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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the Period From _____ to _____

Commission File Number: 0-19986

CELL GENESYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware 94-3061375
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)

342 Lakeside Drive, Foster City, California 94404
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code:
(650) 425-4400

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 [ ]

As of August 1, 1998, the number of outstanding shares of the Registrant's
Common Stock was 28,450,809.

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CELL GENESYS, INC.

TABLE OF CONTENTS

PAGE
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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements:

a. Condensed Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997.................................................................3

b. Condensed Consolidated Statements of Operations - Three and Six Months
Ended June 30, 1998 and 1997......................................................4

c. Condensed Consolidated Statements of Cash Flows -Six Months Ended
June 30, 1998 and 1997............................................................5

d. Notes to Condensed Consolidated Financial Statements..............................6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................8

Item 3. Quantitative and Qualitative Disclosures about Market Risk...........................16

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders..................................17

Item 6. Exhibits and Reports on Form 8-K.....................................................18

SIGNATURES....................................................................................18

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CELL GENESYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

JUNE 30, DECEMBER 31,
1998 1997
--------------------------
(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents........................... $ 2,446 $ 10,631
Short-term investments.............................. 65,263 78,185
Prepaid expenses and other current assets........... 3,264 2,943
--------------------------
Total current assets................................... 70,973 91,759

Property and equipment at cost, net.................... 12,568 13,815
Deposits and other assets, net......................... 1,211 1,313
--------------------------
$ 84,752 $ 106,887
==========================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and other accrued liabilities...... $ 7,693 $ 8,405
Deferred revenue.................................... 2,186 5,993
Accrued acquisition related costs................... 1,044 1,648
Current portion of property and equipment
financing......................................... 4,805 5,159
Contribution payable to related party............... 3,750 3,750
Convertible note payable............................ 15,000 15,000
--------------------------
Total current liabilities.............................. 34,478 39,955

Noncurrent portion of property and equipment
financing........................................... 9,460 11,082

Redeemable convertible preferred stock................. 19,817 19,817
Minority interest in the equity of subsidiary.......... 17,225 17,392

Stockholders' equity:
Common stock........................................ 28 28
Additional paid-in capital.......................... 200,848 199,495
Deferred compensation of subsidiary................. (1,470) (1,319)
Accumulated deficit................................. (195,634) (179,563)
--------------------------
Total stockholders' equity............................. 3,772 18,641
--------------------------
$ 84,752 $ 106,887
==========================

See accompanying notes

CELL GENESYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
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(In thousands, except per share data)

Revenue under collaborative agreements........... $ 2,934 $ 3,992 $ 7,498 $ 11,896

Operating expenses:
Research and development....................... 10,879 8,017 23,346 16,351
General and administrative .................... 2,230 2,930 5,214 5,066
Charge for purchased in-process technology..... -- 72,270 -- 72,270
Restructuring costs related to acquisition..... -- 6,576 -- 6,576
Charge for cross-license and settlement
(includes $3,750 equity in losses of
Xenotech joint venture associated with
cross-license and settlement)............... -- -- -- 15,000
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Total operating expenses......................... 13,109 89,793 28,560 115,263

Interest income.................................. 1,030 1,055 2,255 2,119
Interest expense................................. (727) (783) (1,398) (1,071)
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Net loss before minority interest................ (9,872) (85,529) (20,205) (102,319)

Loss attributed to minority interest............. 1,546 -- 4,192 -- --
---------------------------------------------------------
Net loss......................................... $ (8,326) $ (85,529) $ (16,013) $ (102,319)
=========================================================

Net loss per share............................... $ (0.29) $ (4.20) $ (0.57) $ (5.55)
=========================================================

Shares used in computing net loss per share...... 28,335 20,348 28,273 18,447
=========================================================

See accompanying notes

CELL GENESYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

SIX MONTHS ENDED JUNE 30,
1998 1997
--------------------------
(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................. $ (16,013) $ (102,319)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization...................... 2,507 2,356
Amortization of deferred compensation ............. 528 --
of subsidiary
Minority interest in net loss of subsidiary........ (4,192) --
Equity in losses of Xenotech joint venture......... 118 133
Charge for purchased in-process technology......... -- 72,270
Restructuring charges.............................. -- 4,021
Charge for cross-license and settlement ........... -- 15,000
Changes to:
Prepaid expenses and other assets.................. 433 (1,135)
Accounts payable and other accrued ................ (2,696) (1,911)
liabilities
Accrued compensation and benefits.................. 518 (1,241)
Deferred revenue from related parties.............. (3,807) (3,720)
Accrued construction costs......................... 102 (2,053)
Accrued legal expenses............................. 418 (1,323)
Accrued acquisition related costs.................. (604) --
--------------------------
Net cash used in operating activities......... (22,688) (19,922)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments.................. (22,386) (23,287)
Maturities of short-term investments................. 9,000 2,919
Sales of short-term investments...................... 26,255 24,948
Purchase of subsidiary, net of cash acquired ........ -- 2,842
Contributions to Xenotech joint venture ............. (8) (83)
Capital expenditures................................. (151) (284)
--------------------------
Net cash provided by investing activities..... 12,710 7,055
--------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from minority interest investment
in subsidiary...................................... 3,944 --
Proceeds from issuance of common stock............... 759 288
Proceeds from property and equipment financing....... -- 4,546
Payments under property and equipment
financing obligations.............................. (2,910) (1,768)
--------------------------
Net cash provided by financing activities..... 1,793 3,066
--------------------------

