a lower-dose of
interleukin-2 injected underneath the skin, or subcutaneously, either alone or
in combination with other cytokines, has become a treatment option. This
treatment regimen has been the subject of a number of studies with widely
varying outcomes, none of which have demonstrated any survival benefit.

CLINICAL TRIALS. In a Phase I/II trial, we enrolled patients with measurable
metastatic renal cell carcinoma. Of the 34 evaluable patients, 13 patients
responded or had stable disease. Four patients had a partial response, and one
patient had a minor response. The other eight patients showed stabilization of
their disease. Three of these patients had been stable for more than 10 months
at the time the trial was concluded. The response rate in this trial, which does
not include patients with a minor response or stable disease, was 12% and no
serious adverse events were associated with treatment with Oncophage. The median
survival in this trial is 13 months.

A 60 patient Phase II trial for patients with metastatic renal cell carcinoma
was initiated at M.D. Anderson Cancer Center in March 1999. In an interim
analysis of the Phase II study, 35% of the patients treated with Oncophage alone
showed an improvement in the course of the disease. Oncophage received Fast
Track designation for the treatment of renal cell carcinoma in October 2001.
Oncophage is the first personalized cancer vaccine to receive Fast Track
designation. In 2001, we initiated a Phase III, multicenter, international trial
for renal cell carcinoma in which we have now enrolled 150 patients.

MELANOMA

BACKGROUND. Melanoma is the most serious form of skin cancer. The American
Cancer Society estimates that physicians will diagnose about 53,600 new cases of
melanoma in the United States in 2002 and that the disease will kill
approximately 7,400 people in 2002. The incidence of melanoma is growing at a
rate of 4-7% per year, which is substantially faster than the growth in
incidence rates of most other cancers. Oncologists treat advanced or metastatic
melanoma, also known as stage III or IV, with surgery, radiation therapy,
immunotherapy, or chemotherapy depending on the case. Approximately 20% of all
melanoma patients at the time of their first diagnosis have stage III or stage
IV disease. Existing treatments have not significantly improved overall survival
of patients with melanoma. The median survival of patients with stage III
melanoma varies widely according to published literature. According to published
literature, the median survival of patients with late stage III melanoma is 24
months and patients with stage IV melanoma have a median survival of about seven
months. Although oncologists use various treatments, the only FDA approved
therapies for patients with metastatic melanoma are high-dose intravenous
interleukin-2 and alpha interferon, another human cytokine.

CLINICAL TRIALS. We have treated 36 patients in a Phase I/II clinical trial,
evaluating Oncophage as a treatment for late stage III and early stage IV
metastatic melanoma, as well as 28 patients in a Phase II clinical trial in
patients with stage IV disease. In the Phase II trial, five patients responded
favorably to Oncophage including two in whom all evidence of melanoma
disappeared for more than two years. Oncophage vaccination also generated
anti-melanoma immune response in more than one-half of the patients. We
presented the results of the Phase II trial both at the American Society of
Clinical Oncology (ASCO) meeting in May 2001 and the American Association for
Cancer Research (AACR) meeting in

October 2001 where it was selected by the conference organizers as one of six
presentations out of over 800 to be highlighted and presented to the press. In
February 2002, Oncophage received Fast Track designation for the treatment of
metastatic melanoma.

We initiated a Phase III trial in metastatic melanoma in February 2002, and are
in the final stages of trial design for a second Phase III trial in melanoma
planned to start later in 2002.

OTHER CANCERS

COLORECTAL. We have completed enrollment of a 30 patient Phase II clinical trial
evaluating Oncophage as a treatment for metastatic colorectal cancer. Interim
data from 29 patients with advanced colon cancer that had spread to the liver
indicates that Oncophage therapy generated anti-colon cancer immune response in
close to half of the patients. Although the study was not designed to evaluate
clinical effectiveness, a small group of patients with favorable prognostic
factors who received Oncophage were cancer-free longer than expected. This data
will be available in an abstract at the ASCO meeting in 2002.

GASTRIC. We completed enrollment of a 30 patient Phase I/II clinical trial
evaluating Oncophage as a treatment for metastatic gastric cancer. We conducted
this trial with clinical investigators at the Johannes Gutenberg-University
Hospital in Mainz, Germany, Technical University of Munich in Germany, and the
Russian Oncology Research Center in Moscow, Russia. We will be presenting data
from this trial at the ASCO meeting in 2002.

PANCREATIC. In early 1999, we completed a pilot Phase I clinical trial
evaluating Oncophage as a treatment for resectable pancreatic cancer. We
conducted the trial with clinical investigators at the Memorial Sloan-Kettering
Cancer Center and enrolled 15 patients. The clinical investigators treated five
of the 15 patients with five micrograms of Oncophage after physicians had
removed each patient's primary tumor. Two out of five patients generated a
T-cell response to their tumor after treatment with Oncophage. We successfully
prepared Oncophage from five of 15 pancreatic cancer samples we received in
our manufacturing facility. We were not able to prepare Oncophage from the
remaining tumor samples due to the presence of enzymes in the pancreatic tissue
that break down proteins, including heat shock proteins. Since improving our
manufacturing process for pancreatic cancer, we have successfully produced
vaccine from six of eight additional patients, one of whom was not treated
because of other exclusion criteria. The remaining two patient batches were
unsuccessful due to the miniscule size of the tumor (<1g). The five patients for
whom we could successfully prepare vaccine and who were treated are now
evaluated together with the initial five patients for survival. We expect to
present data from this trial within the next 12 months.

NON-HODGKIN'S LYMPHOMA. We are enrolling patients in a 35 patient Phase II
clinical trial evaluating Oncophage as a treatment for low-grade indolent
non-Hodgkin's lymphoma. This trial is being conducted by clinical investigators
at the M.D. Anderson Cancer Center.

MANUFACTURING

Oncophage is manufactured in a 58,725 square foot manufacturing and research and
development facility located in Woburn, Massachusetts. The facility's
manufacturing capacity is between 7,000 and 10,000 patient tumors per year and
on average, it takes less that eight hours of direct processing time to
manufacture a patient batch of Oncophage. We also have the potential for further
capacity expansion in the existing facility within a relatively short time
period if necessary.

After manufacturing Oncophage, the vaccine is fully tested and released by our
quality systems staff. The quality control organization performs a series of
release assays designed to ensure that the product meets all applicable
specifications. Our quality assurance staff also reviews manufacturing and
quality control records prior to batch release to assure conformance with Good
Manufacturing Practices as mandated by the FDA and worldwide regulatory
agencies.

Our Oncophage manufacturing staff is rigorously trained and routinely evaluated
for conformance to manufacturing procedures and quality standards. This
oversight is necessary to ensure compliance with FDA regulations and to provide
consistent vaccine output. Our quality control/quality assurance staff is
similarly trained and evaluated as part of our effort to ensure consistency in
the testing and release of the product, materials, equipment and facilities.

AROPLATIN

INTRODUCTION

Aroplatin, also known as L-NDDP, is a liposomal formulation of NDDP
(cis-bis-neodecanoato-trans-R,R-1,2-diaminocyclohexane platinum(II)) and is a
novel platinum compound similar to oxaliplatin, a drug that is approved and
marketed in Europe for the treatment of colorectal cancer. We acquired Aroplatin
through our acquisition of Aronex Pharmaceuticals, Inc. in July 2001.

Platinum compounds have become mainstays of cancer chemotherapy. Platinums, in
the form of cisplatin and carboplatin, are effective anti-tumor agents against
solid tumors. Unfortunately, cisplatin and carboplatin are not always effective
because some tumors are initially resistant or develop resistance to these
drugs. More importantly, these drugs can cause considerable toxicity, which
commonly affects the kidneys, nervous system or bone marrow. In the case of
cisplatin, these side effects can be particularly severe and can limit cisplatin
as a treatment for patients. Because of these drawbacks, better platinum drugs
are needed.

Aroplatin has been designed to substantially reduce the drug resistance often
associated with current platinum drugs. We expect Aroplatin to induce better
clinical responses in patients with solid tumors. Aroplatin's liposomal
encapsulation is structured to change the toxicity profile of the compound and
also to increase the bioavailability, or access to cancer cells, of the
compound. Additionally, in vitro testing of Aroplatin has demonstrated activity
against platinum-resistant cancers. We plan to initiate Phase II clinical trials
of Aroplatin in colorectal and pancreatic cancers in 2002. We are also
developing the clinical strategy to investigate Aroplatin in a Phase II trial in
ovarian cancer in 2002.

AROPLATIN CLINICAL PROGRAMS

COLORECTAL CANCER

BACKGROUND. Colorectal cancer is cancer of the colon or rectum. The American
Cancer Society estimates that physicians will diagnose about 148,300 new cases
of colorectal cancer in the United States in 2002 and that this disease will
kill approximately 56,600 people during 2002.

For patients whose disease has not spread to other parts of the body, surgery
remains the most common treatment and can be curative in greater than two thirds
of these cases. For patients whose disease has metastasized to other parts of
the body, treatment options are limited, and the patients' prognoses are poor.
Some patients with recurrence of advanced disease may have their metastatic
lesions removed by surgery. The median survival for these patients is
approximately 12 months. Conventional cancer treatments such as chemotherapy and
radiation have shown limited benefit in treating colorectal cancer.

TRIALS. Seven clinical studies have been initiated at M.D. Anderson Cancer
Center to determine the safety and efficacy of Aroplatin in a variety of
malignancies. Phase I studies of Aroplatin demonstrated relatively fewer
toxicities to the kidneys or nervous system than would be expected with a
traditional platinum agent. The dose limiting side effect was bone marrow
toxicity. Several patients in the early studies showed anti-tumor activity in a
variety of tumor types, including breast, renal cell, and malignant
mesothelioma. We plan to initiate a Phase II trial in colorectal cancer in 2002.

PANCREATIC CANCER

BACKGROUND. Pancreatic cancer is the fourth leading cause of cancer death in the
United States. The American Cancer Society estimates that physicians will
diagnose about 30,300 new cases of pancreatic cancer in the United States in
2002 and that the disease will kill approximately 29,700 people in 2002.

The main treatments for pancreatic cancer are surgery and chemotherapy. Large
studies in pancreatic cancer show that patients who have had tumors surgically
removed have a 5-year survival of only 10 to 25% and a median survival of 10 to
20 months. For patients with tumors that cannot be surgically removed,
physicians treat patients with chemotherapy. The median survival for these
patients is less than ten months.

TRIALS. We plan to initiate a Phase II trial for Aroplatin in pancreatic cancer
in 2002.

MANUFACTURING

Aroplatin is manufactured for us by contract manufacturers. These contract
manufacturers also produce drug products for other pharmaceutical companies at
clinical and commercial scale and are regularly

inspected and qualified by U.S. and foreign regulatory agencies. Due to the
nature of our relationship with the contract manufacturers, we are free to
qualify and use any contract manufacturer we choose.

Aroplatin is formulated and filled at SP Pharmaceuticals, a division of Cardinal
Health. SP Pharmaceuticals currently produces Aroplatin in clinical lot sizes up
to 7000 vials of 100 mg NDDP per vial and is capable of scaling the process to
commercial lot size.

ATRA-IV

ATRA-IV is a liposomal formulation of ATRA, all-trans-retinoic acid that can be
given intravenously. ATRA is a derivative of retinol, otherwise known as vitamin
A. We acquired ATRA-IV, formerly known as ATRAGEN, through our acquisition of
Aronex Pharmaceuticals, Inc. in July 2001.

The oral formulation of ATRA has been proven to be active against a range of
malignancies in isolated tissue culture systems and in human trials, but the
duration of this effect has been transient. Recent evidence indicates that the
basis for the limited duration of activity for oral tretinoin in one form of
leukemia is a pharmacological adaptation that results in reduced blood levels of
the drug after prolonged treatment. The development of ATRA-IV provides a
formulation of ATRA therapy capable of sustaining blood concentration of
tretinoin after prolonged courses of therapy.

ATRA-IV offers the advantage of decreased direct exposure of normal tissues to
the active ingredient during circulation to levels below the orally administered
toxic dosage. This effect has the potential to minimize or lessen the severity
of toxicities associated with oral retinoid therapy.

The FDA has granted approval to a third party for an oral formulation of ATRA as
a treatment for acute promyelocytic leukemia. In September 2001, based on our
discussions with the FDA, we announced that an accelerated approval of ATRA-IV
in acute promyelocytic leukemia was unlikely. As noted above, we are now
focusing our development strategy for ATRA-IV on other cancer indications that
represent larger market opportunities.

We are also developing the clinical strategy to investigate ATRA-IV in a Phase
II trial in one or more hematological malignancies in 2002.

MANUFACTURING

Like Aroplatin, ATRA-IV is manufactured for us by contract manufacturers.

ATRA-IV is formulated and filled for us by Ben Venue Laboratories or SP
Pharmaceuticals, a division of Cardinal Health at a scale of approximately 7000
vials of 100 mg tretinoin per vial. Both Ben Venue and SP Pharmaceuticals are
capable of producing commercial scale quantities of ATRA-IV.

AG-702 FOR THE TREATMENT OF GENITAL HERPES

AG-702 is our first heat shock protein-based therapy for an infectious disease.
Each infectious disease is generally caused by an identified pathogen.
Accordingly, we use a human heat shock protein bound to disease-specific
peptides derived from the target pathogen. Our therapeutic products for
infectious diseases, such as AG-702, will be "off-the-shelf" products in that
regard and therefore will be disease-specific rather than patient-specific.

BACKGROUND. Genital herpes is caused by Herpes Simplex Virus type 2 (HSV-2), a
contagious viral infection that affects an estimated 45 million Americans.
Physicians estimate that up to 500,000 new cases may occur each year in the
United States. Genital herpes is currently treated with palliative antiviral
agents that reduce further replication of the virus. The challenge of antiviral
therapy lies not only in treatment of the symptoms during the first and
recurrent episodes but also in the long-term suppression of the herpes virus in
patients with frequent recurrences.

TRIALS. We initiated a Phase I clinical trial in the fourth quarter of 2001 at
The University of Washington that is currently enrolling subjects. We expect to
present data from this trial by the end of the fourth quarter of 2002.

MANUFACTURING

We manufacture AG-702 in our 58,725 square foot manufacturing and research and
development facility located in Woburn, Massachusetts. We currently produce
AG-702 by binding a specific antigenic peptide with heat shock proteins in
vitro.

QS-21 BASED PRODUCTS

INTRODUCTION

QS-21 is best known for its ability to stimulate antibody, or humoral immune
response, and has also been shown to activate cellular immunity. QS-21 is a
natural product, a triterpene glycoside or saponin, purified from the bark of a
South American tree called Quillaja saponaria. Up to 10% of the bark from
Quillaja is composed of saponins, of which QS-21 is typically one of the more
predominant. QS-21 is well characterized with a known molecular structure, thus
distinguishing it from other adjuvant candidates, which are typically emulsions,
polymers or biologicals.

QS-21 has been tested in over 3,100 patients in more than 50 clinical trials and
has proven to be significantly more effective in stimulating antibody responses
than aluminum hydroxide or aluminum phosphate, the only adjuvants used in
approved vaccines in the United States today.

Numerous studies have shown that the use of QS-21 adjuvant improves the quality
of the immune response. Adding QS-21 to antigens generally broadens the type of
antibody produced and increases the titer or amount of antibodies produced.
These properties are expected to provide better protection against certain
pathogens for which no effective vaccine is available. These properties are also
expected to enhance the effectiveness of existing vaccines by increasing the
proportion of patients who achieve protective antibody titers. QS-21 is potent
and active at microgram doses when used with many types of antigens, including
recombinant proteins derived from viruses and bacteria as well as polysaccharide
antigens from bacterial pathogens.

In addition to our internal product development programs, we have seven
corporate partners that have licensed QS-21 for a variety of human diseases. Our
QS-21 partners are GlaxoSmithKline, P.L.C., Wyeth-Lederle Vaccines and
Pediatrics, Aventis Pasteur, Progenics Pharmaceuticals, Inc., Vaxgen, Inc., Elan
Corporation, P.L.C. and Green Cross Vaccine Corp. In return for rights to use
QS-21, the corporate partners agreed to pay us license fees, milestone payments,
and royalties on product sales. We have retained worldwide manufacturing rights
for QS-21. In addition to our corporate partners, we have developed a number of
academic collaborations to test new vaccine concepts and products containing
QS-21.

INTERNAL QS-21 PROGRAMS

QUILIMMUNE-P

Quilimmune-P consists of QS-21 and a multivalent conjugate vaccine containing
more immunogenic bacterial antigens than those used in commercial Streptococcus
pneumonia vaccines.

Streptococcus pneumoniae infections in the elderly can cause serious disease.
There are approximately 35 million people over the age of 65 in the United
States and an additional 36 million adults with immune compromising conditions
who are at risk for developing disease caused by S. pneumoniae. There are over
80 recognized serotypes of pneumococci, each with varying geographic and age
group prevalence.

The commercially available vaccines against S.pneumoniae are sub-optimal.
Reports in the medical literature and confirmed in our own studies indicate that
only 60-70% of healthy volunteers and 50-60% of the elderly administered the
current vaccine respond with a two-fold or greater increase in the level of
specific antibody.

We have collected data from a Phase I clinical trial of Quilimmune-P and intend
to present this data at a medical conference in 2002. We believe that QS-21 will
improve immune responses to the pneumococcal antigens and thus provide
protection against infection in a larger proportion of patients.

We expect that data from our Quilimmune-P program will also demonstrate the
value of using QS-21 in conjugate vaccines, an important subset of vaccines
designed to convert poorly immunogenic antigens into more immunogenic antigens.

FELV/QA-21 VACCINE

Our FeLV vaccine is a recombinant subunit vaccine that uses an immune stimulant
QA-21, which is in the same family as QS-21. The product is a prophylactic
vaccine for feline leukemia, a highly contagious and commonly fatal disease in
cats. The product was approved in 1990 in the United States and in 1991 in
Europe and it represents 100% of our current product sales. We manufacture the
product and sell it to Virbac S.A. and Virbac Australia, who market it in
Europe, Australia, and Japan under their registered trademark Leucogen(R). We
manufacture formulated product for Virbac's Australian division and supply
Virbac's European division with bulk FeLV antigen and QA-21 adjuvant for the
European and Japanese markets.

FeLV vaccine is provided to Virbac through two agreements: a license agreement
and a supply agreement. The license agreement provides Virbac exclusive,
perpetual, worldwide rights to market Leucogen. The supply agreement will be up
for renewal in July 2002 and we anticipate that the supply agreement will be
renewed.

We generated $1,606,000, $363,000 and $0 in revenues from product sales outside
of the United States in 2001, 2000 and 1999 respectively, compared with no
revenues from product sales in the United States during the same periods. We
have no material long-term assets located outside of the United States.

PARTNERED QS-21 PROGRAMS

GLAXOSMITHKLINE

GlaxoSmithKline, P.L.C. has licensed QS-21 for a number of different
applications. GlaxoSmithKline has completed a number of clinical trials of
potential products containing QS-21 and is also investigating the use of
combinations of different adjuvants that include QS-21. A study published in
December 2001 in The Lancet reported that a GlaxoSmithKline malaria vaccine
containing QS-21 showed protection against the most widespread and dangerous
form of this disease. This was the first ever demonstration of significant
protection against this disease in a field study.

GlaxoSmithKline is advancing a number of vaccine programs containing QS-21
through preclinical and clinical stages. To date, 16 indications are in, or have
progressed through the preclinical research phase. Eight of these have completed
Phase I clinical studies and seven are undergoing or have completed Phase II
studies. Two additional indications will commence Phase II studies in 2002 and
2003.

WYETH-LEDERLE VACCINES AND PEDIATRICS

Wyeth-Lederle Vaccines and Pediatrics licensed QS-21 in 1992 for use in five
vaccines. Wyeth-Lederle has completed a Phase I clinical trial of one of the
vaccines using QS-21. Other Wyeth-Lederle indications are in preclinical
development. Wyeth-Lederle intends to initiate an additional Phase I study in
2003.

