UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F/A(Amendment No. 1)

|(Mark One) |                                                                                                                                          
|---------- | -----------------------------------------------------------------------------------------------------------------------------------------
|o          | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934                                           
|OR      
|ý          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2004         
|OR      
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period
from                to

Commission File Number: 0-29636

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TRANSGENE(Exact name of Registrant as specified in its Charter)

Not Applicable(Translation of Registrant's name into English)

FRANCE(Jurisdiction of incorporation or organization)

11, rue de Molsheim
67000 STRASBOURG, France(Address of principal executive offices)

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Securities
registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:

|Title of each class:                                                                                     |  | Name of each exchange
on which registered:
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------------------
|American Depositary Shares, or ADSs, each representing one-third of one Ordinary Share, no nominal value |  | The Nasdaq National Market                
|Ordinary Shares, no nominal value*                                                                       |  | The Nasdaq National Market                

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate
the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

Ordinary Shares: 10,055,760

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

Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o    Item 18 ý



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TABLE OF CONTENTS

|Explanatory Note |  | 2                                           
|---------------- |  | --------------------------------------------
|Item 3           |  | Key Information                             
|Item 5           |  | Operating and Financial Review and Prospects
|Exhibit 12.1     |  |                                             
|Exhibit 12.2     |  |                                             
|Exhibit 13.1     |  |                                             

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EXPLANATORY NOTE

This Amendment No. 1 on Form 20-F/A ("Amendment No. 1") to our Annual Report on Form 20-F for the fiscal year
ended December 31, 2004, filed on May 16, 2005, is being filed solely for the purpose of amending:



We
hereby replace Item 3 and Item 5 of the Form 20-F filed on May 16, 2005, with the amended Item 3 and Item 5, respectively, set forth in this
Amendment No. 1.

This
Amendment No. 1 speaks as of the filing date of our annual report on Form 20-F for the fiscal year ended December 31, 2004, filed on May 16,
2005, except for the certifications which speak as of their respective dates and the filing date of this Amendment No. 1. Other than for the purpose of amending Item 3 and Item 5, this
Amendment No. 1 does not, and does not purport to, amend, update or restate the information in any other item of the annual report on Form 20-F filed on May 16, 2005.

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ITEM 3. KEY INFORMATION

Selected Historical Financial Data

You should read the selected historical consolidated financial data below with the audited consolidated financial statements and the notes thereto and the section
entitled "Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS." This information has been extracted or derived from the audited consolidated financial statements, which were prepared in
accordance with generally accepted accounting principles in the United States, or U.S. GAAP, for the years ended December 31, 2000 through December 31, 2004.

|                                              |                                                 | Year Ended December 31   |         
|--------------------------------------------- | ----------------------------------------------- | ------------------------ | --------
|
|
|
|Consolidated Statement of Operations Data:    |                                                 |                          |         
|Revenues:                                     |                                                 |                          |         
|                                              | Contract research and licensing revenues        |                          | 3,403   
|                                              | Grants received for research and development(3) |                          |        
|                                              |                                                 |                          |         
|                                              |                                                 | Total revenues           |         
|Operating expenses:                           |                                                 |                          |         
|                                              | Research and development                        |                          | (27,091 
|                                              | General and administrative                      |                          | (5,649  
|                                              | Restructuring expenses                          |                          |        
|                                              |                                                 |                          |         
|                                              |                                                 | Total operating expenses |         
|                                              |                                                 |                          |         
|Loss from operations                          |                                                 | (29,337                  | )       
|                                              | Interest and other income (expenses)            |                          | 662     
|                                              |                                                 |                          |         
|Gain (loss) before income tax benefit         |                                                 | (28,675                  | )       
|Income tax benefit (cost)                     |                                                 | 942                      |         
|                                              |                                                 |                          |         
|Net (loss)                                    |                                                 | (27,733                  | )       
|(Loss) per ordinary share(4)                  |                                                 | (2.76                    | )       
|Net (loss) from operations per share(5)       |                                                 | (3.26                    | )       
|Weighted average number of shares outstanding |                                                 | 10,055,760               |         
|Consolidated Balance Sheet Data:              |                                                 |                          |         
|                                              | Cash and cash equivalents                       |                          | 19,833  
|                                              | Total assets                                    |                          | 34,525  
|                                              | Long-term liabilities(6)                        |                          | 7,809   
|                                              | Common Stock outstanding                        |                          | 31,150  
|                                              | Additional paid-in capital                      |                          | 238,029 
|                                              | Accumulated deficit                             |                          | (249,909
|                                              | Total shareholders' equity                      |                          | 19,269  

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Exchange Rate Information

We publish our consolidated financial statements in euro. Fluctuations in the exchange rate between the euro and the U.S. dollar could affect the U.S. dollar
price of our ADSs on the Nasdaq National Market.