Net decrease in cash and cash equivalents............... (8,185) (9,801)
Cash and cash equivalents at beginning of period........ 10,631 20,935
--------------------------
Cash and cash equivalents at end of period.............. $ 2,446 $ 11,134
==========================

See accompanying notes

CELL GENESYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements at June 30,
1998 and for the three and six months ended June 30, 1998 and 1997 include the
accounts of Cell Genesys, Inc., including its subsidiaries Abgenix, Inc. and,
from May 30, 1997, the date of acquisition, Somatix Therapy Corporation
(collectively, the "Company"). These statements are unaudited, but include all
of the adjustments, consisting only of normal recurring adjustments, which the
management of the Company considers necessary for a fair presentation of the
Company's financial position at such dates and the operating results and cash
flows of those periods. The results of the interim periods are not necessarily
indicative of the results for the entire year. The balance sheet and
accompanying notes at December 31, 1997 have been condensed from the audited
financial statements included in the Company's filing on Form 10-K.

The condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report for the year ended December 31, 1997 included in its
filing on Form 10-K.

COMPREHENSIVE INCOME (LOSS)

As of January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components.
Comprehensive income(loss) is comprised of net income(loss) and other
comprehensive income(loss). The measurement and presentation of net income(loss)
will not change. Other comprehensive income(loss) includes certain changes to
stockholders' equity of the Company that are excluded from net income(loss).
Specifically, SFAS 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholders' equity, to be included in other comprehensive income (loss).
Prior year financial statements will be reclassified to conform to the
requirements of SFAS 130.

Total comprehensive loss amounted to $8.3 million and $85.3 million for the
three months ended June 30, 1998 and 1997, and $16.1 million and $102.2 million
for the six months ended June 30, 1998 and 1997, respectively.

2. CHARGE FOR CROSS-LICENSE AND SETTLEMENT

2. CHARGE FOR CROSS-LICENSE AND SETTLEMENT (CONTINUED)

GenPharm. During 1997, two patent milestones of $7.5 million each under the
agreement were met. Xenotech recognized expense of $15.0 million, $7.5 million
of which was paid in cash with the remainder to be paid in November 1998. During
1997, Abgenix recognized an expense of $7.5 million for its contribution due to
Xenotech for its share of the patent milestone obligations, of which $3.75
million was paid in cash and $3.75 million is accrued at June 30, 1998. The
balance of the patent milestone obligations is the responsibility of Japan
Tobacco. No additional milestone payments will accrue under this agreement.

3. MINORITY INTEREST

Minority interest in the equity of subsidiary represents the minority
stockholders' proportionate share of the equity of Abgenix, Inc. (Abgenix). In
December 1997, Abgenix issued 2,846,542 shares of Series B redeemable
convertible preferred stock at $6.50 per share to the minority stockholders for
net aggregate proceeds of $17.0 million (net of $1.5 million of issuance costs).
In addition, at December 31, 1997, Abgenix held subscriptions for 421,143 shares
of Series B redeemable convertible preferred stock. Proceeds of $2.7 million
(net of $81,000 of issuance costs) from these subscriptions were received in
January 1998. Also in January 1998, Abgenix issued 160,000 shares of Series C
redeemable convertible preferred stock at $8.00 per share for net proceeds of
$1.3 million. These shares were converted into common stock upon the completion
of Abgenix's initial public offering (see footnote 4). At June 30, 1998 and
December 31, 1997, the Company owned approximately 54% and 55%, respectively, of
Abgenix. The Company attributed $4.2 million of the losses of Abgenix for the
six months ended June 30, 1998 to the minority stockholders.

4. SUBSEQUENT EVENT

Abgenix' initial public offering

On July 2, 1998, Abgenix completed an initial public offering of 2,500,000
shares of common stock at $8.00 per share, resulting in gross proceeds of $20
million. In addition, $3 million was received from the exercise of the
underwriter's overallotment of 375,000 shares. The combined transactions reduced
Cell Genesys' percentage ownership of Abgenix from 54% to approximately 40%.
From July 2, 1998 forward, Abgenix will be accounted for under the equity
method. As a result of the initial public offering and the equity method of
accounting, the Company's net assets were increased by approximately $23
million in July 1998.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Statements made in this Item other than statements of historical fact,
including statements about the Company's and its subsidiary's clinical trials,
research programs, product pipelines, current and potential corporate
partnerships, licenses and intellectual property and anticipated operating
results and cash expenditures are forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. As such, they are subject to a number of uncertainties
that could cause actual results to differ materially from the statements made,
including risks associated with the success of research and product development
programs, the issuance and validity of patents, the development and protection
of proprietary technology, operating expense levels and the ability to establish
and retain corporate partnerships. Reference is made to discussions about risks
associated with product development programs, intellectual property and other
risks which may affect the Company under "Risk Factors" below. The Company does
not undertake any obligation to update forward-looking statements. The following
should be read in conjunction the Company's Annual Report for the year ended
December 31, 1997 included in its filing on Form 10-K.

OVERVIEW

Since its inception in April 1988, Cell Genesys has focused its research
and product development efforts on human disease therapies which are based on
innovative gene modification technologies. Cell Genesys' strategic objective is
to develop and commercialize ex vivo and in vivo gene therapies to treat major,
life-threatening diseases and disorders. Cell Genesys' AIDS gene therapy
currently is in Phase II human clinical testing and is being developed through a
worldwide collaboration with Hoechst Marion Roussel. Two types of cancer gene
therapies, for which Cell Genesys currently has worldwide rights, are in Phase
I/II human clinical testing for the treatment of colon cancer, lung cancer,
melanoma and prostate cancer. Preclinical studies are being conducted by Cell
Genesys for the treatment of other cancer indications as well as for hemophilia,
cardiovascular disease and Parkinson's disease. Cell Genesys' assets outside of
gene therapy include its licensing program in gene activation technology and its
Abgenix subsidiary, which is focused on the development and commercialization of
antibody therapies.