AVENTIS PASTEUR

Aventis Pasteur has licensed QS-21 for use in its HIV vaccine programs and has
completed a number of clinical trials using different antigens. Phase I results
were published in July 2001 in the journal AIDS, a leading peer reviewed HIV
journal.

PROGENICS PHARMACEUTICALS, INC.

Progenics Pharmaceuticals, Inc. has licensed QS-21 for use in certain
therapeutic products for cancer including, its GMK and MGV ganglioside vaccines.
Progenics is completing a follow-up of a GMK Phase III clinical trial in
melanoma with those at high risk of relapse. Progenics has also initiated a
pivotal Phase III clinical trial of GMK in a different patient population, those
at intermediate risk of recurrence of disease.

VAXGEN, INC.

Vaxgen, Inc. has licensed QS-21 and the HIV protein gp120 for use in its HIV-1
vaccine program. HIV gp120 is the antigen used in Vaxgen's preventative AIDSVAX
vaccine for HIV, which is currently in Phase III trials. Vaxgen has also
conducted a number of Phase I clinical trials in healthy volunteers with a
product formulated with QS-21. In these trials, volunteers received very low
doses of gp120 antigen combined with QS-21 and/or another adjuvant. These
product formulations gave patients an immune response equal to or better than
the high dose gp120 without QS-21.

ELAN CORPORATION

Elan Corporation, p.l.c., through its wholly owned subsidiary, Neuralab Limited,
has licensed QS-21 for use with an antigen in the field of Alzheimer's disease.
Elan initiated a multicenter Phase IIA trial of a product using QS-21, called
AN-1792, in 2001. Under the terms of our license agreement with Elan, we
received a $1,000,000 milestone payment in December 2001 related to the
initiation of this trial. In March 2002 Elan halted dosing of patients with
AN-1792 after several patients in this clinical trial experienced significant
adverse side effects.

MANUFACTURING

We manufacture QS-21 at a 40,000 square foot facility in Framingham,
Massachusetts. We are capable of producing up to 2 million doses per batch at
this facility. We believe that this production capacity will support initial,
large-scale commercial production.

The FDA classifies QS-21 as a constituent material used in vaccine preparation.
As a result, the FDA does not require licensing of facilities used for the
manufacture of QS-21. We believe that this

classification affords flexibility in the timing of investment in commercial
manufacturing facilities and will allow us to adjust the scale of manufacturing
quickly if additional partner products reach the market.

We also manufacture the FeLV vaccine antigen and the associated QA-21 adjuvant
(a less pure formulation of QS-21) for our FeLV vaccine at our Framingham
facility. We produce commercial quantities of this product at the 400-liter
fermentation scale.

DISCOVERY PROGRAMS

CD91

Autoimmune disorders result from an inappropriate immune response that targets
and destroys normal tissue. While researchers have not definitively determined
what triggers autoimmune responses, many believe that both genetic and
environmental factors are involved in this process. Several autoimmune
disorders, including diabetes and multiple sclerosis, result in the
proliferation of misdirected T-cells that attack normal tissues. We believe that
a therapeutic product that can turn off misdirected T-cell responses could treat
these disorders.

One of our most innovative research projects is the study of the CD91 receptor,
the pathway through which heat shock proteins activate cellular immune response.
As a therapeutic target, the CD91 receptor presents a unique opportunity for
controlling human immune response. Although too early for a definitive answer,
the CD91 receptor may address the unmet challenges of autoimmune disorders such
as diabetes, arthritis and multiple sclerosis. CD91 was recently discovered by
our Chief Scientific Officer, Pramod K. Srivastava, as the receptor responsible
for the uptake of heat shock protein-peptide complexes by dendritic cells.
Dendritic cells are recognized as playing a central role in mounting the
cellular immune response. Based on this discovery, we have initiated a screening
program to identify compounds that may modulate HSP-receptor interaction.
Resultant compounds that modulate this interaction are expected to represent
important leads in developing new treatments for several major autoimmune
disorders and possibly for cancer and infectious diseases. The table below
describes the different effects that could be achieved by modulating the
HSP-CD91 receptor interaction.

--------------------------------------------------------------------------------------------------------------------
Application Desired immune Accomplished by Drug type
modulation
--------------------------------------------------------------------------------------------------------------------

Autoimmune Turn T-cells off - Blocking HSP-CD91 interaction - Small molecule or antibody
disease

- Increasing levels of CD91
antagonists

- Small molecule or antibody
--------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------

Cancer and Activate T-cells - Enhancing HSP-CD91 - Small molecule or antibody
infectious interaction
disease

- Decreasing levels of CD91
antagonists - Soluble CD91 receptor
--------------------------------------------------------------------------------------------------------------------

CD1

Until recently, scientists believed that antigen presenting cells of the immune
system processed and presented antigens as peptides through two mechanisms, the
Class I and the Class II MHC pathways. Recent discoveries have demonstrated that
there is a third pathway, called the CD1 pathway, through which antigens with
lipid tails are presented. Several researchers have shown that elevated CD1
expression and activation of CD1-restricted T-cell responses are linked to
immunity against microbial pathogens such as those that cause leprosy (M.
leprae) and tuberculosis (M. tuberculosis).

Through our CD1 discovery program, we intend to identify lipid antigens that may
be incorporated into vaccines targeting a number of diseases that are
inadequately treated today.

In addition, the important T-cell subset designated natural killer (NK) T-cells,
specifically recognizes foreign and perhaps self-antigens in the context of CD1
antigen presentation. Studies suggest that these T-cells play a role in tumor
rejection and in regulating autoimmunity. We are evaluating development
strategies for products that are expected to modulate NK T-cells to treat a
number of diseases.

INTELLECTUAL PROPERTY PORTFOLIO

We devote significant resources to protecting and expanding our intellectual
property portfolio. We seek to protect our core technologies through a
combination of patents, trade secrets, and know-how. We currently have exclusive
rights to 73 issued United States patents and 66 foreign patents. We also have
rights to 81 pending United States patent applications and 98 pending foreign
patent applications. Our issued patents cover our core technologies including
(i) HSPs such as Oncophage for treatment of cancers; (ii) HSPs such as AG-702
for treatment of infections; (iii) HSPs for treatment of autoimmune disorders;
(iv) saponin adjuvants such as QS-21; and (v) liposomal drugs, including
Aroplatin and ATRA-IV. Several patent applications are directed to the HSP
receptor, CD91, our lead discovery program.

It is worth noting that:

- patent applications in the United States are currently maintained in
secrecy until they are published, generally 18 months after they are
first filed in any country;

- patent applications in other countries, likewise, generally are not
published until 18 months after they are first filed in any country;

- publication of technological developments in the scientific or patent
literature often lags behind the date of these developments; and

- searches of prior art may not reveal all relevant prior inventions.

In addition to our patents, we rely on our trade secrets and know-how to provide
a competitive advantage, and we intend to continue to develop and protect this
proprietary information. We take active measures to control access to know-how
and trade secrets through confidentiality agreements, which we require all of
our employees, consultants and scientific collaborators to execute upon the
commencement of an employment or consulting relationship with us. These
agreements generally provide that all confidential information developed or made
known to the individual by us during the course of the individual's relationship
with us is to be kept confidential and not disclosed to third parties except in
specific circumstances. In the case of employees and consultants, the agreements
generally provide that all inventions conceived by the individual in the course
of rendering services to us are assigned to us and become our exclusive
property.

REGULATORY CONSIDERATIONS

Governmental authorities in the United States and other countries extensively
regulate the preclinical and clinical testing, manufacturing, labeling, storage,
record keeping, advertising, promotion, export, marketing and distribution,
among other things, of our investigational products. In the United States, the
FDA under the Federal Food, Drug, and Cosmetic Act, the Public Health Service
Act and other federal statutes and regulations, subject pharmaceutical products
to rigorous review.

In order to obtain approval of a new product from the FDA, we must, among other
requirements, submit proof of safety and efficacy as well as detailed
information on the manufacture and composition of the product. In most cases,
this proof entails extensive preclinical, clinical, and laboratory tests. The
FDA may also require post-marketing testing and surveillance to monitor the
effects of approved products or place conditions on any approvals that could
restrict the commercial applications of these products.

The first stage of the FDA approval process for a new biologic or drug involves
completion of preclinical studies and the submission of the results of these
studies to the FDA. This, together with proposed clinical protocols,
manufacturing information, analytical data and other information, in an
investigational new drug application, or IND, must become effective before human
clinical trials may commence.

Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product. The FDA
regulates preclinical studies under a series of regulations called the current
"Good Laboratory Practices" regulations. If the sponsor violates these
regulations, in some cases, the FDA may invalidate the studies and require that
the sponsor replicate those studies.

After the IND becomes effective, a sponsor may commence human clinical trials.
The sponsor typically conducts human clinical trials in three sequential phases,
but the phases may overlap. In Phase I trials, the sponsor tests the product in
a small number of patients or healthy volunteers, primarily for safety at one or
more doses. In Phase II, in addition to safety, the sponsor evaluates the
efficacy of the product in a patient population somewhat larger than Phase I
trials. Phase III trials typically involve additional testing

for safety and clinical efficacy in an expanded population at geographically
dispersed test sites. The sponsor must submit to the FDA a clinical plan, or
"protocol," accompanied by the approval of the institution participating in the
trials, prior to commencement of each clinical trial. The FDA may order the
temporary or permanent discontinuation of a clinical trial at any time.

The sponsor must submit to the FDA the results of the preclinical and clinical
testing, together with, among other things, detailed information on the
manufacture and composition of the product, in the form of a new drug
application or, in the case of a biologic, like Oncophage, a biologics license
application. In a process which can take a year or more, the FDA reviews this
application and, when and if it decides that adequate data is available to show
that the new compound is both safe and effective and that other applicable
requirements have been met, approves the drug or biologic for marketing. The
amount of time taken for this approval process is a function of a number of
variables, including the quality of the submission and studies presented, the
potential contribution that the compound will make in improving the treatment of
the disease in question, and the workload at the FDA.

Congress enacted the Food and Drug Administration Modernization Act of 1997 in
part to ensure the availability of safe and effective drugs, biologics, and
medical devices by expediting the FDA review process for new products. The
Modernization Act establishes a statutory program for the approval of Fast Track
products, including biologics. A Fast Track product is defined as a new drug or
biologic intended for the treatment of a serious or life-threatening condition
that demonstrates the potential to address unmet medical needs for this
condition. Under the Fast Track program, the sponsor of a new drug or biologic
may request the FDA to designate the drug or biologic as a Fast Track product at
any time during the clinical development of the product. This designation
assures access to FDA personnel for consultation throughout the development
process as well as a six month review of marketing applications for the
designated product. Our lead product, Oncophage, has been designated by the FDA
as a Fast Track product in renal cell carcinoma and melanoma. We cannot predict
whether these designations will impact the timing or likelihood of FDA approval
of Oncophage.

The Modernization Act specifies that the FDA must determine if the product
qualifies for Fast Track designation within 60 days of receipt of the sponsor's
request. The FDA can base approval of a marketing application for a Fast Track
product on an effect on a clinical endpoint or on another endpoint that is
reasonably likely to predict clinical benefit. The FDA may subject approval of
an application for a Fast Track product to:

- post-approval studies to validate the surrogate endpoint or confirm
the effect on the clinical endpoint; and

- prior review of all promotional materials.

In addition, the FDA may withdraw its approval of a Fast Track product on a
number of grounds, including the sponsor's failure to conduct any required
post-approval study with due diligence.

If a preliminary review of the clinical data suggests that a Fast Track product
may be effective, the FDA may initiate review of sections of a marketing
application for a Fast Track product before the sponsor completes the
application. This rolling review is available if the applicant provides a
schedule for submission of remaining information and pays applicable user fees.
However, the time periods specified under the Prescription Drug User Fee Act
concerning timing goals to which the FDA has committed in

reviewing an application, do not begin until the sponsor submits the
application.

The Orphan Drug Program provides a mechanism for FDA to acknowledge that a
product is designed to treat a disease with limited prevalence. An Orphan Drug
designation bestows certain advantages including extending marketing exclusivity
if the product is ultimately approved for marketing, considerations in trial
size and design based on the actual patient population, and tax credits for some
research and development expenses. We hold orphan designations for ATRA-IV and
Aroplatin. In addition, we have submitted requests for and are actively
negotiating orphan designations for Oncophage in renal cell carcinoma and in
melanoma and ATRA-IV in lymphoma.

The FDA may, during its review of a new drug application or biologics license
application, ask for additional test data. If the FDA does ultimately approve
the product, it may require post-marketing testing, including potentially
expensive Phase IV studies, and surveillance to monitor the safety and
effectiveness of the drug. In addition, the FDA may in some circumstances impose
restrictions on the use of the drug that may be difficult and expensive to
administer, and may require prior approval of promotional materials.

Before approving a new drug application or biologics license application, the
FDA will inspect the facilities at which the product is manufactured and will
not approve the product unless the manufacturing facilities are in compliance
with current Good Manufacturing Practices. In order to accomplish this
inspection, a local field division of the FDA is responsible for completing this
inspection and providing a recommendation for or against approval. We are in
close communication with the field division of the FDA regarding our
manufacturing facilities. This effort is intended to assure appropriate facility
and process design to avoid potentially lengthy delays in product approvals due
to inspection deficiencies.

Following approval, the manufacture, holding, and distribution of a product must
be in compliance with current Good Manufacturing Practices. Manufacturers must
expend time, money, and effort in the area of production and quality control and
record keeping and reporting to ensure full compliance with those requirements.
The labeling, advertising, promotion, marketing, and distribution of a drug or
biologic product must be in compliance with FDA regulatory requirements. Failure
to comply with applicable requirements can lead to the FDA demanding that
production and shipment cease, and, in some cases, that the manufacturer recall
products, or to enforcement actions that can include seizures, injunctions, and
criminal prosecution. These failures can also lead to FDA withdrawal of approval
to market the product.

We are also subject to regulation by the Occupational Safety and Health
Administration and the Environmental Protection Agency and to regulation under
the Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other regulatory statutes, and may in the future be subject to other federal,
state or local regulations. Either or both OSHA and/or the EPA may promulgate
regulations that may affect our research and development programs.

Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not we have obtained FDA approval, we must obtain approval of a
product by comparable regulatory authorities of foreign countries prior to the
commencement of marketing the product in those countries. The time required to
obtain this approval may be longer or shorter than that required for FDA
approval.

COMPETITION

Competition in the pharmaceutical and biotechnology industries is intense. Many
pharmaceutical or biotechnology companies have products on the market and are
actively engaged in the research and development of products for the treatment
of cancer, infectious diseases, and autoimmune disorders. In addition, many
competitors focus on immunotherapy as a treatment for cancer, infectious
diseases, and autoimmune disorders. In particular, some of these companies are
developing autologous cancer vaccines. Others are focusing on developing heat
shock protein products. We compete for funding, access to licenses, personnel,
and third-party collaborations. In addition, many competitors have substantially
greater financial, manufacturing, marketing, sales, distribution, and technical
resources, and more experience in research and development, clinical trials and
regulatory matters, than we do. A competing company developing, or acquiring
rights to, a more efficacious therapeutic product for the same diseases we
targeted, or one which offers significantly lower costs of treatment, could
render our products noncompetitive or obsolete.

Academic institutions, governmental agencies, and other public and private
research institutions conduct significant amounts of research in biotechnology,
medicinal chemistry, and pharmacology. These entities have become increasingly
active in seeking patent protection and licensing revenues for their research
results. They also compete with us in recruiting and retaining skilled
scientific talent.

We are aware of certain programs and products under development by others that
may compete with our programs and products. Several companies, including
Biomira Inc., CancerVax Corporation, Cell Genesys Inc., Corixa Corporation,
Dendreon Corporation and Genzyme Corporation, are developing treatments for
cancer based on modulation of the immune system, including cancer vaccines. In
addition, several companies, including Pfizer Inc, Bristol Myers-Squibb,
AstraZeneca, and Wyeth, have expertise in, and are developing products for the
treatment of cancer, infectious diseases, and autoimmune disorders.

Certain of our corporate partners have also partnered with direct competitors in
the vaccine adjuvant market, such as Coley Pharmaceutical Group, Corixa
Coporation and Avant Immunotherapeutics. The existence of products developed by
these and other competitors, or other products of which we are not aware or
which other companies may develop in the future, may adversely affect the
marketability of products we develop.

EMPLOYEES

As of February 28, 2002, we had 208 employees, of whom 30 have Ph.D.s and 5 have
M.D.s. Out of the 208 total, 55 are manufacturing and quality control staff, 37
are research and development staff, 24 are clinical affairs staff, 11 are
corporate executives, 4 are information technology staff, 42 are administrative
staff, 9 are finance staff, 9 are facilities staff, 6 are business and
technology development staff, 5 are regulatory affairs staff, 4 are human
resources staff, and 2 are project management staff. None of our employees are
subject to a collective bargaining agreement. We believe that we have good
relations with our employees.

CORPORATE HISTORY

Antigenics L.L.C. was formed as a Delaware limited liability company in 1994 and
was converted to Antigenics, Inc., a Delaware corporation, in February 2000.

ITEM 1A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information regarding our executive officers
and directors, including their age as of March 19, 2002:

NAME AGE TITLE
---- --- -----

Garo H. Armen, Ph.D.............................. 49 Chairman of the Board and Chief Executive Officer
Pramod K. Srivastava, Ph.D....................... 47 Director, Chief Scientific Officer and Chairman of
Scientific Advisory Board
Elma S. Hawkins, Ph.D............................ 45 Vice Chairman
Russell H. Herndon............................... 43 President and Chief Operating Officer
Neal Gordon, Ph.D................................ 40 Senior Vice President of Manufacturing Operations
Noubar Afeyan, Ph.D(3)........................... 39 Director
Gamil G. de Chadarevian.......................... 50 Director and Vice Chairman of the Board
Tom Dechaene(2).................................. 42 Director
Sanford M. Litvack(1)(3)......................... 65 Director
Martin Taylor(1)(2).............................. 49 Director
Samual D. Waksal Ph.D.(2)(3)..................... 54 Director

-----------------
(1) Member of the Compensation Committee
(2) Member of the Audit and Finance Committee
(3) Member Corporate Governance Committee

GARO H. ARMEN, PH.D. co-founded Antigenics in 1994 and has been the Chairman of
the Board and Chief Executive Officer since inception. Dr. Armen was previously
a Senior Vice President of Research for Dean Witter Reynolds, focusing on the
chemical and pharmaceutical industries. Dr. Armen has also served as an
Associate Professor at the Merchant Marine Academy and as a research associate
at the Brookhaven National Laboratory. He currently serves as a director of Elan
Corporation, Plc. and Color Kinetics Inc. Dr. Armen received his Ph.D. degree in
physical chemistry from the City University of New York in 1979. Since 1990, Dr.
Armen has been the managing general partner of Armen Partners, L.P., an
investment partnership specializing in public and private healthcare and
biotechnology investments.

PRAMOD SRIVASTAVA, PH.D. co-founded Antigenics in 1994, has served as the
Chairman of the Scientific Advisory Board since inception and is our Chief
Scientific Officer. Dr. Srivastava is the Director of the Center for
Immunotherapy of Cancer and Infectious Diseases at the University of
Connecticut. He has held positions at Fordham University and the Mount Sinai
School of Medicine. He performed his postdoctoral training at Yale University
and the Sloan-Kettering Institute for Cancer Research. Dr. Srivastava serves on
the Scientific Advisory Council of the Cancer Research Institute, New York, and
was a member of the Experimental Immunology Study Section of the National
Institutes of Health of the United States Government from 1994 until 1999. Dr.
Srivastava is a past recipient of the First Independent Research Support &
Transition Award of the National Institutes of Health (1987), the Irma T.
Hirschl Scholar Award (1988), the Investigator Award of the Cancer Research
Institute, New York (1991), the Mildred Scheel Lectureship (1994), and the Sigma
Tau Foundation Speakership (1996). In 1997, he was inducted into the Roll of
Honor of the International Union against Cancer and was listed in the Who's Who
in Science and Engineering. He is among the twenty founding members of the
Academy of Cancer Immunology. Dr. Srivastava earned his Ph.D. in Biochemistry
from the Centre for Cellular and Molecular Biology, Hyderabad, India. Dr.
Srivastava is a director of Ikonisys, Inc. and CambriaTech Holding S.A.