In
this annual report, references to "euro" or "€" are to euro and references to "dollars" or "$" are to U.S. dollars. For your convenience, this annual report contains
translations of certain euro amounts into U.S. dollars. Dollar amounts have been translated from euro at the stated noon buying rate in New York City for cable transfers in euro. The "noon buying
rate" is the stated noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate on
December 31, 2004 was € 1.00 = $1.3538.

Average Annual Exchange Rate

The following table sets forth for the periods indicated how many U.S. dollars it would take to buy one euro at the applicable noon buying rates.

|     |  | Average
Rate(1)
|---- |  | ---------------
|
|2000 |  | 0.92           
|2001 |  | 0.89           
|2002 |  | 0.95           
|2003 |  | 1.14           
|2004 |  | 1.25           

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Average Monthly Exchange Rate

The following table sets forth the high and low noon buying rates for the period indicated.

|                          |  | High   |  | Low   
|------------------------- |  | ------ |  | ------
|
|November 2004             |  | 1.3288 |  | 1.2703
|December 2004             |  | 1.3625 |  | 1.3224
|January 2005              |  | 1.3476 |  | 1.2954
|February 2005             |  | 1.3274 |  | 1.2773
|March 2005                |  | 1.3465 |  | 1.2877
|April 2005                |  | 1.3093 |  | 1.2819
|May 2005 (through May 12) |  | 1.2936 |  | 1.2706

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Risk Factors

The risks identified below could cause our actual results to differ materially from our expectations. If any of the risks described below
occurs, our business, financial condition or results of operations could be harmed. In this case, the trading price of our shares or ADSs could decline and you could lose all or part of your
investment.

Risks Related to Our Business

We may not have sufficient funds to continue operations after September 2005. We may not be able to obtain further financing on acceptable terms or at all, in which case
we may be required to significantly curtail one or more of our research or development programs or to cease operations altogether.

As
previously announced, we believe that, based on our current cost estimates for our on-going operations, including clinical development plans, research and development
activities, operating revenues and anticipated capital expenditures, our current cash position will be sufficient to meet our expected financial requirements for continuing operations through
September 2005. In December 2004, Transgene's principal shareholder informed the Board of Directors of its commitment to cover Transgene's cash needs until the end of 2005 unless another
financing option is adopted during this timeframe.

We
will require substantial funds to continue research and development, including preclinical and clinical testing of potential products, to establish pilot-scale and commercial-scale
manufacturing processes and facilities, to expand quality-control, regulatory, marketing, sales and administrative capabilities, and to manufacture and market any products that are approved for
commercial sale. Our future capital requirements will depend on many factors, including the following:



We
intend to request shareholder approval at the next annual shareholders' meeting (scheduled for June 6, 2005) for a variety of financing options, including possibly through a
capital increase. We may seek additional funding through collaborative arrangements and public or private financings. We may not be able to obtain financing on acceptable terms or at all. In addition,
the terms of any financing may dilute your ownership or adversely affect your rights as a shareholder.

If
we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs or to cease operations altogether.
We also could be required to seek funds through arrangements with collaborators or others that may require us to

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relinquish
rights to certain of our technologies, product candidates or products we would otherwise pursue on our own.

We have a history of operating losses and expect to incur significant additional operating losses.

We
have generated operating losses since 1993 after we repositioned ourselves in 1992 as a biotechnology company dedicated to the discovery and development of gene transfer technologies
and products. As of December 31, 2004, we had an accumulated deficit of approximately € 184.6 million. We expect to incur substantial additional operating
expenses for the foreseeable future as our research, development, preclinical testing and clinical trial activities continue.

We
do not have any gene transfer products that have generated any commercial revenue and our only revenues to date from our gene transfer activities have been from collaboration
agreements and payments from theAssociation Française contre les Myopathies, a private not-for-profit
association founded to combat neuromuscular diseases. In February 2003, our collaboration agreement with Schering-Plough expired. Accordingly, we do not expect to receive any future revenues or
payments under that agreement as Schering-Plough has discontinued its development program for a p53 gene therapy and did not exercise its rights to license new genes.

We
expect that our only sources of revenue for the foreseeable future will consist of additional payments from collaborative partners, if any, governmental or
non-governmental grants, if any, and interest income. We do not expect to generate revenues from the commercial sale of products in the foreseeable future, and we may never generate
revenues from the sale of products.

Gene transfer technology and/or our approaches to gene transfer may be unsuccessful, and there may never be a market for the products, if any, that we
develop.

We
have chosen to focus our research and development efforts on three different approaches toin vivogene transfer: therapeutic
vaccination, immunotherapy and gene therapy. However, our approaches to gene transfer products and technology may not be successful. Gene transfer is a relatively new medical technology and, to our
knowledge, no gene transfer product has been approved for commercialization anywhere in the world, except for the product of a Chinese biotechnology company which was approved for commercialization in
China in early 2004. Preclinical and clinical data on the safety and efficacy of gene transfer is limited and therapeutic efficacy has been demonstrated only on a limited basis. We do not know whether
gene transfer treatment, even if effective initially, will have a lasting effect.