During 1997 and the first half of 1998, Cell Genesys made extensive
progress in its gene therapy programs. For the treatment of HIV infection, Phase
II human clinical studies were expanded using T cell AIDS gene therapy, based on
encouraging data from earlier clinical studies and widespread medical reports
about the inability of current drug therapies to eradicate reservoirs of HIV,
the AIDS-causing virus. For the treatment of cancer, Phase I/II human clinical
studies were initiated testing T cell cancer gene therapy for colon cancer and
testing the GVAX (TM) cancer vaccine for melanoma, lung cancer and prostate
cancer. Work is also progressing on the Company's preclinical programs in the
areas of Hemophilia, Cardiovascular disease and central nervous system
disorders.

In May 1997, Cell Genesys acquired Somatix Therapy Corporation ("Somatix"),
establishing a leadership position in gene therapy. Product research and
development programs of the two companies were highly complementary, with Cell
Genesys focused on the treatment of AIDS and cancer, and Somatix focused on
cancer, central nervous system diseases and other disorders. Technology research
and development programs also were highly complementary, with synergies in the
retroviral and adenoviral vector programs of both companies and with new
adeno-associated viral and lentiviral vector programs contributed by Somatix.
Integration of the two companies was completed by the end of 1997, including
prioritizing the most promising programs and significantly reducing overall
expenses of the combined businesses. With the combined portfolio of product
opportunities, technologies and intellectual property, Cell Genesys believes it
has substantially increased its ability to attract new corporate collaborations
to advance product candidates through development and commercialization and also
has expanded its opportunities to license additional therapeutic genes from
other companies and research institutes needed to create new gene therapies.

9
The Company's net cash expenditures for 1998 in its gene therapy operations
(excluding Abgenix, which will not be consolidated after July 2, 1998) are not
expected to exceed approximately $25 million and the Company intends to manage
toward this net cash expenditure target. The Company may from time to time
evaluate opportunities to acquire or in-license other potential products and
technologies. Expenses associated with in-licensing such products may constitute
unbudgeted expenses.

RESULTS OF OPERATIONS

Revenue decreased to $2.9 million and $7.5 million for the three and six
months ended June 30, 1998 from $4.0 million and $11.9 million for the three and
six months ended June 30, 1997, respectively. In 1995, the Company entered into
a collaboration agreement with Hoechst Marion Roussel, Inc. for Cell Genesys'
AIDS gene therapy program. A portion of the decrease in revenue reflects the
completion of the majority of the research under this program and the shift to
focus solely on human clinical trials. Hoechst Marion Roussel is funding this
clinical development program through 1998. In February 1997, Cell Genesys
entered into an agreement to license the Company's gene activation technology to
Hoechst Marion Roussel for erythropoietin (EPO) and a second undisclosed
protein. The agreement provides for milestone payments and annual maintenance
fees, in addition to royalties on future sales of these two potential
gene-activated protein products. The Company recognized revenue of $2.0 million
and $4.0 million for the six months ended June 30, 1998 and 1997, respectively,
pursuant to the agreement. Decreased revenues resulting from Abgenix' joint
venture ("Xenotech") with JT Immunotech in its human monoclonal antibody
program, were offset by revenue recognized under collaborative agreements
initiated with Pfizer, Inc., Schering-Plough Research Institute and Genentech,
Inc. in 1998.

Research and development expenses increased to $10.9 million and $23.3
million for the three and six months ended June 30, 1998 from $8.0 million and
$16.4 million for the three and six months ended June 30, 1997, respectively.
The increase reflects the costs of additional research staff transferred
following the acquisition of Somatix and expanding clinical development
activities for the Company's AIDS gene therapy and cancer gene therapy programs.
The increase also reflects Abgenix' contract manufacturing costs related to its
lead antibody product candidate. Research and development expenses generally
represent approximately 80% of the Company's total operating expenses, excluding
the effect of the non-recurring charge for the cross-license and settlement
agreement and the acquisition of Somatix and related restructuring charges
incurred in 1997. The Company expects that its research and development
expenditures will continue to increase to support additional product development
activities, particularly in the field of cancer, for which a number of trials
commenced in 1997. The rate of increase depends on a number of factors including
progress in research and development, especially clinical trials.

General and administrative expenses decreased to $2.2 million from $2.9
million for the three months ended June 30, 1998 and 1997, respectively. The
decrease resulted from an insurance reimbursement for litigation expenses
previously incurred. For the six months ended June 30, 1998, general and
administrative expenses increased to $5.2 million from $5.1 million for the same
period in the prior year. The increase reflects growth in administrative staff
and outside services required to support expanded research and development
programs. The Company expects these expenses to increase as these programs
expand.

Purchased in-process technology costs and restructuring costs related to
the acquisition of Somatix on May 30, 1997 totaling $78.9 million were incurred
in 1997. The fair value of the net assets acquired in the acquisition including
in-process technology were estimated based on independent valuations of the
acquired net assets. Other costs related to the acquisition consist primarily of
underwriting and other transaction related costs, employee severance payments,
consolidation of facilities and the write down of the book value of certain
fixed assets.

In 1997, the Company recognized a $15 million non-recurring, non-cash
charge related to the Company's cross-license and settlement agreement with
GenPharm International, Inc.