ELMA S. HAWKINS, PH.D. has served as our Vice Chairman since January 2001 and as
our Senior Vice President from August 1998 until January 2001. From July 1996
through August 1998, Dr. Hawkins served as our Chief Operating Officer. Prior to
her employment with us, Dr. Hawkins served in a number of senior positions at
Genzyme Corporation, including Director of Corporate Development. Dr. Hawkins
has also held positions in preclinical and clinical research at
Warner-Lambert/Parke-Davis and at the Center for the Study of Drug Development
at Tufts Medical School. Dr. Hawkins holds a Ph.D. in medicinal chemistry from
the University of Alabama and an M.B.A. from Boston University. Dr. Hawkins is a
director of Nalari Computing Corporation.

RUSSELL H. HERNDON has served as our President since January 2002 and as our
Chief Operating Officer since January 2001. Mr. Herndon was with Genzyme
Corporation from 1989 through 2000, holding various management positions
including, most recently, President of the Genzyme Tissue Repair Division and,
from 1997 to 1999, Senior Vice President of Genzyme. During his tenure at
Genzyme, Mr. Herndon identified and organized major programs to streamline and
improve operations, implement cost reductions and flexibly and efficiently
expand production capacity. Mr. Herndon received a Bachelor's Degree in biology
from Barton College and attended Harvard Business School for its Program in
Management and Development.

NEAL GORDON, PH.D. has served as Antigenics' Senior Vice President of
Manufacturing Operations since January 2001. Prior to this position he served as
Vice President of Operations from May 1999 and as our Vice President Process
Development from July 1998. Dr. Gordon joined Antigenics in 1998, following ten
years at PerSeptive Biosystems, a division of PE Corporation. Most recently, he
was Senior Director of Chromatography Research and Development, involved in the
development and application of innovative technologies for the purification and
analysis of biopolymers. Earlier he was a product development engineer at
Proctor & Gamble. In 1983, Dr. Gordon obtained a Bachelors Degree in chemical
engineering from McGill University, and a Ph.D. in biochemical engineering from
the Massachusetts Institute of Technology in 1989.

NOUBAR AFEYAN, PH.D. has been a director since 1998. Dr. Afeyan is Chairman and
Senior Managing Director and CEO of Flagship Ventures, a partnership of funds he
co-founded in 1999 including NewcoGen Group, AGTC Funds, and OneLiberty Funds.
Dr. Afeyan was Senior Vice President and Chief Business Officer of Applera Corp.
(formerly PE Corp.) until August 1999. Prior to its acquisition by PE Corp., Dr.
Afeyan was the Chairman and Chief Executive Officer of PerSeptive Biosystems, a
company that he founded in 1987 to develop, manufacture and market instruments
and chemical reagents used to purify, analyze and synthesize biomolecules. Dr.
Afeyan served as Chairman of the Board of ChemGenics Pharmaceuticals, Inc.
during 1996 and 1997. He is also a member of the board of directors of several
private companies. Dr. Afeyan received his undergraduate degree in chemical
engineering from McGill University and his Ph.D. in biochemical engineering from
the Massachusetts Institute of Technology.

GAMIL DE CHADAREVIAN has served as Vice Chairman of the Board since 1995 and as
Executive Vice President International from 1998 to 2001. Until April of 1998,
he was Managing Director of Special Projects at Alza International, responsible
for creating new business opportunities in Europe. From 1992 to 1993, Mr. de
Chadarevian was the Vice President of Corporate Development for Corange London
Limited. Prior to 1992, Mr. de Chadarevian held positions at Pasfin Servizi
Finanziara SpA, GEA Consulenza and Credit Suisse. He is also co-founder and
serves as an advisor to several private health care companies in the United
States and Europe. Mr. de Chadarevian is the co-founder and currently the Vice
Chairman of Ikonisys, Inc. and CambriaTech Holding S.A., which are privately
held companies. He also serves on the Advisory Board of Syntek Capital AG. Mr.
de Chadarevian received a Lic. Oec. Publ. Degree from the University of Zurich
in Switzerland.

TOM DECHAENE has been a director since 1999. Mr. Dechaene is currently the Chief
Financial Officer of SurfCast, Inc. He was with Deutsche Bank from 1991 through
1999, most recently as a director in the Principal Investments Group within the
Equity Capital Markets division. Mr. Dechaene is a director of Color Kinetics
Inc., Veridicom, Inc., Xiam, Inc. and Iconisys, Inc. Mr. Dechaene holds a law
degree from Ghent University, Belgium, a degree in Applied Economics from the
University of Antwerp and an MBA from INSEAD, France.

SANFORD M. LITVACK has been a director since March 2001. From 1994 until 1999,
Mr. Litvack held the position of Senior Executive Vice President and Chief of
Corporate Operations of The Walt Disney Company. Mr. Litvak also served on the
board of directors of The Walt Disney Company, most recently as Vice Chairman of
the board. Prior to joining Disney, Mr. Litvack was a member of the executive
committee and Chairman of the litigation department of the law firm of Dewey
Ballantine. Mr. Litvack received a Bachelor's Degree from the University of
Connecticut and a law degree from Georgetown Law Center.

MARTIN TAYLOR has been a director since June 1999. From 1993 until 1998, Mr.
Taylor held the position of Chief Executive Officer of Barclays Bank Plc. Mr.
Taylor was for some years a member of the UK Government's Council for Science
and Technology and, since November 1999, has been Chairman of the W.H. Smith
Group Plc. In October 1999, he became an advisor to Goldman Sachs International.
He is also a member of the board of directors of Syngenta A.G. and RTL SA. Mr.
Taylor was educated at Balliol College, Oxford University.

SAMUEL D. WAKSAL PH.D. has been a director since September 2001. He is currently
President and Chief Executive Officer of ImClone Systems Incorporated. He spent
the first part of his career in academic medicine. He has served as Visiting
Investigator of the National Cancer Institute, Immunology Branch; Research
Associate of the Department of Genetics, Stanford University Medical School;
Assistant Professor of Pathology at Tufts University School of Medicine; and
Senior Scientist at the Tufts Cancer Research Center. Dr. Waksal has helped
found more than 15 biopharmaceutical companies and sits on the board of Tribeca
Pharmaceutical Corporation, Prororek, Microbes Incorporated, ValiGen
Incorporated and Amerimed Corporation. Dr. Waksal was also a founding board
member of the NY Biotechnology Association and sits on its Executive Committee.
He is also on the Board of Advisors of The Rockefeller University.

ITEM 2. PROPERTIES

We lease approximately 58,725 square feet of laboratory, office and
manufacturing space in Woburn, Massachusetts under a lease agreement that
terminates in August 2003. We have an option to renew the lease for an
additional five-year period with the landlord's consent. We also lease
approximately 40,000 square feet of laboratory, office and manufacturing space
in Framingham, Massachusetts under a lease agreement that terminates in July
2010. We have an option to renew the lease for two additional five-year periods.
In addition we lease 30,000 square feet of laboratory and office space in The
Woodlands, Texas, a suburb of Houston, under a lease that expires in January
2008 which we intend to sublet. We maintain our executive offices in New York,
New York, in an office building in which we lease approximately 10,000 square
feet. Our New York lease terminates in December 2006.

ITEM 3. LEGAL PROCEEDINGS

We have received a Notice of Arbitration filed in the International Chamber of
Commerce Arbitration on September 3, 2001 by DeLaval AB. Antigenics and DeLaval
are parties to a License Agreement concerning technology for the development of
a vaccine against bovine mastitis. We are obligated to make certain payments to
DeLaval upon issuance of certain patents and other related milestones. DeLaval
claims in its arbitration notice that we owe it $1.2 million for milestone
payments in connection with the issuance of certain patents. It is our position
that we have rightfully withheld this payment as an offset against prior
payments exceeding $1.1 million made to DeLaval for issuance of three prior
patents, which DeLaval has wrongfully retained. Subsequent to receiving such
payments, DeLaval informed us that a number of errors had been made in the
application for these patents, several of which are potentially material to the
License Agreement and the underlying technology. Moreover, DeLaval failed to
make one or more corrective filings within the allowable time. DeLaval has
failed and refused to return or credit us for these payments. Accordingly, we
have responded to DeLaval's request for arbitration and intend to defend
vigorously against these claims. The arbitration is in its initial stages, and
thus the outcome is uncertain.

Antigenics, our Chairman and Chief Executive Officer-Garo Armen, and two
brokerage firms that served as underwriters in our initial public offering have
been named as defendants in a civil class action lawsuit filed on November 5,
2001 in the Federal District Court in the Southern District of New York. The
suit alleges that these underwriters charged secret excessive commissions to
certain of their customers in return for allocations of our stock in the
offering. The suit also alleges that shares of our stock were allocated to
certain of the underwriters' customers based upon an agreement by such customers
to purchase subsequent shares of our stock in the secondary market. We intend to
vigorously defend against these claims.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to stockholders for a vote during the fourth quarter
of 2001.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our common stock has been traded on The Nasdaq National Market under the symbol
"AGEN" since February 4, 2000; prior to that date there was no public trading
market for the stock.

The following table sets forth the range of the high and low closing prices for
our common stock for the quarterly periods during which the stock has been
publicly traded:

HIGH LOW
---- ---
2000

First Quarter.......................................... $ 71.500 $ 18.250
Second Quarter......................................... 22.500 10.000
Third Quarter.......................................... 21.750 12.563
Fourth Quarter......................................... 16.500 10.250

2001
First Quarter.......................................... 18.188 10.500
Second Quarter......................................... 21.380 12.500
Third Quarter.......................................... 19.650 11.050
Fourth Quarter......................................... 18.200 12.540

2002
First Quarter (through March 19,2002).................. 16.830 11.750

As of March 19, 2002, there were approximately 3,791 holders of record and
approximately 23,736 beneficial holders of our common stock.

On February 3, 2000 the Securities and Exchange Commission declared our
registration statement on Form S-1 (File No. 333-91747) effective in connection
with the initial public offering of our common stock.

On February 9, 2000, we sold 4,025,000 shares of our common stock (including the
underwriters' overallotment option) at $18 per share to the underwriters. We
received net proceeds in the initial public offering of approximately
$66,229,000 reflecting gross proceeds of $72,450,000 net of underwriter
commissions of approximately $5,071,500 and other offering costs of
approximately $1,149,500.

We have used the following net offering proceeds as of December 31, 2001:
approximately $4,065,000 for fixed asset additions, $825,000 for investments,
$2,979,000 for payments of debt obligations, $1,773,000 for acquisition costs
and $50,010,000 for operations.

We have never paid cash dividends on our common stock and we do not anticipate
paying any cash dividends in the foreseeable future. We currently intend to
retain future earnings, if any, to fund the development of our business.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

We have derived the consolidated balance sheet data set forth below as of
December 31, 2000 and 2001, and the consolidated statement of operations data
for each of the years in the three-year period ended December 31, 2001, from our
audited consolidated financial statements included elsewhere in this annual
report. We have derived the consolidated balance sheet data as of December 31,
1997, 1998, and 1999, and the consolidated statement of operations data for each
of the years ended December 31, 1997 and 1998 from our audited consolidated
financial statements, which are not included in this annual report. These
consolidated financial statements have been audited by KPMG LLP, independent
auditors.

You should read the selected consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to those
consolidated financial statements included elsewhere in this report.

Given our history of incurring operating losses, management believes that it is
more likely than not that any deferred tax assets, net of deferred tax
liabilities, will not be realized. Therefore, there is no income tax benefit in
the consolidated financial statements for periods ended after February 2000
because of a loss before income taxes and the need to recognize a valuation
allowance on net deferred tax assets.

Increases in cash, cash equivalents and marketable securities, total current
assets, total assets, and stockholders' equity in the periods presented below
include the effects of the receipt of net proceeds from our equity offerings and
the exercise of stock options and warrants that totaled approximately $7.6
million, $18.0 million, $41.1 million, $66.8 million, and $0.9 million in 1997,
1998, 1999, 2000, and 2001.

1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Revenue............................ $ -- $ -- $ 581 $ 443 $ 4,555
Operating expenses:
Cost of goods sold................ -- -- -- (363) (1,064)
Research and development.......... (2,725) (5,947) (11,958) (17,575) (31,357)
General and administrative........ (1,589) (3,693) (7,480) (9,190) (13,762)
Acquired in-process research and
development(1)................... -- -- -- (25,800) (34,596)
-------- -------- -------- -------- --------
Loss from operations............... (4,314) (9,640) (18,857) (52,485) (76,224)
Interest income, net............... 481 736 723 5,756 2,683
Non-operating income............... -- -- 10 -- --
-------- -------- -------- -------- --------
Net loss(2)........................ $ (3,833) $ (8,904) $(18,124) $(46,729) $(73,541)
======== ======== ======== ======== ========
Net loss per share, basic and
diluted........................... $ (0.25) $ (0.54) $ (1.00) $ (1.90) $ (2.61)
======== ======== ======== ======== ========
Weighted average number of
shares outstanding, basic and
diluted........................... 15,401 16,459 18,144 24,659 28,143
======== ======== ======== ======== ========

-------- -------- -------- -------- --------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(in thousands)
CONSOLIDATED BALANCE SHEET DATA:

Cash, cash equivalents and
marketable securities............. $13,086 $22,168 $ 46,418 $99,139 $60,868
Total current assets............... 13,246 22,447 47,672 101,593 63,987
Total assets....................... 14,090 26,636 56,004 127,966 93,546
Total current liabilities.......... 878 2,285 2,171 8,611 16,208
Long-term liabilities, less
current portion................... -- 709 2,155 2,651 1,414
Stockholders' equity............... 13,212 23,641 51,678 116,703 75,925

--------------------
(1) We recorded non-recurring charges to operations for the write-off of
in-process research and development acquired in our mergers with
Aquila Biopharmaceuticals Inc. in November 2000 and with Aronex
Pharmaceuticals Inc. in July 2001.

(2) Prior to our conversion from a limited liability company to a
corporation in February 2000, in accordance with federal, state, and
local income tax regulations which provide that no income taxes are
levied on United States limited liability companies, each member of
the limited liability company was individually responsible for
reporting his share of the company's net income or loss. Accordingly,
we have not provided for income taxes in our financial statements for
periods before February 2000. Given our history of incurring operating
losses, no income tax benefit is recognized in our financial
statements for periods after February 2000 because of a loss before
income taxes and the need to recognize a valuation allowance on net
deferred tax assets.

--------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

We are currently developing treatments for cancers, serious infectious diseases,
and autoimmune and degenerative disorders using our proprietary technologies
that program the immune system and improve the quality of life. Since our
inception in March 1994, our activities have primarily been associated with the
development of our heat shock protein technology and our lead therapeutic
vaccine, Oncophage. Our business activities have included, product research and
development, intellectual property prosecution, establishing manufacturing
capabilities, manufacturing therapeutic vaccines for clinical trials, regulatory
and clinical affairs, and integration of our acquisitions.

During the third quarter ended September 30, 2001, we completed our merger with
Aronex Pharmaceuticals, Inc. The stock acquisition, accounted for using the
purchase method of accounting, resulted in the issuance of approximately 1.5
million shares of our common stock based on an exchange ratio of 0.0594 per
share of our common stock for each outstanding share of Aronex Pharmaceuticals
common stock. Through this merger we acquired Aroplatin and ATRA-IV, which are
unique liposomal formulations that increase the distribution and

metabolism of drugs in a patient's body. These two products fit our long-term
goal of creating novel therapies for serious diseases that represent advanced
alternatives to conventional cancer treatments.

During the fourth quarter of 2000, we completed our merger with Aquila
Biopharmaceuticals, Inc. The stock acquisition, accounted for using the purchase
method of accounting, resulted in the issuance of approximately 2.5 million
shares of our common stock based on an exchange ratio of 0.2898 shares of our
stock for each outstanding share of Aquila stock. Through this merger we
acquired QS-21, a companion compound used in vaccines intended to significantly
improve the quality of immune response. QS-21 is being developed by several
leading pharmaceutical companies to combat a variety of chronic and debilitating
diseases.

We have incurred significant losses since our inception. To date, we have
generated product sales revenues from one product. Our revenues from this
product were $1,606,000 and $363,000 for the years ended December 31, 2001 and
2000, respectively. During the year ended December 31, 2001, we also had
revenues of $2,949,000 consisting of shipments of our QS-21 adjuvant to our
research partners, and milestone revenue and grant payments earned. As of
December 31, 2001, we had an accumulated deficit of approximately $157,887,000
inclusive of non-cash charges of $60,396,000 for acquired in-process research
and development and $13,739,000 related to grants of stock options, warrants and
common stock. We do not expect to generate significant revenues until the fourth
quarter of 2004 and thus, we expect to continue to incur net losses as we
complete our clinical trials, apply for regulatory approvals, build a sales
force and marketing department, continue development of our technology and
expand our operations. We have been dependent on equity and debt financings to
fund our current business activities. Our financial results may vary depending
on many factors, including:

- the progress of Oncophage and our other product candidates through the
clinical development and regulatory process;

- the advancement of other product candidates into preclinical and clinical
trials;

- our investment in manufacturing process development and in manufacturing
capacity for Oncophage and other product candidates;

- development of a sales and marketing staff and initial sales activities if
Oncophage is approved for commercialization;

- the progress of our other research and development efforts; and

- the integration of our prior acquisitions and any future acquisitions.

HISTORICAL RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

Revenue: As a result of the acquisition of Aquila Biopharmaceuticals, Inc. in
November 2000, we generated $1,606,000 and $363,000 of product revenue during
the years ended December 31, 2001 and 2000. We had $2,949,000 and $80,000 of
research and development revenue during the years ended December 31, 2001 and
2000. Product revenues consist of sales of our feline leukemia vaccine to our
marketing partner Virbac, S.A., a French company that has exclusive worldwide
rights to market the product. The agreement with Virbac, S.A. is up for renewal
in July 2002. If this agreement is not renewed we may not generate further
revenues from the sale of this product, the only product we currently sell.
Revenues from research and development activities consist of shipments

of our adjuvant QS-21 to be used in clinical trials by our partners and, in
2001, milestone and grant payments earned. Under the terms of our license
agreement with Neuralab Limited, a wholly-owned subsidiary of Elan Corporation,
p.l.c., we received a $1,000,000 milestone payment in 2001 related to their
initiation of a phase IIA clinical trial of a product using QS-21. In March
2002, Elan halted dosing of patients with this product after several patients
experienced significant adverse side effects.

Cost of Sales: Cost of sales, which is related entirely to product revenue, was
$1,064,000 for the year ended December 31, 2001. Cost of sales was $363,000 for
the year ended December 31, 2000. For the years ended December 31, 2001 and
2000, cost of sales were 66% and 100%, respectively, of product sales. Cost of
sales in 2000 represented the cost of inventory acquired in our merger with
Aquila Biopharmaceuticals that was adjusted to its fair value as a result of the
application of purchase accounting rules.

Research and Development: Research and development expense increased 78% to
$31,357,000 for the year ended December 31, 2001 from $17,575,000 for the year
ended December 31, 2000. The Aquila Biopharmaceuticals and Aronex
Pharmaceuticals acquisitions increased research costs by $6,855,000 for the year
ended December 31, 2001. The increase was also due to the costs associated with
our Oncophage clinical trials that increased $3,345,000 over the year ended
December 31, 2000 particularly due to the initiation of our Phase III clinical
trial in kidney cancer. Increases in our staff to support our expanded research
and development activities resulted in increasing costs by $3,052,000. Other
ongoing development activities were $844,000 higher than in 2000. These
increases were partially offset by the decrease in the non-cash charge for
options granted and earned by outside advisors, directors, and employees from
$1,097,000 for the year ended December 31, 2000 to $783,000 for the year ended
December 31, 2001. Research and development expenses consist primarily of
compensation for employees and outside advisors conducting research and
development work, funding paid to institutions, including the University of
Connecticut where we sponsor research, costs associated with the operation of
our manufacturing and laboratory facilities, funding paid to support our
clinical trials, expenses related to grant revenue recognized, and the cost of
clinical materials shipped to our research partners.