Moreover,
even if one or more of our gene transfer product candidates is approved for commercialization, patients using these products may experience unanticipated adverse effects or
unintended immune responses that were not encountered during clinical trials. If these adverse effects are severe, we may be unable to market that product or any other gene transfer products we may
develop. Further, any products we develop may demonstrate inadequate therapeutic efficacy or other characteristics that may prevent or limit their approval or commercial use.

All of our potential gene transfer products are in research, preclinical development or early stage clinical trials, and the favorable results of some of our trials to date may
not be indicative of the broad results for a large number of human patients.

We
are at an early stage of development and all of our potential gene transfer products are in research, preclinical development or early stage clinical trials. Even though our product
candidates which are ready for or undergoing clinical testing have shown successful results in animal models, we may not be able to replicate these results with humans. Consequently, you should not
rely on the results in our animal models as being predictive of the results that we will see in our clinical trials with humans. We have reported that several of our treatments under development were
showing early indications of therapeutic benefit. These reports, however, are preliminary and are based upon the

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results
in a small number of patients. As is the case with all biopharmaceutical products under development, actual results with more data may show less favorable outcomes.

Our potential products must undergo rigorous clinical testing and regulatory approvals, which could substantially delay or prevent us from marketing any
products.

Prior
to marketing a product in Europe or the United States, any product we develop must undergo rigorous preclinical testing and clinical trials as well as an extensive regulatory
approval process implemented by the European Medicines Evaluation Agency, the FrenchAgence Française de Sécurité Sanitaire des
Produits de Santéor the United States Food and Drug Administration. These approval processes are typically lengthy and expensive, and approval is never certain.
Positive results from preclinical studies and early clinical trials do not ensure positive results in trials for regulatory approval. Approval by a regulatory authority in one country does not ensure
approval in any other country. If we do not receive the necessary approvals, we will not be able to generate revenues and will not become profitable. Factors that raise uncertainty in obtaining these
regulatory approvals include:



We may experience delays in commencing and completing clinical trials of our products.

We
may encounter problems in clinical trials which cause us or the appropriate regulatory authority to delay, suspend or terminate these trials. We have been experiencing slow enrollment
of patients for some of our clinical trials and may encounter the same or similar problems in the future, including the chance that we may not be able to conduct clinical trials at preferred sites or
begin or successfully complete clinical trials in a timely fashion, if at all. We may enter into contractual arrangements with third parties to conduct our clinical trials. Any failure by these third
parties to perform may delay or terminate our trials. Furthermore, the relevant regulatory authorities may suspend clinical trials at any time if any of them believes that the patients participating
in trials are being exposed to unacceptable health risks or if any of them finds deficiencies in the clinical trial process or conduct of the investigation. In the United States in 2002, the Food and
Drug Administration placed a clinical hold on gene therapy clinical trials using retroviral vectors after two participants in such a trial in France developed what appeared to be a
leukemia-like illness. We are not developing retroviral vectors and do not use retroviral vectors for any of our product candidates.

Adverse events in the field of gene transfer therapy may negatively impact regulatory approval or public perception of our products.

The
death in September 1999 of a patient undergoing viral-based gene therapy in a clinical study conducted by another organization at the University of Pennsylvania, and the
severe side effects observed in 2002 and 2004 in two young patients who had received anex vivocellular therapy for their

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severe
immune disease, were widely publicized and attracted the attention of health authorities as to the risks facing patients in trials for gene transfer. We are not developing any products using
the retrovirus vector or theex vivotherapeutic approach employed in this trial. However, these and other adverse events experienced in clinical trials
other than ours could result in greater governmental regulation of our potential products and potential regulatory delays relating to the testing or approval of our potential products. Increased
scrutiny could delay or increase the costs of our product development efforts or clinical trials.

The
commercial success of our potential products will depend in part on public acceptance of the use of therapeutic vaccines and immunotherapy products for the treatment of human
diseases. Public attitudes may be influenced by claims that these therapies are unsafe and our products may not gain the acceptance of the public or the medical community. Negative public reaction to
these gene transfer therapies in general could result in greater government regulation and stricter labeling requirements of gene transfer therapies and could limit the demand for any products we may
develop.

Our manufacturing capacity for clinical trials is limited, and to commercialize any products, we will need to obtain appropriate regulatory approvals, expand our manufacturing
capacity and develop a marketing and sales force. If we lose access to critical materials obtained from single-source suppliers, we may experience delays in manufacturing or negative effect on
costs.