Interest income remained relatively constant at $1.0 million and $1.1
million for the three months ended June 30, 1998 and 1997, respectively, and
increased slightly to $2.3 million from $2.1 million for the six months ended
June 30, 1998 and 1997 respectively. Average cash balances were consistent for
the six months ended June 30, 1998 and 1997. Interest expense remained constant
at $727,000 and $783,000 for the three months ended June 30, 1998 and 1997,
respectively, and increased to $1.4 million from $1.1 million for the six months
ended June 30, 1998. The increase for the six months represents interest paid on
the note payable to GenPharm.

Cell Genesys' net loss decreased to $8.3 million and $16.0 million for the
three and six months ended June 30, 1998 from $85.5 million and $102.3 million
for the three and six months ended June 30, 1997, respectively. This was
primarily due to $78.9 million in non-recurring charges for the acquisition of
Somatix and related costs recognized in the second quarter 1997 and the
non-recurring $15.0 million charge related to the cross license and settlement
agreement recognized in the first quarter 1997. In addition, the Company
attributed $1.5 million and $4.2 million of the losses of Abgenix for the three
and six month periods ended June 30, 1998 to the minority stockholders. Net
loss, excluding non-recurring charges, are expected to continue and are likely
to increase in future years as operating expenses rise, particularly as the
Company incurs expenses related to manufacturing and later stage human testing
of its potential products.

LIQUIDITY AND CAPITAL RESOURCES

Cell Genesys has financed its operations primarily through the sale of
equity securities, funding under collaborative arrangements and equipment
financing. From inception through June 30, 1998, the Company received $169.7
million in net proceeds from equity financings, $96.2 million under
collaborative agreements and utilized $26.4 million of property and equipment
financings.

At June 30, 1998, Cell Genesys' cash, cash equivalents and short-term
investments totaled $60 million, excluding Abgenix' cash, cash equivalents and
short-term investments of $7.6 million. Cell Genesys's cash, cash equivalents
and short-term investments totaled to $73.5 million, excluding Abgenix' cash,
cash equivalents and short-term investments of $15.3 million at December 31,
1997. The decrease was primarily due to use of cash in operating activities. In
July 1998, Abgenix completed its initial public offering resulting in gross
proceeds of $23 million.

On March 27, 1997, the Company announced that, along with Abgenix,
Xenotech, L.P. ("Xenotech", an equal joint venture of Abgenix and Japan Tobacco)
and Japan Tobacco, it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm International, Inc. that resolved all related
litigation and claims between the parties. The cross-license agreement includes
a worldwide royalty free cross-license to all issued and related patent
applications pertaining to the generation of fully human monoclonal antibody
technologies in genetically modified strains of mice. The Company also obtained
a license to certain technology in the field of gene therapy held by GenPharm.
As consideration for the cross-license and settlement agreement, Cell Genesys
issued a note due September 30, 1998 for $15.0 million, convertible into shares
of Cell Genesys common stock, at $8.62 per share. Of this note, $3.75 million
was contributed to, then paid by Xenotech. The entire amount of the note was
recognized as expense by Abgenix in the first quarter of 1997 based on an
independent valuation analysis of technology acquired. In addition, Japan
Tobacco also made a cash payment to GenPharm. During 1997, two patent milestones
of $7.5 million each under the agreement were met. Xenotech recognized expense
of $15.0 million, $7.5 million of which was paid in cash with the remainder to
be paid in November 1998. During 1997, Abgenix recognized an expense of $7.5
million for its contribution due to Xenotech for its share of the patent
milestone obligations, of which $3.75 million was paid in cash and $3.75 million
is accrued at June 30, 1998. The balance of the patent milestone obligations is
the responsibility of Japan Tobacco. No additional milestone payments will
accrue under this agreement.

Cell Genesys anticipates that net cash expenditures for its gene therapy
operations (excluding Abgenix, which will not be consolidated after July 2,
1998) will not exceed $25 million in 1998. Revenues under the agreement with
Hoechst Marion Roussel are expected to decrease in 1998 and have been prepaid by
Hoechst Marion Roussel. In addition, the above referenced note payable to
GenPharm will come due September 30, 1998 and, depending on the Cell Genesys
stock price at that time, may require cash settlement at the option of the
holder. Payment by Abgenix of the second milestone due GenPharm will also be due
in 1998. The Company expects its cash requirements to increase significantly in
the future. The Company's capital requirements depend on numerous factors,
including: the progress of the Company's research and development programs;
preclinical and clinical trials; clinical and commercial scale manufacturing
requirements; the attraction and maintenance of collaborative partners; the
acquisition of new products or technologies; and the cost of litigation, patent
interference proceedings or other legal proceedings or their resolution.

Cell Genesys believes that its available cash, cash equivalents and
short-term investments at June 30, 1988, together with the payments to be
received under the Company's collaborative arrangements and license agreements

and $2.2 million in equipment financing available for capital equipment
purchases will be sufficient to meet the Company's operating expenses and
capital requirements at least through 1999. Thereafter, the Company will require
substantial additional funds. Because of the Company's significant long-term
cash requirements, the Company regularly considers financing alternatives,
including the private or public sale of equity by Cell Genesys and by its
subsidiary Abgenix. Any such transaction may be dilutive to existing
stockholders.

RISK FACTORS

Need for Substantial Additional Funds. The Company and its subsidiary,
Abgenix, will require substantial additional funds to continue existing and
planned preclinical and clinical trials and its research and development
activities, and to establish manufacturing and marketing capabilities for any
products it may develop. The Company expects that its existing capital
resources, together with payments to be received under existing collaborative
agreements and amounts available under existing equipment financing facilities,
will enable the Company to maintain the Company's operations at least through
1999. Beyond such time, the Company and Abgenix will need to raise substantial
additional capital to fund its operations.