Acquired In-Process Research and Development: Acquired in-process research and
development of $34,596,000 in 2001 was a non-recurring, non-cash charge related
to our merger with Aronex Pharmaceuticals. A similar non-recurring, non-cash
charge of $25,800,000 was recognized in 2000 related to our merger with Aquila
Biopharmaceuticals. A component of the total purchase price of each merger was
allocated to incomplete acquired technologies under development but not yet
technologically feasible or commercialized and expensed at acquisition date. At
the date of the acquisitions, none of the products under development by Aquila
Biopharmaceuticals or Aronex Pharmaceuticals that were included in our
in-process research and development charge had achieved technological
feasibility and none were being sold on the market. There still remained
substantial risks and significant uncertainty concerning the remaining course of
technical development. We need to conduct extensive additional research,
preclinical and clinical testing of these products, and obtain regulatory
approval, prior to any commercialization. Because of the great uncertainty
associated with these issues and the remaining effort associated with
development of these products, the development projects had not established
technological feasibility at the acquisition date. Further, these partially
completed products had no alternative future uses at the valuation date if the
contemplated programs were to fail, as the technology was highly specialized to
the targeted products. The acquired in-process research and development charges
and related accounting is further described in Note 3 to our consolidated
financial statements included in this report.

General and Administrative: General and administrative expenses increased 50% to
$13,762,000 for the year ended December 31, 2001 from $9,190,000 for the year
ended December 31, 2000. The Aquila Biopharmaceuticals and Aronex
Pharmaceuticals acquisitions increased general and administrative costs by
$2,252,000 for the year ended December 31, 2001. The increase was also due to
the growth in the number of employees to support our expanded business
operations which increased costs by $2,013,000, increased corporate office
expenses related to this growth of $485,000, increased legal fees of $350,000,
and other increases in our general and administrative expenses, which were
$400,000 higher for the year ended December 31, 2001 than for the same period in
2000. These increases were partially offset by the decrease in the non-cash
charge for options granted and earned by outside advisors, directors, and
employees to $440,000 for the year ended December 31, 2001 from $1,368,000 for
the year ended December

31, 2000. General and administrative expenses consist primarily of personnel
compensation, office expenses and professional fees.

Interest expense: Interest expense increased 62% to $690,000 for the year ended
December 31, 2001 from $425,000 for the year ended December 31, 2000 due to the
additional borrowings we assumed in the Aquila Biopharmaceuticals and Aronex
Pharmaceuticals acquisitions.

Interest Income: Interest income decreased 45% to $3,374,000 for the year ended
December 31, 2001 from $6,181,000 for the year ended December 31, 2000. This
decrease is attributable to declining interest rates during 2001, as well as
decreasing average cash and cash equivalents and interest-bearing marketable
securities balances during the year ended December 31, 2001 as compared to the
year ended December 31, 2000. Our average interest rate decreased from 6.12% for
the year ended December 31, 2000, to 3.90% for the year ended December 31, 2001,
representing an approximate loss of interest income of $2,200,000.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

Revenue: We had $363,000 of product revenue and $80,000 of research and
development revenue during the year ended December 31, 2000. We had $581,000 of
research and development revenues for the year ended December 31, 1999. The
revenues in 2000 resulted from sales of product and research and development
activities related solely to Aquila Biopharmaceuticals for the period from the
merger (November 16, 2000) to December 31, 2000. Research and development
revenues in 1999 consisted of amounts received under a research and development
contract that are non-refundable.

Cost of Sales: Cost of sales was $363,000 for the year ended December 31, 2000.
We had no cost of sales for the year ended December 31, 1999. For the year ended
December 31, 2000, cost of sales was 100% of product sales.

Research and Development: Research and development expenses increased 47% to
$17,575,000 for the year ended December 31, 2000 from $11,958,000 for the year
ended 1999. The increase was primarily due to the increase in staff to support
our expanded research and development activities, increasing costs by
$3,717,000. Costs of operating the manufacturing and research facility were
$1,017,000 higher in 2000 than for the year ended December 31, 1999, as were
costs associated with our clinical trials, which increased $621,000 over 1999.
The Aquila Biopharmaceuticals acquisition increased research costs by $586,000
for the year ended December 31, 2000. Other increases in our ongoing development
activities were $393,000 higher than in 1999. These increases were partially
offset by the decrease in the non-cash charge for options granted and earned by
outside advisors, directors, and employees from $1,814,000 for the year ended
December 31, 1999 to $1,097,000 for the year ended December 31, 2000. Research
and development expenses consisted primarily of compensation for employees and
outside advisors conducting research and development work, funding paid to the
University of Connecticut, where we sponsor research, costs associated with the
operation of our manufacturing and laboratory facilities and funding paid to
support Oncophage clinical trials.

Acquired in-process Research and Development: Acquired in-process research and
development of $25,800,000 was a non-recurring, non-cash charge related to our
merger with Aquila. The purchase price of the merger ($44,819,000) was partially
charged to incomplete technology due to the early stage of the acquired
technologies under development but not yet technologically feasible or
commercialized.

General and Administrative: General and administrative expenses increased 23% to
$9,190,000 for the year ended December 31, 2000 from $7,480,000 for the year
ended December 31, 1999. The increase was primarily due to the growth in the
number of employees to support our expanded business operations that increased
costs by $771,000, legal expenses related to general corporate and patent
activities were $662,000 higher for the year ended December 31, 2000 as compared
to the same period in 1999 and increased costs related to operating as a public
company were $436,000 in 2000. The Aquila acquisition increased general and
administrative costs by $463,000 for the year ended December 31, 2000. These
increases were partially offset by the decrease in the non-cash charge for
options granted and earned by outside advisors, directors, and employees to
$1,368,000 for the year ended December 31, 2000 from

$3,213,000 for the year ended December 31, 1999. General and administrative
expenses consisted primarily of personnel compensation, office expenses, and
professional fees.

Interest Expense: Interest expense increased 46% to $425,000 for the year ended
December 31, 2000 from $291,000 for the year ended December 31, 1999 due to the
increased borrowings under a credit facility to partially fund the construction
of our manufacturing and laboratory facilities.

Interest Income: Interest income increased 510% to $6,181,000 for the year ended
December 31, 2000 from $1,014,000 for the year ended December 1999. This
increase was principally attributable to a higher average cash and cash
equivalents balance during the year ended December 31, 2000 as compared to the
year ended December 31, 1999 as a result of the net proceeds of $38,922,000 from
a private equity financing completed in November 1999 and $66,229,000 from our
initial public offering completed in February 2000.

LIQUIDITY AND CAPITAL RESOURCES

We have incurred annual operating losses since inception, and, as of December
31, 2001, we have incurred an accumulated deficit of $157,887,000 inclusive of
non-cash charges of $60,396,000 for acquired in-process research and development
and $13,739,000 related to grants of stock options, warrants, and common stock.
Since our inception, we have financed our operations primarily through the sale
of equity, interest income earned on cash and cash equivalent balances and debt
provided through a credit line secured by some of our manufacturing and
laboratory assets. From our inception through December 31, 2001, we raised
aggregate net proceeds of $146,995,000 through the sale of equity and the
exercise of stock options and warrants, and borrowed $3,481,000 under our
$5,000,000 credit facility. We also assumed term loan agreements and a
convertible note payable with a combined outstanding balance, at the respective
merger dates, of $6,159,000 in connection with the acquisitions of Aquila
Biopharmaceuticals and Aronex Pharmaceuticals. In November 2001, we filed a Form
S-3 universal shelf registration statement with the Securities and Exchange
Commission for the registration and potential issuance of up to $100 million of
our securities. In January 2002, we sold 4,000,000 shares or our common stock
for net proceeds of approximately $56,000,000. We intend to use the proceeds of
this sale to fund additional clinical trials of our lead product and for
clinical trials and preclinical studies for our other product candidates; to
expand our manufacturing capabilities; for potential licenses and other
acquisitions of complementary technologies and products; and for working capital
and other general corporate purposes. We expect that we will be able to fund our
capital expenditures and growing operations with our current working capital
through the first quarter of 2004. In order to fund our needs subsequently, we
will be required to raise money in the capital markets, through arrangements
with corporate partners, or from other sources. Our ability to successfully
enter into any arrangements is uncertain and if funds are not available we may
be required to revise our planned clinical trials, other development activities
and capital requirements. Furthermore, we will continue to conservatively manage
our cash position and expect to attempt to raise additional funds substantially
in advance of depleting our current funds.

Our future cash requirements include, but are not limited to, supporting our
clinical trial efforts and continuing our other research and development
programs, including increased expenses associated with the development of the
technologies and product pipeline acquired as a result of the Aquila
Biopharmaceuticals and Aronex Pharmaceuticals transactions. Since inception we
have entered into various agreements with institutions to conduct our current
clinical studies. Under these agreements, subject to the enrollment of patients
and performance by the institution of certain services, we have estimated our
payments to be approximately $7,700,000 over the term of the studies. Through
December 31, 2001, $2,416,000 has been expensed as research and development
expenses in the accompanying consolidated statements of operations and
$2,019,000 has been paid related to these clinical studies.

The timing of our expense recognition and future payments related to these
agreements are subject to the enrollment of patients and performance by the
institution of certain services. In addition, we have entered into research
agreements related to our products that require payments of approximately
$2,800,000, of which $1,275,000 has been paid through December 31, 2001.
Significant additional expenditures will be required as we complete our clinical
trials, apply for regulatory approvals, continue development of our technologies
and expand our operations and bring our products to market. Part of our strategy
is to develop and commercialize some of our products by continuing our existing
collaborative arrangements and by entering into new collaborations. As a result
of collaborative agreements, we do not, and will not, completely control the
nature, timing or cost of bringing those products to market. We have entered
into license agreements that call for milestone and royalty payments by our
corporate partners, which may or may not be achieved. Satisfying long-term
liquidity needs will require the successful commercialization of Oncophage or
other products and may require additional capital as discussed above.

Our cash and cash equivalents at December 31, 2001 were $60,868,000, a decrease
of $35,275,000 from December 31, 2000. During the year ended December 31, 2001,
we used cash primarily to finance operations, including our Oncophage clinical
trials. Net cash used in operating activities for the years ended December 31,
2000 and 2001 was $15,134,000 and $36,826,000, respectively. The increase
resulted from the increase in the activity of our Oncophage clinical trials,
on-going development activity, development of acquired technologies and the
general expansion of our research and administrative operations. As we develop
our technologies and further our clinical trials we expect to increase our
spending. Our future ability to generate cash from operations will depend on
achieving regulatory approval of our products, market acceptance of such
products, achieving benchmarks as defined in existing collaborative agreements,
and our ability to enter into new collaborations. We expect to first generate
significant revenues from our lead product Oncophage during the fourth quarter
of 2004, and first generate cash from operations in 2005.

Net cash provided by investing activities for the year ended December 31, 2001
was $2,990,000 as compared to net cash used in investing activities of
$1,625,000 for the year ended December 31, 2000. For the year ended December 31,
2001, we invested $1,665,000 for the purchase of equipment, furniture and
fixtures and an additional $525,000 was contributed to a limited partnership, of
which we became a member during the second quarter of 2000. Our remaining
commitment to this limited partnership on December 31, 2001 was $2,175,000 with
contributions made as authorized by the general partner. These expenditures were
offset by proceeds from the sale of marketable securities of $2,997,000 and the
net cash acquired in the Aronex Pharmaceuticals merger of $2,184,000. We
anticipate additional capital expenditures ranging from $3,500,000 to $5,500,000
in 2002, to expand and enhance our current facilities.

Net cash used in financing activities was $1,439,000 for the year ended December
31, 2001 as compared to net cash provided by financing activities of $66,484,000
for the year ended December 31, 2000. Since inception, our primary source of
financing has been from equity sales. During the years ended December 31, 2000
and 2001, sales of equity and exercises of stock options and warrants totaled
approximately $67,390,000 and $920,000, respectively. At December 31, 2001, we
had outstanding $3,596,000 under our credit facilities ($2,230,000 was repaid
during 2001), which were used to finance the construction of our manufacturing
and laboratory facilities and to purchase related equipment. Loans that were
drawn down on the credit facilities are secured by specific assets, including
leasehold improvements, which they finance. At December 31, 2001, we had
$2,500,000 outstanding under a convertible note payable that matures in May
2002. This note can be converted into our common stock at $73.23 per share at
the option of the note holder. At December 31, 2001 the current portion of our
long-term debt was $5,902,000. Our future minimum payments on non-cancelable
leases, before any sub-lease income are in 2002-$3,579,000; in 2003-$3,209,000;
in 2004 - $2,324,000; in 2005 - $2,324,000; in 2006 - $2,344,000 and thereafter
- $4,490,000.

We are currently involved in certain legal proceedings as detailed in Note 15 to
our consolidated financial statements. We do not believe these proceedings will
have a material adverse effect on our consolidated financial position.

OTHER

RISK FACTORS

Our future operating results could differ materially from the results described
above due to the risks and uncertainties described in exhibit 99.1 to this
Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The Securities and Exchange Commission (SEC) recently issued disclosure guidance
for "critical accounting policies." The SEC defines "critical accounting
policies" as those that require application of management's most difficult,
subjective, or complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

The following listing is not intended to be a comprehensive list of all of our
accounting policies. Our significant accounting policies are more fully
described in Note 2 to our consolidated financial statements. In many cases, the
accounting treatment of a particular transaction is dictated by generally
accepted accounting principles, with no need for management's judgment in their
application. There are also areas in which management's judgment in selecting an
available alternative would not produce a materially different result.

We have identified the following as our critical accounting policies: research
and development, investments, revenue recognition, and option accounting.

Research and development expenses include the costs associated with our internal
research and development activities including, salaries and benefits, occupancy
costs, clinical manufacturing costs, and administrative costs, and research and
development conducted for us by outside advisors, such as sponsored
university-based research partners, and clinical study partners. In addition,
research and development expenses include expenses related to grant revenue and
the cost of clinical trial materials shipped to our research partners. Research
and development costs are expensed as incurred and was $11,958,000, $17,575,000,
and $31,357,000 for the years ended December 31, 1999, 2000, and 2001.

A component of the purchase price of our two mergers was allocated to incomplete
acquired technologies under development but not yet technologically feasible or
commercialized and was expensed at each acquisition date ($25,800,000 in 2000,
and $34,596,000 in 2001.) The valuation of this acquired in-process research and
development represents the estimated fair value of products under development
calculated using an income approach. This approach involves estimating the fair
value of the acquired in-process research and development using the present
value of the estimated after-tax cash flows expected to be generated by the
purchased in-process research and development projects.

We classify investments in marketable securities at the time of purchase. At
December 31, 2000 and 2001, all marketable securities were classified as
available-for-sale and as such, changes in the fair value of the
available-for-sale securities are reported as a separate component of
accumulated other comprehensive income until realized. If we were to classify
future investments as trading securities rather than available-for-sale, our
financial results would be subject to greater volatility.

Investments of less than 20% of the voting control of companies or other
entities over whose operating and financial policies we do not have the power to
exercise significant influence, are accounted for by the cost method. Pursuant
to this method, we currently account for our investment in a limited partnership
under the cost method and, as of December 31, 2001, we have included in
non-current other assets on the consolidated balance sheet, $825,000 of our
total commitment to this partnership of $3,000,000 as more fully disclosed in
Note 5 to our consolidated financial statements. The general partner of the
limited partnership determines the timing of our additional contributions. Our
investment represents an approximate ownership of 2%. We continue to assess the
realizability of this investment.

In order to assess whether or not there has been an other than temporary decline
in the value of this investment, we analyze several factors including: (i) the
carrying value of the limited partnership's investments in its portfolio
companies, (ii) how recently the investments in the portfolio companies had been
made, (iii) the post-financing valuations of those investments, (iv) the level
of un-invested capital held by the limited partnership, and (v) the overall
trend in venture capital valuations. Based on this analysis, as of December 31,
2001, our cost appropriately reflects the carrying value of our investment.

We account for options granted to employees and directors in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense is
recorded on fixed stock option grants only if the current fair value of the
underlying stock exceeds the exercise price of the option at the date of grant
and it is recognized on a straight-line basis over the vesting period. We
account for stock options granted to non-employees on a fair-value basis in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation and
Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. As a result, the non-cash charge to operations for
non-employee options with vesting or other performance criteria is affected each
reporting period by changes in the fair value of our common stock. As required,
we also provide pro forma net loss and pro forma net loss per common share
disclosures for employee and director stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied (see Note 10 to
our consolidated financial statements).

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the circumstances.
Actual results could differ from those estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. SFAS No. 141 also specifies the criteria
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for separately.
SFAS No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead that they be tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with finite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (discussed below).

We adopted the provisions of SFAS 141 beginning July 1, 2001 and will adopt SFAS
No. 142 effective January 1, 2002. Goodwill and intangible assets acquired in
business combinations completed before July 1, 2001 continues to be amortized
prior to the adoption of SFAS No. 142.

Upon adoption of SFAS No. 142, we will be required to reassess the useful lives
and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, we will be
required to test the intangible asset for impairment in accordance with the
provisions of SFAS No. 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, SFAS No. 142
will require us to perform an assessment of whether there is an indication that
goodwill is impaired as of the date of adoption. Any transitional impairment
loss will be recognized as a cumulative effect of a change in accounting
principle in our consolidated statement of operations.

As of December 31, 2001, we have unamortized goodwill in the amount of
$2,756,000 and unamortized other intangible assets in the amount of $10,504,000,
all of which will be subject to the transition provisions of SFAS No. 142.
Amortization expense related to goodwill and other intangible assets was $91,000
and $1,323,000 for the years ended December 31, 2000 and 2001, respectively.
Because of the effort needed to comply with adopting SFAS No. 142, it is not
practicable to reasonably estimate the impact of adoption on our consolidated
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This Statement establishes
an accounting model for impairment or disposal of long-lived assets by sale.
SFAS No. 144 is required to be adopted beginning January 1, 2002. We have not
determined the impact, if any, the adoption of SFAS No. 144 will have on our
financial position or results of operation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are exposed to fluctuations in interest
rates as we seek debt financing to make capital expenditures. We do not employ
specific strategies, such as the use of derivative instruments or hedging, to
manage our interest rate exposures. Further, we do not expect our market risk
exposures to change in the near term.

The information below summarizes our market risks associated with debt
obligations as of December 31, 2001. Fair values included herein have been
estimated taking into consideration the nature and terms of each instrument and
the prevailing economic and market conditions at December 31, 2001. The table
presents cash flows by year of maturity and related interest rates based on the
terms of the debt.

YEAR OF MATURITY
ESTIMATED FAIR CARRYING AMOUNT ----------------------
VALUE DECEMBER 31, 2001 2002 2003
-------------- ----------------- ---------- --------

Long-term debt (1)(2) ......... $3,735,000 $3,596,000 $3,402,000 $194,000
Convertible debt (fixed interest $2,500,000 $2,500,000 $2,500,000
rate at 10%)

(1) Fixed interest rates from 10.38% to 15.084%
(2) We have included in our consolidated balance sheet at December 31, 2001,
$287,000 of debt scheduled to mature in the years 2003 and 2004 as current.
This debt relates to the Aronex Pharmaceuticals term notes which we are
required to pay in total during 2002 as described in Note 14 to the
consolidated financial statements.

In addition, we have cash equivalents and marketable securities at December 31,
2001, which are exposed to the impact of interest rate changes and our interest
income fluctuates as our interest rate changes. Due to the short-term nature of
our investments in commercial paper, government backed securities and money
market funds, our carrying value approximates the fair value of these
investments at December 31, 2001.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Independent Auditors' Report ..................................................................... 37
Consolidated Balance Sheets as of December 31, 2000 and 2001 ..................................... 38
Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001 ....... 39
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999,
2000 and 2001 ................................................................................. 40
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 ....... 41
Notes to Consolidated Financial Statements ....................................................... 42

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Antigenics Inc.:

We have audited the accompanying consolidated balance sheets of Antigenics
Inc. and subsidiaries as of December 31, 2000 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Antigenics
Inc. and subsidiaries as of December 31, 2000 and 2001 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Notes 2(s) and 3 to the consolidated financial statements,
the Company adopted Statements of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets, for
purchase method business combinations completed after June 30, 2001.