Our
ability to separately manufacture different products in quantities sufficient to conduct clinical trials is limited by the capacity of our current manufacturing plant. As a result,
we may not be able to conduct multiple trials simultaneously. If we encounter capacity limitations or other disruptions in our manufacturing, our clinical trial programs could be delayed. If that
happens, our submission of potential products for regulatory approval and our initiation of new development programs would be delayed. We must also ensure that critical biological materials which we
produce are protected from the risk of loss, such as through the failure of proper temperature control due to an electrical power outage.

Our
existing clinical manufacturing plant does not currently have regulatory approval to produce commercial products or have sufficient manufacturing capacity to produce our products on
a commercial scale. We may experience delays or other difficulties in obtaining the necessary regulatory approvals. We may incur substantial expenses to expand our manufacturing capability or to
contract with others to manufacture our products for us. As a result, we may experience delays in the manufacture of our products and we may be unable to price our products competitively.

In
order to market and sell any proprietary products which we may develop, we will need to hire a marketing and sales force with relevant pharmaceutical experience, or make appropriate
arrangements with strategic partners to market and sell our products for us. Building a marketing and sales force is expensive and time consuming and could delay any product launch.

We
obtain materials used in the manufacture of our product candidates from a number of suppliers, some of whom are our sole qualified source of these materials. We qualify the suppliers
of our clinical materials according to GMP regulations. If we were to lose access to critical materials from any of these sole-source suppliers, we would be required to obtain a new source
of materials. Although we seek to protect ourselves by establishing relationships with other suppliers, it could take us several months to qualify new suppliers before we could use their materials in
the manufacture of our products.

To develop our business, we may need to obtain rights to proprietary genes and other third party technologies which may not be available or may be costly; if we do not achieve
certain milestones, we may lose some of the rights we have already obtained.

We
currently investigate and use certain gene sequences or proteins encoded by those sequences that are or may become patented by others. As a result, we may be required to obtain
licenses to these

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gene
sequences or proteins or other technology in order to test, use or market products. We may not be able to obtain these licenses on terms favorable to us, if at all. In connection with our efforts
to obtain rights to these gene sequences or proteins, we may find it necessary to convey rights to our technology to others. Some of our gene transfer products may require the use of multiple
proprietary technologies. Consequently, we may be required to make cumulative royalty payments to several third parties. These cumulative royalties could be commercially prohibitive. We may not be
able to successfully negotiate royalty arrangements.

For
the reasons described above, we have already entered into some technology license agreements in connection with our development of gene transfer products. Some of these license
agreements require us to achieve development milestones and provide for penalties in the event we cannot demonstrate sufficient efforts to reach the milestones. These agreements represent generally a
contractual obligation to diligently pursue the development of the licensed technology. If we fail to achieve these milestones or to obtain extensions, the licensor may terminate these license
agreements with relatively short notice to us. We would not incur direct monetary penalties but rather would face early termination of the license agreement, if no extension can be obtained from the
licensor.

We
believe that it is very unlikely that we would not be able to demonstrate sufficient efforts in the development of our product candidates. However, should this happen, we may have to
cease the development of our product candidate which was using the licensed technology or redesign part of the product or process involved, causing delays and additional costs. However, we cannot
estimate in advance with any reasonable accuracy the extent of these delays and costs, since they would depend on the precise nature of the technology involved.

Competition and technological change may make our potential products and technologies less attractive or obsolete.

We
compete with companies, including major pharmaceutical and biotechnology firms, that are pursuing forms of treatment or prevention for the diseases we target using gene transfer as
well as more traditional therapies. We also may experience competition from companies that have acquired or may acquire technology from universities and other research institutions. As these companies
develop their technologies, they may develop proprietary positions that may prevent us from successfully commercializing our products.

Many
of these competitors have substantially greater financial and other resources than we do and are conducting extensive research and development activities. Other companies may
succeed in developing products earlier than we do, obtaining regulatory approval for products more rapidly than we do, or
developing products that are more effective or less costly than those we develop. While we will seek to expand our technological capabilities to remain competitive, research and development by others
may render our technology or products obsolete or noncompetitive or result in treatments or cures superior to any therapy developed by us. Additionally, consumers may not prefer therapies developed by
us over existing or other newly developed therapies.

Our patents and proprietary rights may not provide us with any benefit and the patents of others may prevent us from commercializing our products.

Our
success will depend in part on our ability to obtain effective protection for our products and processes, so that we can stop others from using our inventions, proprietary
information and know-how. In addition, we must operate in a way that does not infringe or violate the intellectual property rights of others. If we are unable to protect our patents and
proprietary information and know-how or to develop products and processes that do not violate the rights of others, we may be unable to successfully commercialize any of our products.