The Company's future capital requirements will depend on, and could
increase as a result of, many factors, including, but not limited to, the
continuation of the collaboration with Hoechst Marion Roussel, continued
scientific progress in its research and development programs, the magnitude of
such programs, the progress of preclinical and clinical testing, the time and
costs involved in obtaining regulatory approvals, the costs involved in
preparing, filing, prosecuting, maintaining, enforcing and defending patent
claims, competing technological and market developments, changes in
collaborative relationships, the terms of any additional collaborative
arrangements into which the Company may enter, the Company's ability to
establish research, development and commercialization arrangements pertaining to
products other than those covered by existing collaborative arrangements, the
cost of establishing manufacturing facilities, the cost of commercialization
activities, and the demand for the Company's products if and when approved.
There is no assurance that opportunities for in-licensing technologies or for
third party collaborations will continue to be available to the Company on
acceptable terms.

A major portion of the Company's operating revenues are derived from a
collaborative agreement with Hoechst Marion Roussel signed in October 1995.
Under the terms of the agreement, Hoechst Marion Roussel has the ability to
terminate its commitment at any time two years after its anniversary date.
Hoechst Marion Roussel is funding clinical development for this program in 1998.
There is no assurance that Hoechst Marion Roussel will continue the agreement or
that the level of funding will not vary year to year. The Company's operating
results would be adversely affected should Hoechst Marion Roussel decide not to
continue funding under this arrangement.

Cell Genesys expects to raise additional funds through additional equity or
debt financings, collaborative relationships, or otherwise. Because of these
long-term capital requirements, the Company and its subsidiary, Abgenix, may
seek to access the public or private equity markets whenever conditions are
favorable, even if it does not have an immediate need for additional capital at
that time. In July 1998, Abgenix completed its initial public offering of its
common stock for gross proceeds of $23 million. There can be no assurance that
any such additional funding will be available to the Company, or, if available,
that it will be on acceptable terms. If additional funds are raised by issuing
equity securities, further dilution to stockholders may result. If adequate
funds are not available, the Company may be required to delay, reduce the scope
of, or eliminate one or more of its research, development and clinical
activities or to seek to obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products that the Company would
otherwise seek to develop or commercialize itself, any of which could have a
material adverse effect on the Company's business, results of operations,
financial condition or cash flow.

Early Stage Of Development; No Developed Or Approved Products. Cell
Genesys' potential gene therapy products are in research and development. No
revenues have been generated from the sale of any of such products, nor are any
such revenues expected for at least the next several years. The products
currently under development by Cell Genesys will require significant additional
research and development efforts, including extensive preclinical and clinical
testing and regulatory approval, prior to commercial use. There can be no
assurance that Cell Genesys' research and development efforts will be successful
or that any commercially successful products will ultimately be developed by
Cell Genesys. Even if developed, these products may not receive regulatory
approval or be successfully introduced and marketed at prices that would permit
Cell Genesys to operate profitably.

12
Operating Loss And Accumulated Deficit. Cell Genesys has incurred net
losses since its inception. At June 30, 1998, Cell Genesys' accumulated deficit
was approximately $195.6 million and incurred net losses of $16.0 million for
the six months ended June 30, 1998. Such losses have resulted principally from
expenses incurred in its research and development programs, and to a lesser
extent, from general and administrative expenses. In 1997, Cell Genesys incurred
losses of $123.5 million, including $78.9 million related to the acquisition of
Somatix and $22.5 million related to the Cross-License and Settlement Agreement
with GenPharm. The Company expects to incur substantial losses for at least the
next several years due primarily to the expansion of research and development
programs, including preclinical studies, clinical trials and manufacturing. Cell
Genesys expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. There can be no assurance that the Company will
successfully develop, commercialize, manufacture or market its products or ever
achieve or sustain product revenues or profitability.

Technological Uncertainty. Gene therapy is a new technology, and existing
preclinical and clinical data on the safety and efficacy of gene therapy are
limited. Data relating to Cell Genesys' specific gene therapy approaches are
even more limited. The Company's T cell gene therapy for cancer, GVAX (TM)
cancer vaccine and AIDS gene therapy are currently being tested in Phase I/II
and Phase II human clinical trials to determine their safety and efficacy. None
of the other products or therapies under development are in human clinical
trials. The results of preclinical studies do not predict safety or efficacy in
humans. Possible side effects of gene therapy may be serious and
life-threatening. There can be no assurance that unacceptable side effects will
not be discovered during preclinical and clinical testing of Cell Genesys'
potential products or thereafter. There are many reasons that potential products
that appear promising at an early stage of research or development do not result
in commercialization. Although Cell Genesys is testing proposed products or
therapies in human clinical trials, there can be no assurance that Cell Genesys
will be permitted to undertake human clinical trials for any of its other
products or that the results of such testing will demonstrate safety or
efficacy. Even if clinical trials are successful, there is no assurance that
Cell Genesys will obtain regulatory approval for any indication, or that an
approved product can be produced in commercial quantities at reasonable cost, or
be successfully marketed.

Patents And Trade Secrets. The patent positions of pharmaceutical and
biotechnology firms, including Cell Genesys, are generally uncertain and involve
complex legal and factual questions. While Cell Genesys is prosecuting patent
applications, it cannot be certain whether any given application will result in
the issuance of a patent or, if any patent is issued, whether it will provide
significant proprietary protection or will be invalidated. Because patent
applications in the United States are confidential until patents are issued and
publication of discoveries in the scientific or patent literature tends to lag
behind actual discoveries by several months, Cell Genesys cannot be certain that
it was the first creator of inventions covered by pending patent applications or
that it was the first to file patent applications for such inventions.

