As many of you know, a central objective of our business model is the development of our own products. We help to fund our product programs by selectively outlicensing our Tumor-Activated Prodrug (TAP) technology to other companies for use with their proprietary antibodies. Our TAP technology is designed to increase the anticancer power of tumor-targeting monoclonal antibodies while maintaining the good tolerability that antibody-based treatments can offer.

Our Clinical-Stage TAP Compounds

Partly as a result of the collaboration we established with Aventis, we now have the financial wherewithal to conduct our own clinical trials with the huN901-DM1 and cantuzumab mertansine before we determine whether to partner either or both.

HuN901-DM1 targets the cell-surface antigen CD56 found on small-cell lung cancers (SCLC), other neuroendocrine cancers, and certain hematologic malignancies including multiple myeloma. In January 2004, we regained all rights to this compound from Vernalis (formerly British Biotech). We recently assumed responsibility for the Phase I/II study that is underway in the United States, while Vernalis continues to conduct the Phase I study initiated in the United Kingdom. We expect these trials to provide information important for the development of huN901-DM1 for SCLC and other types of CD56-expressing solid tumors. Indeed, the initial clinical findings indicate that this compound is well tolerated at doses that show evidence of biological activity.

Now that we control the development of huN901-DM1, we plan to assess its usefulness in a hematologic cancer setting as well – specifically multiple myeloma. And depending upon the outcome of this study, a shorter development pathway than for SCLC may emerge. We expect to begin patient dosing in this new study within the next six months.

Our other wholly-owned clinical product, cantuzumab mertansine, targets the CanAg antigen found on colorectal, pancreatic, other gastrointestinal cancers, and many non-small-cell lung cancers. In Phase I trials conducted by a former partner, this compound also was found to be well tolerated and to demonstrate evidence of biological activity. We are preparing to start our own clinical program with cantuzumab mertansine, or a slightly modified version of it, to establish its clinical utility, and expect to begin patient dosing in 2005.

Progress by Our Partners

Our technology outlicense partner, Millennium Pharmaceuticals, Inc., is investigating MLN2704 in Phase I/II trials. MLN2704 is composed of the Millennium MLN591 antibody and our DM1. In June 2004, the first clinical data were reported on this compound. In a Phase I study in patients with androgen-independent metastatic prostate cancer, MLN2704 was found to be well tolerated. Additionally, evidence of anticancer activity was reported, including significant tumor shrinkage.

Another of our technology outlicense partners, Boehringer Ingelheim, has several clinical trials underway with its TAP compound, bivatuzumab mertansine, in Europe.

Our collaborator Aventis is also making progress, and we expect the first product candidate to come out of this relationship – the anti-CD33 TAP compound for acute myeloid leukemia – to advance into the clinic in the near future.

Enhancement of Our Infrastructure

To support the progress being made by us and by our partners, we’ve expanded our infrastructure in key areas. We’ve established a clinical department, headed by a very experienced oncologist, to lead the development of huN901-DM1 and cantuzumab mertansine. We’ve enhanced our regulatory department to support the clinical advancement of our compounds and those of our partners. And we’ve increased our manufacturing capacity and added headcount in production, process development, quality systems, and related functions.

We ended our 2004 fiscal year with several TAP compounds in clinical trials, multiple partnerships in place with major pharmaceutical and biotech companies, and $94.6 million in cash and marketable securities.

We and our partners continue to make solid progress, and I look forward to updating you on our advances as they develop.

Sincerely,

Mitchel Sayare, Ph.D.

Chairman, President, and Chief Executive Officer

September 10, 2004

Notice on Forward-Looking Statements