/S/ KPMG LLP

Short Hills, New Jersey
February 19, 2002

ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001

2000 2001
---- ----
ASSETS

Cash and cash equivalents............................................. $96,142,726 $60,867,508
Marketable securities................................................. 2,996,750 --
Accounts receivable................................................... 532,896 487,382
Inventories........................................................... 669,618 1,372,229
Prepaid expenses...................................................... 619,324 641,326
Deferred offering costs............................................... -- 128,334
Other assets.......................................................... 631,095 490,371
Due from related party................................................ 376 --
--- --

Total current assets............................................... 101,592,785 63,987,150

Plant and equipment, net.............................................. 14,640,281 13,934,154
Goodwill, net of accumulated amortization of $24,895 and $334,825 at
December 31, 2000 and 2001, respectively.......................... 2,962,472 2,755,870
Core and developed technology, net of accumulated amortization of
$51,667 and $894,443 at December 31, 2000 and 2001, respectively.. 6,148,333 10,178,130
Assembled workforce, net of accumulated amortization of $14,167 and
$184,167 at December 31, 2000 and 2001, respectively.............. 495,833 325,833
Other assets.......................................................... 2,125,996 2,365,292
--------- ---------

Total assets.......................................................... $127,965,700 $93,546,429
============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable...................................................... $2,273,631 $2,948,417
Accrued liabilities................................................... 4,002,983 7,357,434
Current portion, long-term debt....................................... 2,334,646 5,901,816
--------- ---------

Total current liabilities.......................................... 8,611,260 16,207,667

Long-term debt........................................................ 2,642,869 194,407
Other long-term liabilities........................................... 8,090 1,219,237

Commitments and contingencies

STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 1,000,000
shares authorized; no shares issued and outstanding................ -- --
Common stock, par value $0.01 per share, 100,000,000
shares authorized; 27,316,295 and 29,014,616 shares issued
and outstanding at December 31, 2000 and 2001, respectively........ 273,162 290,145
Additional paid-in capital............................................ 202,253,314 234,238,809
Deferred compensation................................................. (1,277,357) (529,547)
Accumulated other comprehensive loss.................................. (199,711) (187,706)
Accumulated deficit................................................... (84,345,927) (157,886,583)
------------ -------------

Total stockholders' equity............................................ 116,703,481 75,925,118
----------- ----------

Total liabilities and stockholders' equity............................ $127,965,700 $93,546,429
============ ===========

See accompanying notes to consolidated financial statements.

ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

1999 2000 2001
---- ---- ----

Revenue
Product sales........................... $ -- $ 363,202 $ 1,605,722
Research and development................ 581,461 79,425 2,949,239
------------ ----------- ------------
Total revenues..................... 581,461 442,627 4,554,961
------------ ----------- ------------
Expenses:
Cost of Sales............................ -- (363,202) (1,064,381)
------------ ----------- ------------
Research and development:
Related party....................... (33,000) (61,066) (--)
Other............................... (11,925,317) (17,514,078) (31,357,223)
------------- ------------ -------------

(11,958,317) (17,575,144) (31,357,223)
------------ ----------- ------------

General and administrative:
Related party...................... (248,000) (207,457) (--)
Other.............................. (7,232,032) (8,982,150) (13,761,628)
------------ ----------- ------------

(7,480,032) (9,189,607) (13,761,628)
------------ ----------- ------------

Acquired in-process research and
development.......................... -- (25,800,000) (34,595,747)
------------ ----------- ------------

Total operating loss......................... (18,856,888) (52,485,326) (76,224,018)
Other income:
Non-operating income..................... 10,000 -- --
Interest income.......................... 1,014,008 6,180,798 3,373,824
Interest expense......................... (291,397) (424,646) (690,462)
------------ ----------- ------------

Net loss..................................... $(18,124,277) $(46,729,174) $(73,540,656)
============ ============ ============

Net loss per common share, basic and
diluted...................................... $ (1.00) $ (1.90) $ (2.61)
============ ============ ============

Weighted average number of common
shares outstanding, basic and
diluted...................................... 18,143,966 24,658,802 28,142,598
============ ============ ============

See accompanying notes to consolidated financial statements.

ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

COMMON STOCK
----------------------- ADDITIONAL SUBSCRIPTION
NUMBER OF PAID-IN NOTES
SHARES PAR VALUE CAPITAL RECEIVABLE
------------ -------- ------------ -----------

Balance at December 31, 1998 ................... 17,895,623 $178,956 $ 45,670,228 $(2,102,000)

Net loss ....................................... -- -- -- --
Payment of subscription notes receivable ....... -- -- -- 2,102,000
Deferred compensation on stock options ......... -- -- 354,009 --
Grant and recognition of stock options ......... -- -- 4,718,582 --
Exercise of stock options ...................... 1,720 17 83 --
Issuance of common stock in private placement
in January 1999, $11.17 per share ........... 9,806 98 109,902 --
Issuance of common stock and warrants in private
placement on November 30, 1999, $13.96 per
share (net of issuance costs of $293,000) ... 2,808,793 28,088 38,894,232 --
------------ -------- ------------ -----------

Balance at December 31, 1999 ................... 20,715,942 207,159 89,747,036 --

Comprehensive loss
Net loss .................................... -- -- -- --
Unrealized loss on marketable securities .... -- -- -- --

Comprehensive loss ........................ -- -- -- --
Deferred compensation on stock options ........ -- -- 1,148,487 --
Grant and recognition of stock options and
warrants .................................... -- -- 1,935,606 --
Exercise of stock options and warrants ......... 66,637 666 499,288 --
Issuance of common stock in initial public
offering on February 9, 2000, $18 per share
(net of issuance costs of $6,220,830) ....... 4,025,000 40,250 66,188,911 --
Issuance of common stock in merger on November
16, 2000, $15.98 per share .................. 2,497,934 24,979 39,910,741 --
Stock options and warrants exchanged in merger
on November 16, 2000 ........................ -- -- 2,721,968 --
Employee stock purchase program ................ 10,782 108 101,277 --
------------ -------- ------------ -----------

Balance at December 31, 2000 ................... 27,316,295 273,162 202,253,314 --

Comprehensive loss
Net loss .................................... -- -- -- --
Unrealized gain on marketable securities .... -- -- -- --
Comprehensive loss ........................ -- -- -- --
Grant and recognition of stock options ......... -- -- 474,529 --
Exercise of stock options and warrants ......... 130,786 1,308 699,362 --
Issuance of common stock in merger on July 12,
2001, $18.505 per share ..................... 1,547,824 15,478 28,627,004 --
Stock options and warrants exchanged in merger
on July 12, 2001 ............................ -- -- 1,965,909 --
Employee stock purchase program ................ 19,711 197 218,691 --
------------ -------- ------------ -----------
Balance at December 31, 2001 ................... 29,014,616 $290,145 $234,238,809 $ --
============ ======== ============ ===========

ACCUMULATED
OTHER
DEFERRED COMPREHENSIVE ACCUMULATED
COMPENSATION LOSS DEFICIT TOTAL
------------- ------------- ----------- ------------

$ (613,545) $ -- $ (19,492,476) $ 23,641,163

-- -- (18,124,277) (18,124,277)
-- -- -- 2,102,000
(354,009) -- -- --
308,473 -- -- 5,027,055
-- -- -- 100

-- -- -- 110,000

-- -- -- 38,922,320
---------- --------- ------------- ------------

(659,081) -- (37,616,753) 51,678,361

-- -- (46,729,174) (46,729,174)
-- (199,711) -- (199,711)
------------
-- -- -- $(46,928,885)
------------
(1,148,487) -- -- --

530,211 -- -- 2,465,817
-- -- -- 499,954

-- -- -- 66,229,161

-- -- -- 39,935,720

-- -- -- 2,721,968
-- -- -- 101,385
---------- --------- ------------- ------------

(1,277,357) (199,711) (84,345,927) 116,703,481

-- -- (73,540,656) (73,540,656)
-- 12,005 -- 12,005
------------
-- -- -- $(73,528,651)
------------
747,810 -- -- 1,222,339
-- -- -- 700,670

-- -- -- 28,642,482

-- -- -- 1,965,909
-- -- -- 218,888
--------- --------- ------------- ------------

$(529,547) $(187,706) $(157,886,583) $ 75,925,118
========= ========= ============= ============

See accompanying notes to consolidated financial statements.

ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

1999 2000 2001
---- ---- ----

Cash flows from operating activities:
Net loss .......................................... $(18,124,277) $(46,729,174) $(73,540,656)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ..................... 1,005,411 1,675,816 4,149,456
Stock options and warrants ........................ 5,027,055 2,465,817 1,222,339
Acquired in-process research and development ...... -- 25,800,000 34,595,747
Changes in operating assets and liabilities:
Accounts receivable ............................... (581,461) (10,157) 45,514
Inventories ....................................... -- 219,562 (702,611)
Prepaid expenses .................................. 127,428 (284,921) 103,507
Accounts payable .................................. (1,612,141) 1,203,848 (1,027,694)
Accrued liabilities ............................... 885,306 372,177 (2,085,600)
Other operating assets and liabilities ............ (212,059) 152,800 413,174
Due from related party, net ....................... 27,365 (136) 376
------------ ------------ ------------

Net cash used in operating activities ............. (13,457,373) (15,134,368) (36,826,447)
------------ ------------ ------------

Cash flows from investing activities:
Purchase of plant and equipment ................... (4,925,941) (2,641,852) (1,665,468)
Proceeds from marketable securities ............... -- -- 2,996,750
Investment in AGTC ................................ -- (300,000) (525,000)
Net cash acquired in merger ....................... -- 1,316,733 2,184,165
------------ ------------ ------------

Net cash (used in) provided by investing activities (4,925,941) (1,625,119) 2,990,447
------------ ------------ ------------

Cash flows from financing activities:
Net proceeds from sale of equity .................. 41,134,320 66,788,578 --
Exercise of stock options and warrants ............ 100 499,954 700,670
Deferred public offering costs .................... (559,417) -- (128,334)
Employee stock purchase plan ...................... -- 101,385 218,888
Payments of long-term debt ........................ (512,835) (905,646) (2,230,442)
Proceeds from long-term debt ...................... 2,571,039 -- --
------------ ------------ ------------

Net cash provided by (used in) financing
activities: ....................................... 42,633,207 66,484,271 (1,439,218)
------------ ------------ ------------

Net increase (decrease) in cash and cash
equivalents ....................................... 24,249,893 49,724,784 (35,275,218)
Cash and cash equivalents at beginning of
period ............................................ 22,168,049 46,417,942 96,142,726
------------ ------------ ------------

Cash and cash equivalents at end of
period ............................................ $ 46,417,942 $ 96,142,726 $ 60,867,508
============ ============ ============

Supplemental cash flow information:
Cash paid for interest ............................ $ 291,397 $ 409,001 $ 660,507
============ ============ ============

Non-cash investing and financing activities:
Issuance of equity for mergers .................... $ -- $ 42,657,688 $ 30,608,391
============ ============ ============

See accompanying notes to consolidated financial statements.

ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND BUSINESS

The business was formed on March 31, 1994 through the creation of a Delaware
corporation (Founder Holdings Inc. ). In July 1995, the founders of Founder
Holdings Inc. formed Antigenics Inc., formerly, Antigenics L.L.C. (Antigenics or
the Company), a Delaware limited liability company, and subsequently transferred
to the Company all of the assets, liabilities, properties and rights of the
Delaware corporation in exchange for an initial 81.5% equity interest in the
Company. The accounting for this recapitalization was recorded at Founder
Holdings Inc.'s historical cost.

Since the reorganization in 1995, Founder Holdings Inc. has directly or
indirectly owned a significant portion of our common stock. As of December 31,
2001, Founder Holdings Inc. owns approximately 79% of a Antigenics Holdings LLC
that in turn owns approximately 38% of our outstanding common stock. Certain of
our board members and executive officers own significant interests in these
related parties.

We develop treatments for cancers, serious infectious diseases, autoimmune
disorders and degenerative disorders using our proprietary technologies to
program the immune system and to improve quality of life. We are primarily
engaged in the development of immunotherapeutics, including our lead product,
Oncophage, that are based on our heat shock protein technology platform. The
related business activities include product research and development activities,
regulatory and clinical affairs, establishing manufacturing capabilities,
production for clinical trials, and administrative and corporate development
activities.

We have incurred annual operating losses since inception and, as a result, at
December 31, 2001 have an accumulated deficit of $157,887,000 inclusive of
non-cash charges of $60,396,000 for acquired in-process research and development
and $13,739,000 related to grants of stock options, warrants and common stock.
Our operations have been funded principally by sales of equity. We believe that
our current working capital resources, in addition to the net proceeds received
from our offering in January 2002 (see Note 17), are sufficient to satisfy our
liquidity requirements through the first quarter of 2004. Satisfying our
long-term liquidity needs will require the successful commercialization of
Oncophage or other products and may require additional capital.

Our products require clinical trials and approvals from regulatory agencies as
well as acceptance in the marketplace. We are conducting clinical trials in
various cancers and infectious disease indications. Although we believe our
patents, patent rights and patent applications are valid, the invalidation of
our patents or failure of certain of our pending patent applications to issue as
patents could have a material adverse effect upon our business. Part of our
strategy is to develop and commercialize some of our products by continuing our
existing collaborative arrangements with academic and corporate collaborators
and licensees and by entering into new collaborations. Our success depends, in
part, on the success of these parties in performing research, preclinical and
clinical testing. We compete with specialized biotechnology companies, major
pharmaceutical companies, universities, and research institutions. Many of these
competitors have substantially greater resources than we do.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and include the accounts of Antigenics Inc. and our wholly-owned subsidiaries.
All significant intercompany transactions and accounts have been eliminated.

(b) Segment Information

We are managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive officer.
We do not operate separate lines of business with respect to any of our product
candidates. Accordingly, we do not prepare discrete financial information with
respect to separate product areas or by location and do not have separately
reportable segments as defined by Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
Information.

(d) Cash and Cash Equivalents

We consider all highly liquid investments purchased with maturities at
acquisition of three months or less to be cash equivalents. Cash equivalents at
December 31, 2000 and 2001 consist of investments in money market accounts,
commercial paper and government backed securities.

(e) Investments

We classify investments in marketable securities at the time of purchase.
At December 31, 2000 and 2001, all marketable securities were classified as
available-for-sale. Investments of less than 20% of the voting control of
companies or other entities over whose operating and financial policies we do
not have the power to exercise significant influence, are accounted for by the
cost method. Pursuant to this method, we record our investment at cost and
recognize dividends received as income. The carrying values of investments are
periodically reviewed to determine whether a decline in value is other than
temporary.

(f) Concentrations of Credit Risk

Financial instruments that potentially subject us to concentration of
credit risk are primarily cash and cash equivalents, marketable securities and
accounts receivable. Cash and cash equivalents and marketable securities are
restricted to financial institutions and corporations with high credit
standings. Credit risk on accounts receivable is minimized by the strong
financial position of the entities with which we do business.

(g) Inventories

Inventories are stated at the lower of cost or market. Cost has been
determined using standard costs that approximate the first-in, first-out method.

(h) Plant and Equipment

Plant and equipment, including software developed for internal use, are
carried at cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Amortization of leasehold improvements
is computed over the shorter of the lease term or estimated useful life of the
asset. Additions and improvements are capitalized, while repairs and maintenance
are charged to expense as incurred.

(i) Long-Lived Assets

Our policy is to record long-lived assets at cost or fair value at date of
acquisition, amortizing these costs over the expected useful lives of the
related assets. These assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets may
not be recoverable. The assets are evaluated for continuing value and proper
useful lives by comparison to expected undiscounted future net cash flows. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets, calculated as expected discounted future cash flows.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.

(j) Fair Value of Financial Instruments

The fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation. Significant differences can
arise between the fair value and carrying amounts of financial instruments that
are recognized at historical cost amounts. The estimated fair values of all of
our financial instruments, excluding debt, approximate their carrying amounts in
the balance sheets. The fair value of our long-term debt was derived by
evaluating the nature and terms of each note and considering the prevailing
economic and market conditions at the balance sheet date. The carrying amount of
debt, including current portions, is approximately $4,978,000 and $6,096,000 at
December 31, 2000 and 2001, respectively; and the fair value is estimated to be
approximately $5,265,000 and $6,235,000 at December 31, 2000 and 2001,
respectively.

(k) Intangibles

Intangible assets result from our business acquisitions accounted for
under the purchase method and include core and developed technology and
assembled workforce. The purchased technology and assembled workforce are
amortized on a straight-line basis over their estimated useful lives of ten and
three years, respectively.

(l) Goodwill

The excess cost over the identifiable net assets (goodwill) arising from
our acquisition of Aquila Biopharmaceuticals Inc. is amortized on a
straight-line basis over ten years.

(m) Revenue Recognition

Revenue from product sales is recognized at the time of product shipment.
Revenue for services under research and development grants and contracts are
recognized as the services are performed, or clinical trial materials are
provided. Non-refundable milestone payments that represent the completion of a
separate earnings process and a significant step in the research and development
process are recognized as revenue when earned. For the years ended December 31,
2000 and 2001, 100% of our product sales were to one customer. For the year
ended December 31, 2000 and 1999, one research partner represented 100% of our
research and development revenue each year, while for the year ended December
31, 2001, three partners represented 13%, 34% and 35% of total research and
development revenues.

(n) Research and Development

Research and development expenses include the costs associated with our
internal research and development activities including, salaries and benefits,
occupancy costs, clinical manufacturing costs and administrative costs, and
research and development conducted for us by outside advisors, sponsored
research partners, and clinical study partners. Research and development
expenses include all expenses related to any grant revenue recognized as well as
the cost of clinical trial materials shipped to our research partners. All
research and development costs discussed above are expensed as incurred.

(o) Stock-Based Compensation

We account for stock options granted to non-employees on a fair-value
basis in accordance with SFAS No. 123, Accounting for Stock-Based Compensation
and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. As a result, the non-cash charge to
operations for non-employee options with vesting or other performance criteria
is affected in each reporting period by changes in the fair value of our common
stock.

As required, we also provide pro forma net loss and pro forma net loss per
common share disclosures for employee and director stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied (see Note 10).

(p) Income Taxes

Prior to converting to a corporation, as a Delaware limited liability
company, no federal, state and local income taxes were levied on the Company.
Each member of the Company was individually responsible for reporting his or her
share of our net income or loss on their personal tax returns. Therefore, no
provision for income taxes is recognized in the accompanying consolidated
financial statements for the years ended prior to December 31, 1999.

Beginning February 9, 2000, income taxes are accounted for under the asset
and liability method with deferred tax assets and liabilities recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date. Deferred tax assets
are recorded when they more likely than not are able to be realized.

(q) Net Loss Per Share

Basic earnings or loss per share (EPS) is computed using the weighted
average number of shares of common stock outstanding during the period being
reported on. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue shares were exercised or converted into
stock at the beginning of the period being reported on and the effect was
dilutive. Net loss and weighted average common stock used for computing diluted
EPS were the same as those used for computing basic EPS for each of the years
ended December 31, 1999, 2000, and 2001 because our stock options and warrants
were not included in the calculation since the inclusion of such potential
shares (approximately 1,396,000 potential shares of common stock at December 31,
2001) would be antidilutive.

(r) Derivatives

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. We adopted SFAS No. 133, as
amended, beginning January 1, 2001. The adoption of SFAS No. 133 did not have an
effect on our financial position or our results of operations as we have no
derivative or hedging transactions.

(s) Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, as well as all purchase method business
combinations completed after June 30, 2001. SFAS No. 141 also specifies the
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead that they be tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also requires that intangible assets with finite useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.