The commercial success of the Company will also depend in part on not
infringing the patents or proprietary rights of others and not breaching
licenses granted to Cell Genesys. The Company will be required to obtain
licenses to certain third party technology and genes necessary to conduct its
business. Any failure by the Company to license at reasonable cost any
technology or genes required to commercialize its technologies or products may
have a material adverse effect on the Company's business, results of operations,
financial condition or cash flow.

Litigation, which could result in substantial cost to the Company, may also
be necessary to enforce any patents issued to Cell Genesys, or to determine the
scope and validity of other parties' proprietary rights. To determine the
priority of inventions, interference proceedings are frequently declared by the
United States Patent Office that could result in substantial costs to the
Company and may result in an adverse decision as to the priority of Cell
Genesys' inventions. Cell Genesys is currently involved in three separate
interference proceedings with regard to: (i) gene activation technology, (ii) ex
vivo gene therapy, and (iii) chimeric receptor technology. While the Company
believes its position in each interference proceeding is strong, the outcome of
each proceeding cannot be predicted, and an adverse result could have a material
adverse effect on the Company's intellectual property position and its business.
The Company may be involved in other interference proceedings in the future.
Cell Genesys believes that there will continue to be significant litigation in
the industry regarding patent and other intellectual property rights.

Cell Genesys also relies on unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position. No assurance can be given that

others will not independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to the Company's trade
secrets or disclose such technology, or that the Company can meaningfully
protect its rights to its unpatented trade secrets.

Cell Genesys requires its employees and consultants to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with it. These agreements provide that all confidential information
developed by or made known to an individual during the course of the employment
or consulting relationship generally must be kept confidential. In the case of
employees, the agreements provide that all inventions conceived by the
individual while employed by Cell Genesys, relating to its business are the
exclusive property of Cell Genesys. These agreements may not provide meaningful
protection for the Company's trade secrets in the event of unauthorized use or
disclosure of such information.

Competition. Competition in the field of gene therapy from other
biotechnology and pharmaceutical companies and from research and academic
institutions is intense and expected to increase. There are numerous competitors
working on products to treat each of the diseases for which Cell Genesys is
seeking to develop therapeutic products. Some competitors are pursuing a product
development strategy competitive with Cell Genesys, particularly with respect to
the Company's human monoclonal antibody program. Certain of these competitive
products are in substantially more advanced stages of product development and
clinical trials. The Company's competitors may develop technologies and products
that are more effective than those being developed by Cell Genesys, or that
would render the Company's technology and products less competitive or obsolete.
Many of these competitors have substantially greater financial resources and
larger research and development staffs than Cell Genesys. In addition, many of
these competitors may have significantly greater experience than Cell Genesys in
developing products, in undertaking preclinical testing and human clinical
trials of new pharmaceutical products, in obtaining United States Food and Drug
Administration (the "FDA") and other regulatory approvals of products, and in
manufacturing and marketing such products. Accordingly, Cell Genesys'
competitors may succeed in obtaining patent protection, receiving FDA approval
or commercializing products more rapidly than Cell Genesys. There can be no
assurance that the Company will be able to obtain certain biological materials
necessary to support its research, development or manufacturing of any of its
planned therapies. If the Company is permitted to commence commercial sales of
products, it will also be competing with respect to marketing capabilities and
manufacturing efficiency, areas in which it has limited or no experience. It is
anticipated that the Company will build additional clinical scale and commercial
scale manufacturing facilities to the extent that contract facilities are not
available in order to commercialize its products. It is also anticipated that
the Company will secure funding for these and other product development
activities through its partners and future potential partners. Cell Genesys also
competes with universities and other research institutions in the development of
products, technologies and processes. In many instances, Cell Genesys competes
with other commercial entities in acquiring products or technology from
universities.

Cell Genesys expects that competition among products approved for sale will
be based, among other things, on product efficacy, safety, reliability,
availability, price, patent, position, and sales, marketing and distribution
capabilities. Cell Genesys' competitive positions also depend upon its ability
to attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources for the often substantial period between product conception and
commercial sales.

The levels of revenues and profitability of biotechnology and
pharmaceutical companies such as the Company may be affected by the continuing
efforts of governmental and third-party payers to contain or reduce the costs of
health care through various means. In the United States there have been, and
Cell Genesys expects that there will continue to be, a number of federal and
state proposals to control health care costs. Cell Genesys cannot predict the
effect health care reforms may have on its business, and no assurance can be
given that any such reforms will not have a material adverse effect on the
Company's business, results of operations, financial condition or cash flow. In
the United States and elsewhere, sales of therapeutic products are dependent in
part on the availability of reimbursements to the consumer from third party
payers, such as government and private insurance plans. If the Company succeeds
in bringing one or more products to the market, there can be no assurance that
these products will be considered cost effective and that reimbursement to the
consumer will be available or will be sufficient to allow the Company to sell
its products on a competitive basis.

Volatility Of Stock Price. The market prices for securities of
biopharmaceutical and biotechnology companies (including Cell Genesys) have
historically been highly volatile, and the market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. Factors such as fluctuations in
Cell Genesys' operating results, announcements of technological innovations or
new therapeutic products by Cell Genesys or its competitors, governmental
regulation, developments in patent or other proprietary rights, public concern
as to the safety of products developed by the Company or other biotechnology and
pharmaceutical companies, and general market conditions may have a significant
effect on the market price of the Cell Genesys' Common Stock.