Our
patent position, like that of other biotechnology and pharmaceutical companies, is highly uncertain. The standards which the U.S. Patent and Trademark Office, the European Patent
Office and

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their
foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is no uniform worldwide policy regarding the subject matter and scope of claims
granted or allowable in biotechnology patents. Consequently, we cannot be certain as to the type and scope of patent claims that may be issued to us in the future. Further, there is no uniform,
worldwide jurisprudence regarding the scope of claims granted or allowable in biotechnology patents, or the scope of protection afforded to patent holders, and jurisprudence in these areas may evolve
too quickly to allow us to respond adequately. Consequently, we cannot be certain as to the type and scope of patent claims that may be upheld by a court of law or whether the claims will cover the
activities of our competitors. Even if we are able to develop commercially significant patent positions, our patents may be invalidated, may be held to be unenforceable, or may be substantially
narrowed in litigation.

We
also rely on unpatented proprietary technology, processes, know-how and data, which we protect in part through confidentiality agreements with our employees, consultants
and collaborators. We may not have adequate remedies if these agreements are breached. In addition, our competitors may independently develop this proprietary information.

Proceedings to obtain or enforce patents and litigation of third party infringement claims are expensive and time consuming and could limit our patent and proprietary
rights.

Obtaining
and protecting patent and proprietary rights can be expensive. If a competitor files a patent application claiming technology also invented by us or our licensors, we may have
to participate in an interference proceeding before the U.S. Patent and Trademark Office to determine the priority of the invention. We, or our licensors, may also need to participate in interference
proceedings involving our patent applications or issued patents, or patent applications or patents of our licensors, and patents or patent applications of another entity. Our participation in an
interference proceeding would require us to spend significant amounts of time and money to address the claims. Opposition proceedings challenging the validity of our patents in Europe may lead to the
limitation or revocation of the challenged patents. Moreover, an unfavorable outcome in either of these proceedings could require us to cease using the technology or to license rights from prevailing
third parties. Our business would be harmed if a prevailing third party does not offer us a license or offers us a license only on terms that are not acceptable to us.

We
are currently involved in several patent opposition proceedings, as described below. These proceedings are administrative in nature and do not involve litigation.



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If
any of our patents in the above opposition proceedings is revoked, we will not be able to prevent others from using the technologies covered. If any of the patents from third parties
in the above opposition proceedings that we initiated is upheld, we may be unable to use our own similar compositions in Europe, or we may need to seek a license from the patent holder. There is no
guarantee that we may obtain such a license on commercially reasonable terms or at all.

We
may need to resort to litigation to enforce a patent issued to us or to determine the scope and validity of third-party proprietary rights. We could incur substantial costs in
connection with any litigation and our management's efforts would be diverted, regardless of the results of the litigation. An unfavorable result in litigation could subject us to significant
liabilities to third parties, require us to cease manufacturing, using or selling the affected products or using the affected processes, or require us to license the disputed rights from third
parties. Our business will be harmed if we cannot obtain a license, can obtain a license only on terms we consider to be unacceptable or if we are unable to redesign our products or processes to avoid
infringement.

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The development and commercialization of some of our product candidates will depend on collaborations with others. If our collaborators are not successful or if we are unable
to find collaborators in the future, we may not be able to develop these products.

Our
strategy for the research, development and commercialization of some of our product candidates requires us to enter into contractual arrangements with corporate collaborators and
third parties. We currently have no collaborative agreements regarding any of our product candidates. We may not be able to develop and commercialize some of our products if we are unable to enter
into acceptable collaborative arrangements.

If we lose or are unable to hire and retain qualified personnel, we may not be able to develop our products or processes.

We
are highly dependent on qualified scientific and management personnel and we face intense competition from other companies and research and academic institutions for qualified
personnel. If we lose any of our qualified personnel or are unable to hire and retain qualified personnel, our ability to commercialize our products and processes may be delayed or prevented.

We may have significant product liability exposure.

We face a business risk of exposure to product liability and other claims in the event that our products or processes are alleged to have caused harm. These risks
are inherent in the testing, manufacturing and marketing of human therapeutic products. Although we currently maintain product liability insurance, we may not have sufficient insurance coverage and we
may not be able to obtain sufficient coverage at a reasonable cost. Our inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of any products developed by us or our collaborators. We also have liability for products manufactured by us on a contract basis for
third parties. If we are sued for any injury caused by our products or processes, our liability could exceed our product liability insurance coverage and our total assets.

Health care reform and restrictions on reimbursement may limit our profitability.

Our
ability to earn sufficient returns on our products will depend in part on the extent to which reimbursement for our products and related treatments will be available from:



Government
and other third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for new therapies. We expect
that there will continue to be a number of legislative proposals to implement such government controls. The adoption of such proposals or reforms could impair our business.

Additionally,
government and third party payers are increasingly challenging the prices of medical products and services. If purchasers or users of our products are unable to obtain
adequate reimbursement for the cost of using our products, they may forego or reduce their use. Significant uncertainty exists as to the reimbursement status of newly approved health care products and
whether adequate government or third party coverage will be available.