We adopted the specified provisions of SFAS No. 141 beginning July 1,
2001, and will adopt SFAS No. 142 effective January 1, 2002. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 continued to be amortized prior to the adoption of SFAS No. 142.

SFAS No. 141 will require upon adoption of SFAS No. 142, that we evaluate
our existing intangible assets and goodwill that were acquired in prior purchase
business combinations, and to make any necessary reclassifications in order to
conform with the new criteria in SFAS No. 141 for recognition apart from
goodwill. Upon adoption of SFAS No. 142, we will be required to reassess the
useful lives and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption. In addition, to the extent
an intangible asset is identified as having an indefinite useful life, we will
be required to test the intangible asset for impairment in accordance with the
provisions of SFAS No. 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as a cumulative
effect of a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 will require us to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in our consolidated statement of operations.

As of December 31, 2001, we have unamortized goodwill in the amount of
$2,756,000 and unamortized other intangible assets in the amount of $10,504,000,
all of which will be subject to the transition provisions of SFAS No. 142.
Amortization expense related to goodwill and other intangible assets was $91,000
and $1,323,000 for the years ended December 31, 2000 and 2001, respectively.
Because of the effort needed to comply with adopting SFAS No.142, it is not
practicable to reasonably estimate the impact of adoption on our consolidated
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement
establishes an accounting model for impairment or disposal of long-lived assets.
SFAS No. 144 is required to be adopted beginning January 1, 2002. We have not
determined the impact, if any, the adoption of SFAS No. 144 will have on our
financial position or results of operations.

(t) Reclassifications

Certain amounts in the 1999 and 2000 consolidated financial statements
have been reclassified to conform to the 2001 financial statement presentation.

(3) MERGERS

On July 12, 2001, we completed our acquisition of Aronex Pharmaceuticals,
Inc., a biopharmaceutical company engaged in the identification and development
of proprietary innovative medicines to treat infectious diseases and cancers.
The acquisition was structured as a merger of a wholly-owned subsidiary of
Antigenics with and into Aronex Pharmaceuticals pursuant to an Agreement and
Plan of Merger among Antigenics, Nasa Merger Corp. and Aronex Pharmaceuticals
dated as of April 23, 2001. The merger was a tax-free reorganization and is
being accounted for as a purchase in accordance with SFAS No. 141, Business
Combinations (see Note 2 (s)). Through this merger we acquired two products that
fit our long-term goal of creating novel therapies for serious diseases that
represent advanced alternatives to conventional cancer treatments.

As consideration for the merger, in exchange for each of their shares of Aronex
Pharmaceuticals common stock, the stockholders of Aronex Pharmaceuticals
received (i) 0.0594 shares of Antigenics common stock and (ii) a contingent
value right to receive additional shares of Antigenics common stock in the event
the U.S. Food and Drug Administration (FDA) grants final approval of a New Drug
Application, on or before July 6, 2002, for ATRA-IV as a treatment for acute
promyelocytic leukemia (APL). Cash was payable in lieu of any fractional shares
of Antigenics' common stock otherwise issuable in the merger for a price equal
to the fraction times $17.41, the closing price of Antigenics' common stock on
July 12, 2001. All outstanding options and warrants to purchase shares of Aronex
Pharmaceuticals common stock were automatically converted into warrants and
options to purchase Antigenics common stock at the exchange ratio described
above. Additionally, an outstanding $2.5 million note previously convertible
into shares of Aronex Pharmaceuticals common stock is now convertible into
shares of Antigenics common stock at a rate adjusted in accordance with the
exchange ratio described above. In September 2001, based on the results of our
meetings with the FDA we determined that accelerated approval of ATRA-IV in APL
is unlikely and we decided to focus our development strategy for ATRA-IV on
other cancer indications. As a result, it is unlikely that additional shares of
Antigenics common stock will be issued through the exercise of the contingent
value rights.

The purchase price of $31,171,000 is the sum of (i) $28,642,000 representing the
issuance of approximately 1,548,000 shares of Antigenics common stock valued at
$18.505 per share, which represents the average closing price per share of
Antigenics' common stock for the ten trading days ending the second trading day
before July 12, 2001, which have been issued in accordance with the exchange
ratio of 0.0594 shares of Antigenics' common stock for each of the then
outstanding shares of Aronex Pharmaceuticals common stock as of July 11, 2001,
(ii) $1,966,000 representing the fair value of options and warrants to acquire
Aronex Pharmaceuticals common stock which became vested upon the consummation of
the merger and exchanged for options and warrants to purchase 283,000 shares of
Antigenics common stock and (iii) an estimated $563,000 for fractional shares
and Antigenics' costs of the merger. The exchange ratio was agreed to in
arm's-length negotiations between representatives of both companies with the
benefit of advice from their respective financial advisors. The fair value of
the options and warrants has been calculated using an option

pricing model with the following weighted average assumptions: life of the
option or warrant -- employees and directors options -- 4 years and non-employee
options and warrants - remaining contractual life of 6 years; dividend yield --
nil; risk-free interest rate -- 5.50%; price volatility -- 74.0%.

The merger is being accounted for under the purchase method of accounting, which
means the purchase price was allocated to the assets and liabilities of Aronex
Pharmaceuticals, including its intangible assets, based upon their fair values.
Valuations of specifically identifiable intangible assets and acquired
in-process research and development have been completed. The valuation of
acquired in-process research and development ($37,643,000) represents the
estimated fair value of products under development at Aronex Pharmaceuticals
calculated using an income approach. This approach involves estimating the fair
value of the acquired in-process research and development using the present
value of the estimated after-tax cash flows expected to be generated by the
purchased in-process research and development projects. The risk adjusted
discount rates range from 45% to 55%, depending on the risks associated with
each specific project. Cash inflows from projects are estimated to begin
primarily in 2005 and 2006, the expected dates of product approvals. Gross
margins on products are estimated at levels consistent with industry
expectations. The fair values of the acquired intangible non-current assets
($5,290,000) and acquired in-process research and development have been
proportionately reduced by the amount that the estimated fair value of the net
assets acquired exceeds the estimated purchase price (negative goodwill)
resulting in intangible non-current assets of $4,872,000 (to be amortized over
10 years) and acquired in-process research and development of $34,596,000. We
assumed liabilities of $11,625,000 consisting of accounts payable and accrued
expenses of $8,276,000 and debt valued at $3,349,000. Included in the accrued
expenses are restructuring costs of approximately $2,491,000 for the estimated
net future lease payments related to the non-cancelable lease of the
manufacturing and office facility located in Houston which we intend to sublet,
and $1,900,000 of costs to relocate or terminate Aronex Pharmaceuticals
employees. In determining the lease related costs management has made certain
estimates regarding the timing of and amount of any potential sublease
agreement.

The following represents the condensed balance sheet of Aronex Pharmaceuticals
at the closing of the merger, July 12, 2001 (in thousands):

Cash and cash equivalents $ 2,747
Other current assets 126
Acquired in-process research and development 34,596
Core and developed technology 4,872
Other assets 455
-------
Total assets 42,796
-------
Current liabilities 9,423
Long-term debt 501
Other liabilities 1,701
-------
Total liabilities 11,625
-------
Net assets acquired $31,171
=======

The results of operations and cash flows of Aronex Pharmaceuticals have been
included in our consolidated financial statements prospectively as of the
closing of the merger. In addition, we have recognized a non-recurring charge to
operations of $34,596,000 on July 12, 2001 for the immediate write-off of the
acquired in-process research and development.

On November 16, 2000, we acquired all of the outstanding common stock, options
and warrants of Aquila Biopharmaceuticals Inc., a biotechnology company engaged
in the discovery, product development, and commercialization of products to
prevent, treat, or control, infectious diseases, autoimmune disorders, and
cancers. The results of operations of Aquila Biopharmaceuticals have been
included in our consolidated financial statements from the date of acquisition.

The purchase price of $44,819,000 is the sum of (i) $39,936,000 representing
approximately 2,498,000 shares of our common stock valued at approximately
$15.98 per share, which represents the average closing price per share of our
common stock for the five days before and after the announcement of the merger
on August 18, 2000, issued at an exchange ratio of 0.2898 shares of our common
stock for each of the 8,619,000 outstanding shares of Aquila stock as of
November 16, 2000 (the consummation date of the merger), (ii) $2,722,000
representing the fair value of Aquila options and warrants to acquire Aquila
stock which was vested upon the consummation of the merger and exchanged for
options and warrants to purchase 264,000 shares of our common stock and (iii) an
estimated $2,161,000 of our costs of the merger and the cost to sever the
employment of Aquila's president. The fair value of the Aquila options and
warrants has been calculated using an option pricing model with the following
weighted average assumptions: life of the options - 6 years; dividend yield
-nil; risk-free interest rate - 5.50%; price volatility - 74.0%.

The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the identifiable
net assets acquired based on their estimated fair values. The fair value of the
tangible assets acquired and liabilities assumed were $14,628,000 and
$5,306,000, respectively. In addition, $25,800,000 of the purchase price was
allocated to in-process research and development projects as described below;
such amount was charged to operations at the date of acquisition. The balance of
the purchase price was allocated as follows: core and developed technology of
$6,200,000, assembled workforce of $510,000 and goodwill of $2,987,000. Such
intangible assets are amortized on a straight-line basis over their estimated
useful lives of ten years, three years, and ten years, respectively. The value
of acquired in-process research and development related to this acquisition
represents the fair value of Aquila's products under development. These products
are associated with Aquila's proprietary core technologies -- the Stimulon
family of adjuvants, including QS-21. The value of the in-process research and
development projects was determined using an income approach that involves
projecting the expected completion costs for the development projects as well as
projected cash flows resulting from their commercialization. A risk-adjusted
discount rate of 60% has been utilized for each specific product. Cash inflows

from projects are estimated to begin primarily in 2003 and 2004, the projected
dates of product approvals. Gross margins on products are estimated at levels
consistent with industry expectations.

Through our merger with Aronex Pharmaceuticals we acquired, among other
developmental products, Aroplatin and ATRA -IV, which are unique liposomal
formulations that increase the distribution and metabolism of drugs in a
patient's body. Through our merger with Aquila Biopharmaceuticals we acquired,
among other developmental products, QS-21, a companion compound used in vaccines
intended to significantly improve the quality of immune response. At the date of
the acquisitions, none of the products under development by Aquila
Biopharmaceuticals or Aronex Pharmaceuticals that were included in our
in-process research and development charge had achieved technological
feasibility and none were being sold on the market. There still remained
substantial risks and significant uncertainty concerning the remaining course of
technical development. We need to conduct extensive additional research,
preclinical and clinical testing of these products, and obtain regulatory
approval, prior to any commercialization. Because of the great uncertainty
associated with these issues and the remaining effort associated with
development of these products, the development projects had not established
technological feasibility at the acquisition date. Further, these partially
completed products had no alternative future uses at the valuation date if the
contemplated programs were to fail, as the technology was highly specialized to
the targeted products.

The following table reflects unaudited pro forma combined results of operations
of Antigenics, Aronex Pharmaceuticals and Aquila Biopharmaceuticals as if such
mergers had occurred as of January 1, 2000 and 1999, respectively:

1999 2000 2001

Revenues $2,649,000 $7,762,000 $4,647,000
Loss, before non-recurring charges for $(27,342,000) $(44,952,000) $(47,601,000)
write-off of acquired in-process research
and development

Loss, before non-recurring charges for $(1.32) $(1.58) $(1.64)
write-off of acquired in-process research
and development, per common share, basic
and diluted

These unaudited pro forma combined results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of the new basis in fixed and intangible assets. These
unaudited pro forma combined results exclude the related acquired in-process
research and development charges. These results do not purport to be indicative
of the results of operations which actually would have occurred had the mergers
been consummated at the beginning of 2000 and 1999, or of future results of
operations of the consolidated company.

(4) INVENTORIES

Inventories consist of the following at December 31, 2000 and 2001 (in
thousands):

2000 2001
---- ----

Finished goods.................................................. $425 $1,058
Work in process................................................. 176 236
Raw materials and supplies...................................... 69 78
--- ------
$670 $1,372
==== ======

(5) INVESTMENTS

CASH EQUIVALENTS AND MARKETABLE SECURITIES

We accounted for our investments consistent with SFAS No. 115, Accounting
for certain Investments in Debt and Equity Securities, and determined that all
of our short-term investments are to be classified as available-for-sale
securities. Available-for-sale securities are carried at fair value with
interest on these securities included in interest income. Available-for-sale
securities consisted of the following at December 31, 2000 and 2001 (in
thousands):

2000 2001
---- ----
Cost Estimated Cost Estimated Fair
---- ---------- ---- ---------------
Fair Value Value
---------- -----

Commercial paper $49,982 $49,982 $15,394 $15,394
Government backed securities 44,946 44,946 40,990 40,990
Institutional money market funds 3,604 3,604 4,222 4,222
Corporate debt securities 500 500 -- --
------- ------- ------- -------
Total $99,032 $99,032 $60,606 $60,606
======= ======= ======= =======

LONG-TERM INVESTMENTS

On May 18, 2000, we committed $3,000,000 to become a limited partner in a
limited partnership which will invest principally in companies that apply
genomic technologies and information in their offerings of products and services
or that are engaged in research and development involving genomic technologies.
Capital contributions to the limited partnership are made as authorized by the
general partner. As of December 31, 2001, we have invested $825,000 ($300,000 as
of December 31, 2000) and have included this amount in non-current other assets.
This investment is accounted for under the cost method as our ownership is
approximately 2%. This carrying value reflects the cost of our investment in
this partnership. In order to assess whether or not there has been an other than
temporary decline in the value of this investment, we analyze several factors
including: (i) the carrying value of the limited partnership's investments in
its portfolio companies, (ii) how recently the investments in the portfolio
companies have been made, (iii) the post-financing valuations of those
investments, (iv) the level of un-invested capital held by the limited
partnership and (v) the overall trend in venture capital valuations. Based on
these analyses, we concluded that an other than temporary decline in the value
of this investment has not occurred. The general partner of the limited
partnership is AGTC Partners, L.P. and NewcoGen Group Inc. is the general
partner of AGTC Partners, L.P. Noubar Afeyan, Ph.D., who is one of our
directors, is the is the Chairman and Senior Managing Director and CEO of
Flagship Ventures, a partnership of funds including NewcoGen Group Inc. and
AGTC. In addition, Garo H. Armen, Ph.D. our Chief Executive Officer and one of
our directors, is a director of NewcoGen Group Inc.

Other non-current assets also include 22,500 shares of restricted common stock
of Progenics Pharmaceuticals, Inc. which are classified as available-for-sale
securities and carried at their market price at December 31, 2001 of $416,000
($388,000 at December 31, 2000).

(6) PLANT AND EQUIPMENT, NET

Plant and equipment, net at December 31, 2000 and 2001 consists of the following
(in thousands):

ESTIMATED
DEPRECIABLE
2000 2001 LIVES
---- ---- -----

Furniture, fixtures and other.......................... $ 1,467 $ 2,208 3 to 10 years
Laboratory and manufacturing equipment................. 7,543 8,114 3 to 10 years
Leasehold improvements................................. 8,043 8,527 2 to 12 years
Software............................................... 530 854 3 years
------- -------
17,583 19,703
Less accumulated depreciation and
amortization........................................... 2,943 5,769
------- -------
$14,640 $13,934
======= =======

Plant and equipment retired and removed from the accounts aggregated $51,000 for
the year ended December 31, 2000.

(7) INCOME TAXES

As of December 31, 2001, we have available net operating loss carryforwards of
approximately $274,689,000 and $78,119,000, for federal and state income tax
purposes, respectively, which are available to offset future federal and state
taxable income, if any, and expire between 2002 and 2021, and 2002 and 2008,
respectively. These net operating loss carryforwards include approximately
$97,471,000 and $26,339,000 for federal and state income tax purposes,
respectively, acquired in our merger with Aquila Biopharmaceuticals and
$126,122,000 for federal income tax purposes acquired in our merger with Aronex
Pharmaceuticals. Our ability

to use such net operating losses may be limited by change in control provisions
under Internal Revenue Code Section 382 or may expire unused.

The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 2000
and 2001, are presented below (in thousands):

2000 2001
---- ----

Net operating loss carryforwards $42,024 $ 99,523
Start-up expenses 1,734 1,987
Research and development tax credit 3,323 3,323
Other temporary differences 166 609
------- --------
Sub-total 47,247 105,442
Less: valuation allowance (47,247) (105,442)
-------- --------
Net deferred tax asset $ -- $ --
======= ========

We have assessed the evidence relating to recoverability of the deferred tax
assets and have determined that it is more likely than not that the deferred tax
assets will not be realized due to the uncertainty of future earnings.
Accordingly, a valuation allowance has been established for the full amount of
the deferred tax assets. Of the deferred tax assets related to the federal and
state net operating loss carryforwards, approximately $399,000 relates to a tax
deduction for non-qualified stock options and approximately $34,720,000 and
$42,882,000 relates to Aquila Biopharmaceuticals and Aronex Pharmaceuticals net
operating loss carryforwards, respectively. When the benefits from non-qualified
stock options are realized for tax purposes, additional paid-in capital will be
increased. In addition, if adjustments are made to the net operating loss
carryforward assets acquired from Aquila Biopharmaceuticals and Aronex
Pharmaceuticals, such adjustments will result in changes to our goodwill,
acquired in-process research and development and other acquired intangible
assets.

(8) ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31, 2000 and 2001
(in thousands) :

2000 2001
---- ----

Clinical trials.................................................... $ 360 $ 952
Professional fees.................................................. 643 595
Vacation........................................................... 198 202
Sponsored research................................................. 659 1,391
Payroll............................................................ 989 1,101
Loss on Aronex Pharmaceuticals lease............................... -- 986
Aronex Pharmaceuticals severence and relocation.................... -- 885
Other.............................................................. 1,154 1,245
------ ------
$4,003 $7,357
====== ======

(9) EQUITY

Prior to our conversion to a corporation, we had one class of members' equity.
All members voted their equity interests in proportion to their respective unit
interest in the Company. Our net profits and losses for each fiscal year were
allocated to the capital accounts of the members as described in the limited
liability company agreement, generally in proportion to their respective unit
ownership interests. No members were liable for any of our obligations or were
required to contribute any additional capital related to the deficits incurred.

In November 1999, we raised gross proceeds of approximately $39.2 million from
the sale of approximately 2,809,000 common shares, inclusive of warrants,
through a private equity placement. In connection with the private placement, we
netted approximately $293,000 of expenses against the gross proceeds. Each
stockholder participating in this private placement received a warrant to
purchase an additional 10% of the shares acquired in that offering, rounded to
the nearest whole number, at a price of approximately $13.96 per share. The
warrants expire on September 30, 2002. Each stockholder participating in this
private placement also received registration rights.

On February 9, 2000, we completed the initial public offering (IPO) of 4,025,000
shares of common stock at $18 per share. We received gross proceeds of
$72,450,000 before deduction of offering expenses of approximately $6,221,000.
Concurrent with the completion of the IPO, we converted from a limited liability
company to a corporation. All members of the limited liability company exchanged
their respective member interests for shares of common stock in the corporation
based on an exchange ratio of 172.0336 shares of common stock for each members'
equity unit. The consolidated financial statements have been retroactively
restated to reflect the change from a limited liability company to a corporation
and the exchange of members' equity units for common stock. In

conjunction with such conversion, our authorized capital stock consists of
100,000,000 shares of common stock, $0.01 par value per share, and 1,000,000
shares of preferred stock, $0.01 par value per share. Our board of directors is
authorized to issue the preferred stock and to set the voting, conversion and
other rights.