Government Regulation. Regulation by governmental authorities in the United
States and foreign countries is a significant factor in the manufacture and
marketing of Cell Genesys' proposed products and its research and development
activities. All of Cell Genesys' products will require regulatory approval by
governmental agencies prior to commercialization. In particular, human
therapeutic products must undergo rigorous preclinical and clinical testing and
other premarket approval procedures by the FDA and similar authorities in
foreign countries. Since certain of Cell Genesys' potential products involve the
application of new technologies, regulatory approvals may take longer than for
products produced using more conventional methods. Various federal and, in some
cases, state statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
products. The lengthy process of seeking these approvals, and the subsequent
compliance with applicable federal statutes and regulations, requires the
expenditure of substantial resources. Any failure by Cell Genesys or its
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of any products developed by Cell
Genesys, and its ability to receive product or royalty revenue.

In responding to a new drug application, or a product license application,
the FDA may grant marketing approvals, request additional information or further
research, or deny the application if it determines that the application does not
satisfy its regulatory approval criteria. Approvals may not be granted on a
timely basis, if at all, or if granted may not cover all the clinical
indications for which Cell Genesys is seeking approval or may contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.

In addition to laws and regulations enforced by the FDA, Cell Genesys is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local laws and regulations. Cell Genesys' research and development
involves the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although Cell Genesys believes its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, Cell Genesys could be held liable for any damages
that result and any such liability could exceed the resources of the Company.

The manufacturing facilities of Cell Genesys are subject to licensing
requirements of the California Department of Health Services. While not subject
to license by the FDA, such facilities are subject to inspection by the FDA as
well as by the California Department of Health Services. A separate license from
the FDA is required for commercial manufacture of any product. Failure to
maintain such licenses or to meet the inspection criteria of the FDA and the
California Department of Health Services would result in disruption to the
manufacturing processes of the Company and would have a material adverse effect
on the Company's business, results of operations, financial condition and cash
flow.

For marketing outside the United States, Cell Genesys is subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs and devices. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary greatly from country
to country. Failure to comply with such regulatory requirements or obtain such
approvals could impair the Company's ability to develop these markets and have a
material adverse effect on the Company's business, results of operations,
financial condition or cash flow.

Commercialization; Lack of Marketing Experience. It is anticipated that the
Company will rely on sales and marketing expertise of potential corporate
partners for its initial products. Cell Genesys does not have any experience in
sales, marketing or distribution of biopharmaceutical products. The decision to
market future products directly or through corporate partners will be based on a
number of factors including market size and concentration, the size and

expertise of the partner's sales force in a particular market and the Company's
overall strategic objectives. Cell Genesys is currently engaged in various
stages of discussions with potential partners. There can be no assurance that
Cell Genesys will be able to establish such relationships, if at all, on
acceptable terms and conditions.

Product Liabilities And Insurance. Clinical trials or marketing of any of
Cell Genesys' potential products may expose the Company to liability claims
resulting from the use of such products. These claims might be made directly by
consumers, health care providers or by others selling such products. Cell
Genesys and Abgenix currently maintain product liability insurance with respect
to each company's clinical trials. There can be no assurance that the Company
will be able to maintain such insurance or, if maintained, that sufficient
coverage can be acquired at a reasonable cost. An inability to maintain
insurance at acceptable cost or at all could prevent or inhibit the clinical
testing or commercialization of products developed by the Company. A product
liability claim or recall could have a material adverse effect on the Company's
business, results of operations, financial condition and cash flow.

Hazardous Materials; Environmental Matters. Cell Genesys' research and
development activities involve the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. Cell Genesys is subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although Cell Genesys believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by such laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company. The Company may be required to incur
significant costs to comply with environmental laws and regulations in the
future. The Company's operations, business or assets may be materially adversely
affected by current or future environmental laws or regulations.

Reimbursement. In both domestic and foreign markets, sales of the Company's
potential products will depend in part upon coverage and reimbursement from
third-party payers, including health care organizations, government agencies,
private health care insurers and other health care payers such as health
maintenance organizations, self-insured employee plans and the Blue Cross/Blue
Shield plans. There is considerable pressure to reduce the cost of drug
products. In particular, reimbursement from government agencies and insurers and
large health organizations may become more restricted in the future. Cell
Genesys' potential products represent a new mode of therapy and, while the
cost-benefit ratio of the products may be favorable, Cell Genesys expects that
the costs associated with the Company's products will be substantial. There can
be no assurance that the Company's proposed products, if successfully developed,
will be considered cost-effective by third-party payers, that insurance coverage
will be available or, if available, that such third-party payers' reimbursement
policies will not adversely affect the Company's ability to sell its products on
a profitable basis. In addition, there can be no assurance that insurance
coverage will be provided by such third-party payers at all or without
substantial delay or, if such coverage is provided, that the approved
reimbursement will provide sufficient funds to enable the Company to become
profitable.

Uncertainty Of Pharmaceutical Pricing And Related Matters. The future
revenues and profitability of and availability of capital for biotechnology
companies may be materially adversely affected by the continuing efforts of
governmental and third-party payers to contain or reduce the costs of healthcare
through various means. For example, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the United States, there have been, and Cell Genesys expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. While Cell Genesys cannot predict whether any such
legislative or regulatory proposals will be adopted, the announcement or
adoption of such proposals could have a material adverse effect on the Company's
business, results of operations, financial condition and cash flow.