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We use hazardous materials in our business and any claims relating to improper handling, storage or disposal of these materials could be time consuming and
expensive.

Our
research and development programs, preclinical testing and clinical trial activities involve the controlled storage, use and disposal of hazardous materials, chemicals, biological
materials and radioactive compounds. We are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Although we believe that our
safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by laws and regulations, the risk of accidental contamination or injury from hazardous
materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside our insurance
coverage. We may not be able to maintain insurance on acceptable terms, or at all. We could be required to incur significant costs to comply with current or future environmental laws and regulations.

Risks Related to Our Shares and ADSs

Our chairman indirectly controls Transgene.

Mr. Christophe Mérieux, who succeeded his father Mr. Alain Mérieux as our chairman in October 2002, and other
members of the Mérieux family indirectly control TSGH, which owns 70.3% of our outstanding shares. As a result, Mr. Mérieux would have the ability to control all
matters requiring approval by our shareholders, including the election of directors, payment of dividends and certain significant corporate transactions. His interests may differ from your interests.
This concentration of ownership could affect the liquidity of our shares and ADSs and have an adverse effect on the price of our shares or our ADSs. It may also impair or prevent us from entering into
transactions that would result in a change in control, including transactions in which our shareholders might otherwise receive a premium over then current market prices for their shares or ADSs.

We were a passive foreign investment company for U.S. tax purposes for the years 2002, 2003 and 2004, and we may be a passive foreign investment company for the year 2005 and
future years. As a result, you are subject to special U.S. tax rules.

We
were a PFIC for 2002, 2003 and 2004, based upon our review of our existing financial data for these years, because more than 50% of our assets generated passive income in each of
these years. Consequently, for any U.S. holders holding our shares or ADSs during 2002, 2003 or 2004, such shares or ADSs were considered PFIC shares or ADSs in 2002 and 2003, and will be considered
PFIC shares or ADSs in 2004 and all subsequent years unless such holder makes a qualified electing fund or mark-to-market election. While our strategy is to enter into
research, collaboration and other agreements for future years, we may not be able to successfully conclude any such agreements. For U.S. holders purchasing shares or ADSs after 2004, there is a risk
that we will be classified as a PFIC for 2005 and for future years, and you should evaluate any investment in our shares or ADSs accordingly. See "Item 10. ADDITIONAL
INFORMATIONTaxationTaxation of U.S. Investors."

Voting by shareholders and ADS holders may be limited due to ownership notification requirements. Holders of ADSs will not benefit from double-voting
rights.

Any
shareholder who, directly or indirectly, acquires ownership or control of shares representing 5%, or any multiple of 5%, of our share capital or voting rights is required to disclose
those holdings to us within 15 days after such acquisition. Any shareholder who fails to comply with this notification requirement will have the voting rights attached to the shares in excess
of this threshold suspended upon the request of one or more other shareholders holding 5% or more of our share capital or voting rights. Shareholders are also subject to ownership disclosure
requirements under French law. The failure to comply with these disclosure requirements may result in the suspension of voting rights for up to five years. Finally, ADS holders may not exercise voting
rights unless they take certain steps,

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including
steps to be registered in our share register. The failure to register as required may make it impracticable for ADS holders to exercise their voting rights.

The
creation of double-voting rights for shareholders who hold their shares in registered nominative form for more than three years has been approved by the shareholders at the
extraordinary general meeting of June 9, 2004. An ADS holder who wants to take advantage of double-voting rights will need to submit the ADS to the Depositary and withdraw the underlying share,
which must then be held in registered nominative form for at least three years before the shares bear the double voting rights.

Our share and ADS prices are volatile and you may not be able to resell your shares or ADSs at or above the price you paid for them.

The
market price of our shares and ADSs, like that of many other biotechnology companies, has been volatile and is likely to continue to be volatile. The following factors, among others,
could have a significant impact on the market price of our shares or ADSs:



Exercises of options and future sales of shares and ADSs will reduce your percentage ownership and could cause our share or ADS price to decline.

At
December 31, 2004, we had issued options to purchase an aggregate of 304,000 shares. In February 2005, our Board of Directors granted 218,000 options to purchase an
aggregate of 218,000 shares. Your percentage ownership will decrease when the options are exercised. Moreover, additional sales of our shares or ADSs by us will decrease your percentage ownership and
could cause our share or ADS price to decline.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

Following the strategic shift adopted in 1992, our activities have consisted principally of our on-going research and development programs and
preclinical and clinical trials. We have not generated revenues from the sale of gene transfer products and we do not expect to receive revenues from such sales, if any, for the foreseeable future. As
a result, we have incurred operational and net losses for each year beginning in 1993. On December 31, 2004, our accumulated deficit amounted to
€ 184.6 million, including a non-recurring expense of € 24.7 million in 1998 for the acquisition of licenses and
research and development in progress from Human Genome Sciences, Inc. We anticipate that we will continue to incur losses for the foreseeable future. See "Item 3. Key
InformationRisk Factors."