During 2000 we issued warrants to purchase approximately 31,000 shares of our
common stock at a weighted average exercise price per share of $13.96 to outside
advisors. Compensation expense recognized with respect to such warrants totaled
$355,000.We also assumed a warrant to purchase shares of our common stock in the
Aquila merger that will continue to be governed by the same terms and conditions
as were applicable to the Aquila warrant. The assumed warrant, which expires
July 2003, is exercisable for approximately 18,000 shares of our common stock
with an exercise price per share of $14.22. In addition, as part of the Aronex
Pharmaceuticals merger in 2001, we assumed (i) warrants to purchase our common
stock that are exercisable for approximately 105,000 shares of our common stock
with a weighted average exercise price of $52.94 per share of which 39,000
expire during 2002, 57,000 expire in 2004, and 9,000 expire in 2006; and (ii) a
$2,500,000 note payable due May 2002 which is convertible into our common stock
at $73.23 per share at the note holder's option.

(10) STOCK-BASED COMPENSATION PLANS

In March 1996, the board of directors approved an equity-based incentive
compensation plan (the 1996 Plan). Pursuant to the provisions of the Plan, the
board of directors may grant options to directors, employees, and outside
advisors to purchase our common stock. At the date of grant, the board of
directors sets the terms of the options including the exercise price and vesting
period. The options granted through December 31, 2001 have vesting periods
ranging up to five years. Options generally have a contractual life of ten
years. Options outstanding under our 1996 plan were exchanged for stock options
under the 1999 equity plan at the closing of the IPO.

In connection with the IPO, the board of directors approved an employee equity
incentive plan (the 1999 equity plan). Our stockholders approved the plan in May
2000. Our 1999 equity plan authorizes the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and non-qualified stock options for the purchase of an aggregate of
4,800,000 shares (subject to adjustment for stock splits and similar capital
changes) of common stock to employees and, in the case of non-qualified stock
options, to consultants and directors as defined in the equity plan. The board
of directors has appointed the compensation committee to administer the 1999
equity plan.

The following summarizes activity for options granted to directors and
employees, including those with an exercise price equal to the fair value of the
underlying shares of common stock at the date of grant ("at-the-money exercise
price"), those with an exercise price greater than the fair value of the
underlying share of common stock at the date of grant ("out-of-the-money
exercise price"), and those with an exercise price less than the fair value of
the underlying share of common stock at the date of grant ("in-the-money
exercise price"):

OPTIONS WEIGHTED WEIGHTED
EXERCISABLE AVERAGE AVERAGE
AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
------- ---- ---------- -----

Outstanding December 31, 1998................... 544,657 347,851
=======
Granted:
Out-of-the-money exercise price................. 254,609 $6.25 $12.07
In-the-money exercise price..................... 50,921 9.67 6.50
Expired......................................... (21,848) -- 7.10
--------
Outstanding December 31, 1999................... 828,339 500,101
=======
Granted:
In-the-money exercise price..................... 202,370 13.87 10.74
At-the-money exercise price..................... 561,322 8.91 12.91
Exercised....................................... (17,203) -- 1.45
Forfeited....................................... (113,066) -- 9.07
Aquila Biopharmaceuticals options exchanged..... 264,520 10.29 11.92
--------
Outstanding December 31, 2000................... 1,726,282 840,973
=======
Granted:
In-the-money exercise price..................... 37,200 9.65 13.27
At-the-money exercise price..................... 783,246 8.97 14.05
Exercised....................................... (84,143) -- 7.10
Forfeited....................................... (212,839) -- 20.17
Aronex Pharmaceuticals, Inc. options exchanged.. 178,251 7.68 57.57
---------
Outstanding December 31, 2001................... 2,427,997 1,094,281
========= =========

During 1999, 2000, and 2001, 50,921, 202,370, and 37,200 options, respectively,
were granted to employees and directors at exercise prices, which were less than
the fair value of the shares of common stock on the grant date. Compensation
expense recognized with respect to such options totaled approximately $308,000,
$530,000, and $653,000 for the years ended December 31, 1999, 2000 and 2001,
respectively. Deferred compensation at December 31, 2001 of approximately
$530,000 will be recognized over the remaining vesting period of the options.

The table above includes the options exchanged for Aquila Biopharmaceuticals and
Aronex Pharmaceuticals options at the

consummation of the mergers. Each exchanged option will continue to be governed
by the same terms and conditions of the applicable stock option plans that were
in effect immediately prior to the consummation of the mergers, except that each
option will be exercisable for our common stock at an exchange ratio of 0.2898
for the Aquila Biopharmaceuticals options and 0.0594 for the Aronex
Pharmaceuticals options and all outstanding options were immediately vested and
exercisable.

The following summarizes activity for options granted to outside advisors:

OPTIONS WEIGHTED WEIGHTED
EXERCISABLE AVERAGE AVERAGE
AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
------- ---- ---------- -----

Outstanding December 31, 1998................... 507,155 306,735
=======

Granted......................................... 273,705 $9.38 $12.01
Exercised....................................... (1,720) -- 0.06
-------

Outstanding December 31, 1999................... 779,140 611,579
=======

Granted......................................... 115,925 $12.72 $13.44
Exercised....................................... (17,203) -- 1.45
-------

Outstanding December 31, 2000................... 877,862 820,194
=======
Granted......................................... 27,300 $11.38 $14.14
Exercised....................................... (43,813) -- $1.45
-------
Outstanding December 31, 2001................... 861,349 921,109
======= =======

In December 1999, the board of directors accelerated the remaining vesting
requirements on 268,716 stock options granted to outside advisors. As a result,
the Company recognized a charge to operations in the fourth quarter of 1999 of
approximately $2,093,000.

The outstanding options as of December 31, 1998 exclude 88,941 options granted
to outside advisors with an exercise price which is determined based on the fair
value of the underlying shares of common stock beginning on the second
anniversary of the grant date as the options vest; 41,289 of these unvested
options were cancelled during the year ended December 31, 2000. Compensation
expense for these options is recognized when the exercise price becomes known
and performance has been completed. For the years ended December 31, 1998, and
1999 approximately $199,000, and $189,000 was charged to operations for 23,740,
and 23,912 of such options, respectively, that vested with an exercise price of
approximately $11.17 per share of common stock in each year.

The charge to operations related to options we granted to outside advisors,
including the amounts described in the two preceding paragraphs, totaled
approximately, $4,719,000, $1,936,000, and $569,000 for the years ended December
31, 1999, 2000, and 2001, respectively.

At December 31, 2001, unrecognized expense for options granted to outside
advisors for which performance (vesting) has not yet been completed but the
exercise price of the option is known is approximately $490,000; such amount is
subject to change each reporting period based upon changes in the fair value of
our common stock, estimated volatility and the risk free interest rate until the
outside advisor completes his or her performance under the option agreement.

A summary of our options outstanding and exercisable, as of December 31, 2001,
follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- -------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ------------ -------------- ----------- --------------

$1.45 -$5.00 ............... 795,197 4.7 $1.79 783,155 $1.77
$5.01 - $10.00 ............. 242,410 5.1 7.59 189,220 7.89
$10.01 - $15.00 ............ 1,680,599 8.1 12.19 735,663 12.09
$15.01 - $20.00 ............ 461,977 8.2 16.59 156,477 16.28
$20.01 - $25.00 ............ 8,694 8.2 20.92 8,694 20.92
$25.01 - $30.01 ............ 289 2.1 25.47 289 25.47
--------- ---------
3,189,166 1,873,498
========= =========

The preceding table excludes 147,832 options assumed in our merger with Aronex
Pharmaceuticals, Inc. As of December 31, 2001, all of these options were
outstanding and exercisable with a weighted average remaining life of 1.1 years
and a weighted average exercise price of $54.77 per share.

Since the 1995 reorganization described in Note 1, Founder Holdings Inc. has
directly or indirectly owned a significant portion of our common stock. During
1996, Founder Holdings Inc. approved a stock option plan (Founder's Plan). In
accordance with generally accepted accounting principles, the Founder's Plan is
accounted for as if it had been adopted by us and treated as a contribution to

stockholders' equity. Pursuant to the provisions of the Founder's Plan, Founder
Holdings Inc. may grant options to our officers, directors, employees, and
consultants to purchase common stock of Founder Holdings Inc. The terms of the
options, including exercise price and vesting period, are set at the date of
grant. The options have a contractual life of ten years and may not have an
exercise price less than the fair value of a share of common stock of Founder
Holdings Inc. at date of grant. Options to purchase a maximum of 300 shares may
be granted under the Founder's Plan.

During 1996, Founder Holdings Inc. granted options to purchase approximately 160
shares to directors and employees at a weighted average exercise price of $9,006
per share and a weighted average grant-date fair value of approximately $4,301
per share. During 1997, Founder Holdings Inc. granted options to purchase
approximately 14 shares to a director at a weighted average grant-date fair
value of $16,407 per share. All the options are immediately vested and
exercisable. All of the options remain outstanding and none have been exercised.

During 1996, Founder Holdings Inc. granted options to purchase approximately 76
shares to consultants at a weighted average exercise price of $9,006 per share
and a weighted average grant-date fair value of approximately $5,535 per share.
All of the consultants' options are immediately vested and exercisable. All of
the consultants' options remain outstanding and none have been exercised.

In connection with the IPO, the board of directors, and subsequently the
stockholders, approved an employee stock purchase plan. Under the plan,
employees may purchase shares of common stock at a discount from fair value.
There are 300,000 shares of common stock reserved for issuance under the
purchase plan. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended. Rights to purchase common stock under the purchase plan are
granted at the discretion of the compensation committee, which determines the
frequency and duration of individual offerings under the plan and the dates when
stock may be purchased. Eligible employees participate voluntarily and may
withdraw from any offering at any time before the stock is purchased.
Participation terminates automatically upon termination of employment. The
purchase price per share of common stock in an offering will not be less than
85% of the lesser of its fair value at the beginning of the offering period or
on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The plan terminates on
November 15, 2009. As of December 31, 2001, 30,493 shares of common stock have
been issued under the plan.

We account for options granted to employees and directors and stock purchased in
our employee stock purchase plan under APB Opinion No. 25. Had compensation cost
for options granted to employees and directors by Antigenics and Founder
Holdings Inc. and stock purchased by employees through our employee stock
purchase plan been determined consistent with the fair value method of SFAS No.
123, our pro forma net loss and pro forma net loss per common share would have
been as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 2000 2001
---- ---- ----

Net loss:
As reported.......................................... $(18,124,277) $(46,729,174) $(73,540,656)
Pro forma............................................ (19,097,345) (48,554,719) (76,119,067)
============ ============ ============
Net loss per common share:
As reported.......................................... $(1.00) $(1.90) $(2.61)
Pro forma............................................ (1.05) (1.97) (2.70)
============ ============ ============

The effects of applying SFAS No. 123, for either recognizing or disclosing
compensation cost under such pronouncement, may not be representative of the
effects on reported net income or loss for future years. The fair value of each
option and employee stock purchase rights granted is estimated on the date of
grant using an option-pricing model with the following weighted average
assumptions:

1999 2000 2001
---- ---- ----

Estimated volatility...................................................... 54% 74% 68%
Expected life in years -- employee and director options................... 6 6 6
Expected life in years -- employee stock purchase rights.................. n/a 1 1
Risk-free interest rate................................................... 5.0% 5.3% 4.0%
Dividend yield............................................................ 0% 0% 0%

Prior to our IPO, we estimated volatility for purposes of computing compensation
expense on outside advisor options and for disclosure purposes using the
volatility of public companies that we considered comparable. The expected life
used to estimate the fair value of outside advisor options is equal to the
contractual life of the option granted.

(11) LICENSE, RESEARCH AND OTHER AGREEMENTS

In November 1994, Founder Holdings Inc. entered into a Patent License Agreement
(Mount Sinai Agreement) with the Mount Sinai School of Medicine (Mount Sinai).
Through the Mount Sinai Agreement, we obtained the exclusive licenses to the
patent rights that resulted from the research and development performed by Dr.
Pramod Srivastava, one of our directors. Under the Mount Sinai Agreement, we
agreed to pay Mount Sinai a nominal royalty on related product sales (as defined
in the Mount Sinai Agreement) through the last expiration date of the patents
under the Mount Sinai Agreement (2015). In addition to these royalty payments,
Mount

Sinai was issued a nominal equity interest.

During 1995, Dr. Srivastava moved his research to Fordham University (Fordham).
Founder Holdings Inc. entered into a Patent License Agreement (Fordham
Agreement) with Fordham, and agreed to reimburse Fordham for all approved costs
incurred in the performance of research. Founder Holdings Inc. has also agreed
to pay Fordham a nominal royalty on related product sales, as defined, through
the last expiration date on the patents under the Fordham Agreement (2017). This
agreement ended in mid-1997.

In February 1998, we entered into a research agreement with the University of
Connecticut Health Center (UConn) and Dr. Srivastava. The agreement has a term
of approximately five years and calls for payments to UConn totaling a minimum
of $5,000,000, payable quarterly at the rate of $250,000 (contingent on the
continuing employment of Dr. Srivastava by UConn). Research and development
expense in the accompanying 1999, 2000, and 2001 consolidated statements of
operations includes approximately $1,000,000 in each of the respective years of
costs incurred under the UConn agreement. Royalties at varying rates are due to
UConn upon commercialization of a product utilizing technology discovered during
the research agreement.

In 1998, we entered into an agreement, as amended, with Sigma-Tau
IndustrieFarmaceutiche Riunite S.P.A (Sigma-Tau), a minority interest-holder of
the Company's common stock, to conduct clinical studies in Italy, Spain,
Portugal, and Switzerland. Under the agreement, Sigma-Tau was required to pay us
for services provided by us in relation to these clinical studies. In return, we
granted Sigma-Tau the exclusive right to negotiate a marketing and development
agreement (the Development Agreement) for the exclusive use of our patent rights
and their product, and the right of first offer to negotiate licenses for other
medical uses of their product, in Italy, Spain, Portugal, and Switzerland. The
right to negotiate the Development Agreement expired during 2001. During 1999,
we provided approximately $581,000 of services associated with this agreement.
This receivable amount was collected during the year ended December 31, 2000.
Amounts received under this agreement are non-refundable even if the research
effort is unsuccessful. In addition, we do not incur any future performance
commitments in relation to amounts recorded for Sigma-Tau.

We have entered into various agreements with institutions to conduct our
clinical studies. Under these agreements, subject to the enrollment of patients
and performance by the institution of certain services, we have estimated our
payments to be approximately $7,700,000 over the term of the studies. For the
years ended December 31, 1999, 2000, and 2001, approximately, $975,000,
$409,000, and $686,000, respectively, have been expensed in the accompanying
consolidated statements of operations related to these clinical studies. The
timing of our expense recognition and future payments related to these
agreements is dependent on the enrollment of patients and documentation received
from the institutions.

We entered into various research agreements with educational and medical
institutions expiring between February 2001 and August 2005. These agreements
require initial and quarterly payments totaling approximately $2,800,000 (of
which $388,000 and $890,000 was paid during the years ended December 31, 2000
and 2001 respectively). At December 31, 2000, $222,000 is included in prepaid
expenses in the accompanying consolidated balance sheet related to these
agreements.

We have various comprehensive agreements with corporate partners that allow the
partners to use certain of our proprietary technologies in numerous vaccines
including, but not limited to , hepatitis, lyme disease, human immunodeficiency
virus (HIV), influenza, and malaria. These agreements grant exclusive worldwide
rights in some fields of use, and co-exclusive or non-exclusive rights in
others. The agreements call for royalties to be paid by the partner on its
future sales of licensed vaccines that include our technologies.

We have product development agreements and supply agreements with Virbac S.A.
and a supply agreement with the Virbac S.A.'s U.S. subsidiary that cover
collaboration on the development of products for feline immune deficiency virus
("FIV") and the supply of vaccine and adjuvant for feline leukemia ("FeLV").
Sales related to shipment of this product were approximately $363,000 and
$1,606,000 for the years ended December 31, 2000 and 2001, respectively.

In 1999 Aquila was awarded a grant from the National Institutes of Health (NIH)
to support the development of novel vaccines for tuberculosis based on the CD1
immune enhancement technology. During 2000, Aquila was awarded two additional
grants from the NIH for the development of novel vaccines for chlamydia and
staphaureus also based on the CD1 technology. All three grants expired at
various times during 2001. As of the date of the merger, $502,000 of funding was
still available under those grants. We did not recognize revenue for these
grants for the period from the date of the merger to December 31, 2000. In April
2001 we were awarded a grant from the NIH of up to $303,000 to advance the
development of a vaccine for the prevention of malaria based on our QS-21
adjuvant technology. At December 31, 2001, we had $395,000 of funding available
under these grants and for the year ended December 31, 2001 we recognized grant
revenue of $410,000 which is included in research and development revenue in our
consolidated statement of operations.

We entered into a license agreement with Neuralab Limited, a wholly-owned
subsidiary of Elan Corporation, p.l.c., that grants exclusive, worldwide rights
to use QS-21 with an undisclosed antigen in the field of Alzheimer's disease. We
also signed a supply agreement for the adjuvant. Elan initiated a phase IIA
clinical trial of a product using QS-21 during 2001 and under the terms of our
license agreement, we received a $1,000,000 milestone payment. In March 2002,
Elan halted dosing of patients with this product after several patients
experienced significant adverse side effects.

(12) RELATED PARTY TRANSACTIONS

On August 24, 2000, we assumed the seven-year lease for our New York City
headquarters (see Note 13) from an entity wholly-owned by our chief executive
officer. No consideration was paid or received as a result of our assumption of
the lease. The lease for the New York City headquarters was signed in November
1999; prior to such time, we rented the headquarters space on a month-to-month
basis from the same affiliate. Rent, recorded at the affiliate's cost, was
allocated to us based on square footage and clerical staff

usage, respectively, which management believes is reasonable. Such transactions
amounted to approximately $281,000, and $268,000 for the years ended December
31, 1999 and 2000, respectively. As of December 31, 2000, the affiliated entity
was indebted to us for $376 for costs paid on the affiliated entity's behalf.

(13) LEASES

We lease administrative, laboratory, and office facilities under various
long-term lease arrangements. Rent expense, exclusive of the amounts paid to the
affiliate (see Note 12), was approximately $560,000, $979,000, and $2,326,000
for the years ended December 31, 1999, 2000, and 2001, respectively.

The future minimum rental payments under our leases of our Woburn and
Framingham, Massachusetts manufacturing and laboratory facilities, which expire
in 2003 and 2010, respectively, our Netherlands facility which expires 2007, and
our New York City headquarters, which expires in 2006, are as follows (in
thousands):

Year ending December 31:

2002...................................................... $ 2,854
2003...................................................... 2,454
2004...................................................... 1,569
2005...................................................... 1,569
2006...................................................... 1,589
Thereafter................................................ 3,672
--------
$13,707
========

In connection with the New York City office space and the Framingham facility we
maintain fully collateralized letters of credit of $78,000 and $756,000,
respectively. No amounts have been drawn on the letters of credit as of December
31, 2001.

Included in accrued liabilities and other long-term liabilities on the
consolidated balance sheet at December 31, 2001 are amounts due under our
non-cancelable lease (net of estimated sub-lease income) of the manufacturing,
research, and office facility located in Houston, Texas assumed in the Aronex
Pharmaceuticals merger (see Note 3). Remaining minimum payments are: in 2002
--$725,000; in 2003 through 2006 --$755,000 per year; and thereafter --
$818,000.

(14) DEBT

We had a $5 million credit facility from a financial institution pursuant to
which we drew down amounts to make or refinance certain capital expenditures. As
we utilized the credit facility, separate term notes were executed. Each term
loan has a term of forty-two months and the interest rate is fixed at the
closing of each term loan (13.95% to 15.08%). Each loan is collateralized by the
equipment, fixtures, and improvements acquired with the proceeds of the loan.

In connection with our mergers with Aquila Biopharmaceuticals and Aronex
Pharmaceuticals (see Note 3) we assumed the liabilities of each company,
including various existing debt agreements. Outstanding at the Aquila
Biopharmaceuticals merger date were debentures of approximately $204,000 with an
interest rate of 7%, these debentures are callable and accordingly, are
classified as part of our short-term debt. We also assumed term loan agreements
with outstanding balances of approximately $3,561,000 at the date of the
mergers. These loans call for interest at fixed interest rates ranging from
10.38% to 13 % with monthly repayments and a 10% balloon payment of $1,427,429
due at the end of the loan term (2002). Collateral for the loans consists of
equipment and leasehold improvements.