Dependence Upon Key Personnel And Collaborative Relationships. Cell
Genesys' success is highly dependent on the retention of principal members of
management and scientific staff and the recruitment of additional qualified
personnel. The loss of key personnel or the failure to recruit necessary
additional qualified personnel could have a material adverse effect on the
Company's business, results of operations, financial condition or cash flow.
There is intense competition from other companies, research and academic
institutions and other organizations for qualified personnel in the areas of
Cell Genesys' activities. There is no assurance that the Company will be able to
continue to attract and retain the qualified personnel necessary for the
development of its business. These activities are expected to require the
addition of new personnel with expertise in the areas of clinical testing,
manufacturing, marketing and distribution and the development of additional
expertise by existing personnel. The failure to acquire

such personnel or develop such expertise could have a material adverse effect on
the Company's business, results of operations, financial condition and cash
flow.

Cell Genesys has clinical trial arrangements with the National Institutes
of Allergy and Infectious Diseases covering the initial proof-of-principle study
for AIDS gene therapy being conducted in identical twin pairs now in Phase II
testing. Cell Genesys also has clinical trial arrangements with the University
of California, San Francisco, San Francisco General Hospital, the University of
Colorado Health Sciences Center, Massachusetts General Hospital, the University
of California, Los Angeles, ViRx, Inc. and the Aids Research Community
Consortium covering Cell Genesys' patient-specific configuration of its AIDS
gene therapy also now in Phase II testing. If these relationships were
terminated, progress of clinical testing would be adversely affected.

In addition, the Company has several clinical trial arrangements under its
GVAX (TM) program, including with The Johns Hopkins University covering a Phase
I clinical trial to treat prostate cancer patients and with the Dana Farber
Cancer Institute covering two Phase I clinical trials to treat lung cancer and
melanoma patients. In the event that any of these relationships are terminated,
the completion and evaluation of clinical trials could be adversely affected.

In addition, the Company has several clinical trial arrangements under its
T cell gene therapy program for cancer, including with University of California,
San Francisco, Stanford University and PRN Research, Inc. In the event that any
of these relationships are terminated, the completion and evaluation of clinical
trials could be adversely affected

The Company will depend, in part, on the continued availability of outside
scientific collaborators performing research. These relationships generally may
be terminated at any time by the collaborator, typically by giving 30 days'
notice. The Company's scientific collaborators are not employees of Cell
Genesys. As a result, the Company has limited control over their activities and
can expect that only limited amounts of their time will be dedicated to the
Company's activities. The Company's agreements with these collaborators, as well
as those with the Company's scientific consultants provide that any rights the
Company obtains as a result of the research efforts of these individuals will be
subject to the rights of the research institutions in such work. In addition,
some of these collaborators have consulting or other advisory arrangements with
other entities that may conflict with their obligations to the Company. For
these reasons, there can be no assurance that inventions or processes discovered
by the Company's scientific collaborators or consultants will become the
property of the Company.

Shares Eligible For Future Sale; Dilution. Substantially all of the
Company's shares are eligible for sale in the public market. The issuance of
common stock upon conversion of the Series B preferred stock and convertible
note and upon exercise of the warrants, as well as future sales of such common
stock or of shares of common stock by existing stockholders, or the perception
that such sales could occur, could adversely affect the market price of the
common stock. Conversion of the Series B preferred stock and the convertible
note and exercise of the warrants for shares of common stock could adversely
affect the market price of the common stock. In addition, investors could
experience substantial dilution upon conversion of the Series B preferred stock
into common stock as a result of either (i) a decline in the market price of the
Company's common stock immediately prior to conversion, or (ii) an event
triggering the antidilution rights of any outstanding shares of Series B
preferred stock.

IMPACT OF THE YEAR 2000

The Company has initiated modification of its information technology
systems to recognize the year 2000 and has begun converting critical hardware
and data processing systems. The Company expects the project to be substantially
complete by early 1999. The Company does not expect this project to have a
significant effect on operations, and the costs of modification are expected to
be insignificant. In addition, the Company is evaluating significant vendors and
other third parties which could have an effect on the Company's operations to
ensure Year 2000 compliance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

PART II. OTHER INFORMATION

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

On June 3, 1998, in the annual stockholders' meeting, a quorum of
stockholders of the Company approved the following proposals:

(i.) Election of Directors.

(ii.) Proposal to approve the adoption of the Cell Genesys' 1998
Incentive Stock Plan, to replace the 1989 Incentive Stock Plan,
and reserve a total of 1,760,000 shares for issuance thereunder.

(iii.) Proposal to ratify the appointment of Ernst & Young LLP as
independent auditors of Cell Genesys for the fiscal year ending
December 31, 1998.

The following table shows the results of the voting on these matters.

(i.) Director For Withheld
-------- --- --------

David W. Carter 24,227,947 84,851
James M. Gower 24,231,258 84,851
Raju S. Kucherlapati 24,244,648 84,851
Joseph E. Maroun 25,904,909 84,851
John T. Potts 24,241,457 84,851
Stephen A. Sherwin 24,240,682 84,851
Eugene L. Step 24,239,657 84,851
Inder M. Verma 24,240,938 84,851

(ii.) For Against Abstain Broker Non-Vote
--- ------- ------- ---------------

13,431,297 4,161,142 90,775 8,284,909

(iii.) For Against Abstain Broker Non-Vote
--- ------- ------- ---------------

23,982,848 1,954,450 30,825 0

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

27.1 Financial Data Schedule

b) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized in Foster City, California, on
August 14, 1998:

CELL GENESYS, INC.

By: /s/ Kathleen Serada Glaub
--------------------------------------------
Kathleen Sereda Glaub,
Senior Vice President and
Chief Financial Officer
(Principal Accounting and Financial Officer)

Date: August 14, 1998

18
19

INDEX TO EXHIBITS

Exhibit
Number Description
- ------- -----------

27.1 Financial Data Schedule