As
previously announced, we believe that, based on our current cost estimates for our on-going operations, including clinical development plans, research and development
activities, operating revenues and anticipated capital expenditures, our current cash position will be sufficient to meet our expected financial requirements through September 2005. In
December 2004, Transgene's principal shareholder informed the Board of Directors of its commitment to cover Transgene's cash needs until the end of 2005 unless another financing option is
adopted during this timeframe. We intend to request shareholder approval at the next annual shareholders' meeting scheduled for June 6, 2005 for a variety of financing options, including
possibly through a capital increase. See "Item 3. Key InformationRisk Factors" for a summary of the uncertainties regarding our ability to obtain necessary capital.

The
forward-looking statements in the preceding paragraph are based on our current expectations, beliefs and estimates and are not guarantees of our future liquidity and ability to
continue operations. Important factors which may affect our ability to continue to fund operations are described above in "Item 3. Key InformationRisk Factors". In addition, the
statement made by the Company's principal shareholder to the Board of Directors in December 2004 is not a guaranty by the Company that it will have sufficient funds to maintain
on-going operations.

We
have prepared the Consolidated Financial Statements assuming that we will continue as a going concern. However, our independent auditors, Ernst & Young, have issued an opinion
that indicates there is a substantial doubt about our ability to continue as a going concern as a result of concerns set forth in their report. The Consolidated Financial Statements do not include any
adjustments that might result from the resolution of this uncertainty.

Funding of activities

We have funded the cost of our activities primarily through the sale of equity securities, which have provided gross proceeds of
€ 193.6 million. See "Liquidity and Capital Resources" below.

We
have also earned income through (i) payments from pharmaceutical companies and other collaborative partners for contract research and manufacturing, as well as royalties for
out-licensed technology, (ii) interest income and (iii) through the year 2001, grants for research and development.

The AFM Agreement.Our most important source of contract revenue is our agreement with the Association
Française contre les Myopathies("AFM") (French Association against Muscular Dystrophy), which was renewed for three years in
December 2002. According to the agreement, AFM agreed to refund our research and development costs incurred in connection with our muscular dystrophy program for the three-year
period starting July 1, 2001. These costs were € 3.8 million in total. We have recorded refunds from AFM of
€ 1.101 million, € 1.218 million and € 1.390 million for the years ended December 31,
2004, 2003, 2002, respectively. See Note 2 to our consolidated financial statements. We are continuing to collaborate with the AFM on the muscular dystrophy program, and we are currently in
discussions to establish a new agreement with the AFM with a retroactive effect.

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Interest income.Interest income consists of interest earned on our cash and cash equivalents, which amounted to an average
of € 24.7 million, € 44.9 million and € 62.2 million in 2004, 2003 and 2002, respectively.
We invest our cash in managed funds consisting of short-term, interest-bearing, investment-grade securities.

Expenses

Our expenses consist primarily of research and development costs and general and administrative expenses, as well as restructuring expenses.

Research and development expenses.Research and development expenses include the costs related to laboratory and
pre-clinical research, clinical trials and the manufacturing of product candidates for clinical testing. We manufacture clinical batches of our products candidates in our pilot plant
located in the outskirts of Strasbourg. Research and development expenses also include depreciation and maintenance costs for our manufacturing facility, as well as support functions such as
intellectual property development and maintenance.

General and administrative expenses.General and administrative expenses consist primarily of the costs related to the
general and financial management of the company, to communications activities and business development.

Restructuring expenses.In 2001, Transgene decided on a restructuring plan and booked a
€ 1.6 million one-time charge based on the estimated severance and fringe benefits for 29 employees. The plan was implemented over the years 2001, 2002
and 2003. As of December 31, 2002, 28 employees had been terminated and the balance of the provision amounted to € 0.188 million. As of December 31,
2003, all employees had been terminated. An unused portion of the restructuring provision amounting to € 0.1 million was therefore reversed in 2003.

Note regarding accounting for stock-options.For the year ending December 31, 2003, and subsequent years, we have
elected to account for our employee stock option plan in accordance with the provisions of the Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based
Compensation", which uses the fair value method. Previously, we used Principles Board Opinion, No. 25 (APB 25), "Accounting for Stock Issued to Employees", and disclosed the effect of
SFAS 123 compared to APB 25. In the present document, financial information for the year ended December 31, 2002 has been restated to reflect the application of SFAS 123. Under
SFAS 123, the amortization charges relating to stock options increase by the following amounts as compared to the charges which would be recorded under APB 25:

|In thousands of € |  | Research and
development |  | General and
administrative |  | Total
|----------------- |  | ------------------------ |  | -------------------------- |  | -----
|2002              |  | 71                       |  | 63                         |  | 134  
|2003              |  | 94                       |  | 99                         |  | 193  
|2004              |  | 101                      |  | 102                        |  | 203  

Income tax

Our income tax comprises three components: current income tax, research-related tax credits and deferred income tax.