In addition, in connection with our merger with Aronex Pharmaceuticals we
assumed a $2,500,000 convertible note payable. This note bears interest at 10%
per annum payable semi-annually, with the principal due May 21, 2002. This note
can be converted into our common stock at $73.23 per share at the note holder's
option.

We have included all amounts payable under the term loans assumed in the Aronex
Pharmaceuticals merger as current in our consolidated balance sheet due to the
abandonment of the Houston facility and the transfer of certain equipment to our
Woburn facility. Under the terms of the debt agreement, once the collateral is
moved from the location the balance becomes due immediately.

The aggregate maturities of the term loans for each of the years subsequent to
December 31, 2001 are as follows: 2002 -- $5,902,000; and 2003 -- $194,000.

(15) CONTINGENCIES

In February 1999, Aquila Biopharmaceuticals received a letter from its
predecessor, Cambridge Biotechnology Corporation (CBC), alleging that we must
indemnify CBC under a Master Acquisition Agreement among Aquila
Biopharmaceuticals, CBC and bioMarieux, Inc. for potential losses from the
termination of CBC's rights under a license agreement. We have evaluated this
claim

and in the opinion of management, any potential liability will not have a
material adverse effect on our financial position, liquidity, or results of
operations.

We have received a Notice of Arbitration filed in the International Chamber of
Commerce Arbitration by DeLaval AB. Antigenics and DeLaval are parties to a
License Agreement concerning technology for the development of a vaccine against
bovine mastitis. We are obligated to make certain payments to DeLaval upon
issuance of certain patents and other related milestones. DeLaval claims in its
arbitration notice that we owe it $1.2 million for milestone payments ($600,000
is included in the accompanying consolidated balance sheets at December 31, 2000
and 2001 in accrued liabilities) in connection with the issuance of certain
patents. It is our position that we have rightfully withheld this payment as an
offset against prior payments exceeding $1.1 million made to DeLaval for
issuance of three prior patents, which DeLaval has wrongfully retained.
Subsequent to receiving such payments, DeLaval informed us that a number of
errors had been made in the application for these patents, several of which are
potentially material to the License Agreement and the underlying technology.
Moreover, DeLaval failed to make one or more corrective filings within the
allowable time. DeLaval has failed and refused to return or credit us for these
payments. Accordingly, we have responded to DeLaval's request for arbitration
and intend to defend vigorously against these claims. The arbitration is in its
initial stages, and thus the outcome is uncertain.

In February 2001 we filed a complaint against 8 Cabot Road Inc. and 12 Cabot
Road Inc. for breach of contract and against Susan F. Brand for breach of
fiduciary duty for failure to return a $350,000 deposit held in escrow in
connection with a purchase and sale agreement for property to expand our Woburn
facility. The defendants have filed an answer denying our allegations and have
asserted a counterclaim that we are improperly seeking a return of our deposit.
We have answered the counterclaim denying the defendants' allegations. We are
currently in the deposition process and intend to vigorously defend against
these claims. The deposit is included in other current assets in the
accompanying consolidated balance sheets at December 31, 2000 and 2001.

Antigenics, our Chairman and Chief Executive Officer-Garo Armen, and two
brokerage firms that served as underwriters in our initial public offering have
been named as defendants in a civil class action lawsuit filed on November 5,
2001 in the Federal District Court in the Southern District of New York. The
suit alleges that these underwriters charged secret excessive commission to
certain of their customers in return for allocations of our stock in the
offering. The suit also alleges that shares of our stock were allocated to
certain of the underwriters' customers based upon an agreement by such customers
to purchase subsequent shares of our common stock in the secondary market. We
intend to vigorously defend against these claims.

(16) 401(K) PLAN

We sponsor a defined contribution 401(k) savings plan for all eligible
employees, as defined. Participants may contribute up to 15% of their
compensation, as defined, with a maximum of $10,500 in 2001. Each participant is
fully vested in his or her contributions and related earnings and losses. Prior
to January 1, 2001 we matched 100% of the participant's contribution and at that
time the matching was reduced to 75%. Such matching contributions vest over four
years. For the years ended December 31, 1999, 2000, and 2001, we charged
approximately $145,000, $204,000, and $464,000 to operations for the 401(k)
plan.

(17) SUBSEQUENT EVENT

In January 2002, pursuant to a Form S-3 Shelf Registration Statement filed on
December 5, 2001 with the Securities and Exchange Commission, we sold 4,000,000
shares of our common stock, $0.01 par value, at $15.00 per share. We received
net proceeds of approximately $56 million.

(18) QUARTERLY FINANCIAL DATA (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED
--------------------------------------------------------------
2001 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------- --------- ------------- ------------

Net sales ................... $ 883 $ 1,278 $ 794 $ 1,599
Gross profit ................ 657 923 687 1,223
Net loss .................... (7,307) (8,425) (44,003) (13,805)
Net loss per share, basic and
diluted ................... $ (0.27) $ (0.31) $ (1.53) $ (0.48)

THREE MONTHS ENDED
---------------------------------------------------------------
2000 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------- ---------- ------------- ------------

Net sales ................... $ -- $ -- $ -- $ 443
Gross profit ................ -- -- -- 79
Net loss .................... (4,363) (4,846) (4,751) (32,769)
Net loss per share, basic and
diluted ................... $ (0.19) $ (0.20) $ (0.19) $ (1.32)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The response to this item is incorporated by reference into this Annual Report
on Form 10-K from the discussion responsive thereto under the caption "Election
of Directors" in our Proxy Statement relating to our 2002 Annual Meeting of
Stockholders scheduled for May 22, 2002.

ITEM 11. EXECUTIVE COMPENSATION

The response to this item is incorporated by reference into this Annual Report
on Form 10-K from the discussion responsive thereto under the caption "Executive
Compensation" in our Proxy Statement relating to our 2002 Annual Meeting of
Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The response to this item is incorporated by reference into this Annual Report
on Form 10-K from the discussion responsive thereto under the caption "Share
Ownership" in our Proxy Statement relating to our 2002 Annual Meeting of
Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The response to this item is incorporated herein by reference from the
discussion responsive thereto under the captions, "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and Related
Transactions" in our Proxy Statement relating to our 2002 Annual Meeting of
Stockholders.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) 1. CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements are listed under Item 8 of this
report.

2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

The financial statement schedules required under this Item and Item 14(d)
are omitted because they are not applicable or required information is shown in
the financial statements or the footnotes thereto.

(b) REPORTS ON FORM 8-K

We did not file any Current Reports on Form 8-K in the last quarter of
2001.

EXHIBIT INDEX

---------------------------------------------------------------------------------------------------------------------------
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
---------------------------------------------------------------------------------------------------------------------------

2.1 Agreement and Plan of Merger dated as of August 18, 2000, among Antigenics Inc., St. Marks Acquisition Corp. and
Aquila Biopharmaceuticals, Inc. Filed as Exhibit 99.1 to our Report on Form 8-K dated August 18, 2000 (File No.
000-29089) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
2.2 Agreement and Plan of Merger, dated as of April 23, 2001, among Antigenics Inc., Nasa Merger Corp. and Aronex
Pharmaceuticals, Inc. Filed as Exhibit 2.1 to our Report on Form 8-K (File No. 0-29089) dated April 23, 2001 and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of Antigenics Inc. Filed as Exhibit 3.1 to our registration statement on Form S-1
(File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
3.2 By-laws of Antigenics Inc. Filed as Exhibit 3.2 to our registration statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.1 Form of Common Stock Certificate. Filed as Exhibit 4.1 to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.2 Form of Warrant to purchase Common Stock, together with a list of holders. Filed as Exhibit 4.2 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.3 Form of Subscription Agreement, as amended, together with a list of parties thereto. Filed as Exhibit 4.3 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.4 Form of Debenture. Filed as exhibit 4.1 to the Report on Form 8-K of Aquila Biopharmaceuticals, Inc. (File No.
0-12081) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.5 Form of Common Stock Purchase Warrant. Filed as Exhibit 4.2 to the Report on Form 8-K (File No. 0-20111) of Aronex
Pharmaceuticals, Inc. dated April 17, 2000 and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.6 Form of Common Stock Purchase Warrant. Filed as Exhibit 4.3 to the Report on Form 8-K (File No. 0-20111) of Aronex
Pharmaceuticals, Inc. dated April 17, 2000 and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.7 Registration Rights Agreement dated August 2, 1989 by and among Aronex Pharmaceuticals, Inc. and certain of its
stockholders. Filed as Exhibit 10.2 to the registration statement on Form S-1 (File No. 333-47418) of Aronex
Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.8 First Amendment to Registration Rights Agreement dated April 18, 1990, by and among Aronex Pharmaceuticals, Inc.
and certain of its stockholders. Filed as Exhibit 10.3 to the registration statement on Form S-1 (File No.
333-47418) of Aronex Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.9 Second Amendment to Registration Rights Agreement dated October 31, 1991, by and among Aronex Pharmaceuticals,
Inc. and certain of its stockholders. Filed as Exhibit 10.4 to the registration statement on Form S-1 (File No.
333-47418) of Aronex Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------

4.10 Third Amendment to Registration Rights Agreement, dated September 10, 1993, among Aronex Pharmaceuticals, Inc. and
certain of its stockholders. Filed as Exhibit 10.24 to the registration statement on Form S-1 (File No. 333-71166)
of Aronex Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.11 Fourth Amendment to Registration Rights Agreement dated January 20, 1994, among Aronex Pharmaceuticals and certain
of its stockholders. Filed as Exhibit 10.5 to the Annual Report on Form 10-K/A for the year ended December 31,
1999 (File No. 0-20111) of Aronex Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.12 Form of Warrant to Purchase of Common Stock issued to Paramount Capital Inc. Filed as Exhibit 1.2 to the
registration statement on Form S-1 (File No. 333-67599) of Aronex Pharmaceuticals, Inc. and incorporated herein by
reference.
---------------------------------------------------------------------------------------------------------------------------
4.13 10% Convertible Note, dated May 21, 1999, by Aronex Pharmaceuticals made payable to Genzyme Corporation. Filed as
Exhibit 10.2 to Report on Form 8-K (File No. 0-20111) of Aronex Pharmaceuticals, Inc. dated June 4, 1999 and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.14 Common Stock Purchase Warrant issued to Genzyme Corporation. Filed as Exhibit 10.3 to Report on Form 8-K (File No.
0-20111) of Aronex Pharmaceuticals, Inc. dated June 4, 1999 and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.1* 1999 Equity Incentive Plan. Filed as Exhibit 10.1 to our registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.2* 1999 Employee Stock Purchase Plan. Filed as Exhibit 10.2 to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.3 Founding Scientist's Agreement between Antigenics and Pramod K. Srivastava, Ph.D. dated March 28, 1995. Filed as
Exhibit 10.3 to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.4 Form of Indemnification Agreement between Antigenics and its directors and executive officers. These agreements
are materially different only as to the signatories and the dates of execution. Filed as Exhibit 10.4 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.5 Lease Agreement between Antigenics and Cummings Property Management, Inc. dated May 28, 1998, as amended on
December 10, 1998. Filed as Exhibit 10.5 to our registration statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.6 License Agreement between GHA Management Corporation and Antigenics dated November 12, 1999. Filed as Exhibit 10.6
to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.7 Master Loan and Security Agreement between Antigenics and Finova Technology Finance, Inc. dated November 19, 1998.
Filed as Exhibit 10.7 to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by
reference.
---------------------------------------------------------------------------------------------------------------------------
10.8(1) Patent License Agreement between Antigenics and Mount Sinai School of Medicine dated November 1, 1994, as amended
on June 5, 1995. Filed as Exhibit 10.8 to our registration statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------

10.9(1) Sponsored Research and Technology License Agreement between Antigenics and Fordham University dated March 28,
1995, as amended on March 22, 1996. Filed as Exhibit 10.9 to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.10(1) Research Agreement between Antigenics and The University of Connecticut Health Center dated February 18, 1998.
Filed as Exhibit 10.10 to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by
reference.
---------------------------------------------------------------------------------------------------------------------------
10.11(1) License Agreement between Antigenics and Duke University dated March 4, 1999. Filed as Exhibit 10.11 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.12(1) License Agreement between Antigenics and University of Miami dated April 12, 1999. Filed as Exhibit 10.12 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.13(1) Letter Agreement between Antigenics and Sigma-Tau Industrie Farmaceutiche Riunite SpA dated June 3, 1998. Filed as
Exhibit 10.13 to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.14 Letter Agreement between Antigenics and Medison Pharma Ltd. dated November 15, 1999. Filed as Exhibit 10.14 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.15 Amendment to Letter Agreement between Antigenics and Sigma-Tau Industrie Farmaceutiche Riunite SpA dated October
20, 1999. Filed as Exhibit 10.15 to our registration statement on Form S-1 (File No. 333-91747) and incorporated
herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.16* Employment Agreement between Antigenics and Elma Hawkins, Ph.D. dated June 1, 1998. Filed as Exhibit 10.16 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.17* Antigenics 401(k) Plan. Filed as Exhibit 10.17 to our registration statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.18* Antigenics L.L.C. Incentive Equity Plan. Filed as Exhibit 10.18 to our registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.19 Subscription Agreement dated May 18, 2000 between Antigenics and Applied Genomic Technology Capital Fund L.P.
Filed as Exhibit 10.1 to our quarterly report on Form 10-Q for the quarter ended June 30, 2000 (File No.
000-29089) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.20 Assignment Agreement among RCPI Trust, GHA Management Corporation and Antigenics dated August 24, 2000. Filed as
Exhibit 10.20 to our registration statement on Form S-4 (File No. 333-46168) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.21 Master Loan and Security Agreement dated July 15, 1998 by and between Aquila Biopharmaceuticals, Inc. and
Transamerica Business Credit Corporation. Filed as Exhibit 4.3 to the annual report on Form 10-K for the year
ended December 31, 1998 of Aquila Biopharmaceuticals, Inc. (File No. 0-12081) and incorporated herein by
reference.
---------------------------------------------------------------------------------------------------------------------------

10.22 Lease Agreement by and between Aquila Biopharmaceuticals, Inc. and NDNE 9/90 Corporate Center LLC effective
September 9, 1998. Filed as Exhibit 10.2 to Amendment No. 1 to registration statement on Form S-3 of Aquila
Biopharmaceuticals, Inc. (File No. 333-46641) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.23(1) Exclusive License Agreement, dated October 15, 1986, between Aronex Pharmaceuticals, Inc., The University of Texas
System Board of Regents and The University of Texas M.D. Anderson Cancer Center. Filed as Exhibit 10.8 to the
registration statement on Form S-1 (File No. 333-47418) of Aronex Pharmaceuticals, Inc. and incorporated herein by
reference.
---------------------------------------------------------------------------------------------------------------------------
10.24(1) Exclusive License Agreement, dated July 1, 1988, between Aronex Pharmaceuticals, The University of Texas System
Board of Regents and The University of Texas M.D. Anderson Cancer Center, together with amendments and extensions
thereto. Filed as Exhibit 10.10 to the registration statement on Form S-1 (File No. 333-47418) of Aronex
Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.25(1) Amendment No. 2 to Exclusive License Agreement, dated July 9, 1993, among Aronex Pharmaceuticals, The University
of Texas System Board of Regents and The University of Texas M.D. Anderson Cancer Center. Filed as Exhibit 10.20
to the registration statement on Form S-1 (File No. 333-71166) of Aronex Pharmaceuticals, Inc. and incorporated
herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.26(1) License Agreement, dated December 12, 2000 between Aronex Pharmaceuticals and Sumitomo Pharmaceuticals Co., Ltd.
Filed as Exhibit 10.1 to Report on Form 8-K (File No. 0-20111) of Aronex Pharmaceuticals, Inc. dated December 12,
2000 and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
21.1 Subsidiaries of the Company. Filed herewith.
---------------------------------------------------------------------------------------------------------------------------
23.1 Consent of KPMG LLP, independent accountants. Filed herewith.
---------------------------------------------------------------------------------------------------------------------------
99.1 Risk Factors. Filed herewith.
---------------------------------------------------------------------------------------------------------------------------

* Indicates a management contract or compensatory plan.

(1) Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended or Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ANTIGENICS INC.

By: /S/ Garo H. Armen
-----------------------------------------------
Garo H. Armen
Chief Executive Officer and Chairman of the
Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/S/ Garo H. Armen Chief Executive Officer and March 28, 2002
------------------------------------- Chairman of the Board of Directors
Garo H. Armen, Ph.D. (Principal Executive Officer and Principal
Financial and Accounting Officer)

/S/ Pramod Srivastava, Ph.D. Director March 28, 2002
-------------------------------------
Pramod Srivastava, Ph.D.

/S/ Noubar Afeyan, Ph.D. Director March 28, 2002
-------------------------------------
Noubar Afeyan, Ph.D.

/S/ Gamil de Chadarevian Vice Chairman of the Board of Directors March 28, 2002
-------------------------------------
Gamil de Chadarevian

/S/ Tom Dechaene Director March 28, 2002
-------------------------------------
Tom Dechaene

/S/ Martin Taylor Director March 28, 2002
-------------------------------------
Martin Taylor

/S/ Sanford Litvack Director March 28, 2002
-------------------------------------
Sanford Litvack

/S/ Samuel Waksal Director March 28, 2002
-------------------------------------
Samuel Waksal

EXHIBIT INDEX

statement on Form S-1 (File No. 333-71166) of Aronex Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.11 Fourth Amendment to Registration Rights Agreement dated January 20, 1994, among Aronex Pharmaceuticals and certain
of its stockholders. Filed as Exhibit 10.5 to the Annual Report on Form 10-K/A for the year ended December 31,
1999 (File No. 0-20111) of Aronex Pharmaceuticals, Inc. and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.12 Form of Warrant to Purchase of Common Stock issued to Paramount Capital Inc. Filed as Exhibit 1.2 to the
registration statement on Form S-1 (File No. 333-67599) of Aronex Pharmaceuticals, Inc. and incorporated herein by
reference.
---------------------------------------------------------------------------------------------------------------------------
4.13 10% Convertible Note, dated May 21, 1999, by Aronex Pharmaceuticals made payable to Genzyme Corporation. Filed as
Exhibit 10.2 to Report on Form 8-K (File No. 0-20111) of Aronex Pharmaceuticals, Inc. dated June 4, 1999 and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
4.14 Common Stock Purchase Warrant issued to Genzyme Corporation. Filed as Exhibit 10.3 to Report on Form 8-K (File No.
0-20111) of Aronex Pharmaceuticals, Inc. dated June 4, 1999 and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.1* 1999 Equity Incentive Plan. Filed as Exhibit 10.1 to our registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.2* 1999 Employee Stock Purchase Plan. Filed as Exhibit 10.2 to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.3 Founding Scientist's Agreement between Antigenics and Pramod K. Srivastava, Ph.D. dated March 28, 1995. Filed as
Exhibit 10.3 to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.4 Form of Indemnification Agreement between Antigenics and its directors and executive officers. These agreements
are materially different only as to the signatories and the dates of execution. Filed as Exhibit 10.4 to our
registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.5 Lease Agreement between Antigenics and Cummings Property Management, Inc. dated May 28, 1998, as amended on
December 10, 1998. Filed as Exhibit 10.5 to our registration statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.6 License Agreement between GHA Management Corporation and Antigenics dated November 12, 1999. Filed as Exhibit 10.6
to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------
10.7 Master Loan and Security Agreement between Antigenics and Finova Technology Finance, Inc. dated November 19, 1998.
Filed as Exhibit 10.7 to our registration statement on Form S-1 (File No. 333-91747) and incorporated herein by
reference.
---------------------------------------------------------------------------------------------------------------------------
10.8(1) Patent License Agreement between Antigenics and Mount Sinai School of Medicine dated November 1, 1994, as amended
on June 5, 1995. Filed as Exhibit 10.8 to our registration statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
---------------------------------------------------------------------------------------------------------------------------

* Indicates a management contract or compensatory plan.