Current income tax.Our current income tax is limited to the minimum income tax, the Impôt forfaitaire
annuel(currently approximately € 4 thousand annually) as long as we continue
incurring losses deductible for tax purposes in France.

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Research-related tax credits.Under current French tax policy, as revised in 2004, the research-related tax credit generated
in a given year is equal to 45% of the increase in eligible research and development expenses over the average of the two preceding years, plus 5% of the eligible research and
development expenses incurred in the current year. The research-related income tax credit in a given year can be carried forward and, if it is not used to offset income taxes payable, is recoverable
in cash from the French government in the fourth year following its generation. For the years 2004, 2003, 2002, we received a total in cash of € 3.1 million as a
result of research-related tax credits generated in the years 2000, 1999 and 1998. Negative tax credits, which can result from a reduction in research and development expenses compared to the average
of the two preceding years, are not required to be paid to the tax authorities, but must be deducted from future positive tax credits for five years. As of December 31, 2004, we had a negative
research-related tax credit of € 0.9 million, due to the reduction in our research and development expenses in 2002 compared to the average of the two preceding
years.

Future
French tax policy may change and may not continue to provide us tax credits for our research and development programs and the loss of such credits could increase our net losses.

Deferred income tax.As of December 31, 2004, the significant components of our deferred tax assets included
(i) French net operating loss carry-forwards of € 171.0 million (which have no expiration date under current French tax policy), (ii) French research
and development costs amortized for tax purposes of € 10.2 million and (iii) French license costs amortized for tax purposes of
€ 7.8 million. We have depreciated our deferred tax assets to zero because we lack reasonable assurance that we will be able to recover those tax assets in the
foreseeable future. As a result, no deferred tax income has been recognized in the statement of operations.

Results of Operations

Year ended December 31, 2004 Compared to Year ended December 31, 2003



For 2004, revenues were unchanged at € 2.5 million, compared to 2003.

Contract research and manufacturing.Reimbursements from AFM for our research and development in muscular dystrophy amounted
to € 1.101 million and € 1.218 million in 2004 and 2003, respectively. For 2004, we also earned revenues of
€ 0.7 million from contract manufacturing of pre-clinical lots of constructs for Merial, the International AIDS Vaccine Initiative (IAVI) and
bioMérieux. We expect that the revenues from the manufacturing of clinical lots for Eurovac, most of which were received during 2004 and recorded in our consolidated financial
statements as deferred revenues, will be recognized for the year ended December 31, 2005 upon our customer's final acceptance of the remaining batches, which are to be delivered in the first
half of 2005.

Licensing.Royalties and fees earned on out-licensed technologies contracts decreased to
€ 0.7 million in 2004 from € 1.0 million in 2003. These revenues resulted primarily from royalties earned on the Raboral
anti-rabies vaccine marketed by Merial, while revenues for 2003 also included the up-front fee earned on the license contract signed with Merck & Co., Inc in
January 2003. The license contract with Merck is for the use of technology we developed to permit the highly efficient and rapid generation of recombinant viral vectors.

As
stated in the Risk Factor section in Item 3, there is no certainty that any products which we are currently developing will demonstrate adequate therapeutic efficacy or achieve
commercial use. As a result, we do not expect to generate material net cash inflows from the commercial sale of products in the foreseeable future, and we may never generate revenues from the sale of
products.

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Operating expenses decreased 1% to € 24.2 million for 2004 from € 24.4 million for 2003.

Research and development.Research and development expenses decreased 1.2% to
€ 20.0 million for 2004 from € 20.3 million for 2003. Expenses for clinical trials decreased in 2004, as we included 56 patients
in 2004, compared to 149 patients in 2003, due to the completion of the patient inclusions in our Phase II MVA-Muc1-IL2 and MVA-HPV-IL2 clinical trials.
Manufacturing costs increased slightly in 2004 compared to 2003 mainly due to the increased manufacturing activity for third parties. In 2004, patent maintenance costs and research and development
support costs were overall unchanged compared to 2003.

As
stated in the "Strategy" section of Item 4, Transgene announced in February 2005 that it is concentrating its resources on a streamlined product portfolio, which consists of
three mid-stage development product candidates: the anti-cancer vaccine MVA-MUC1-IL2, the therapeutic vaccine MVA-HPV-IL2
against Human Papilloma virus infection, and the anti-cancer immunotherapy product Ad-IFNg.

Research and development costs incurred during each period and to December 31, 2004

MVA-MUC1-IL2:
During the years ended December 31, 2004, 2003 and 2002, Transgene incurred approximately € 2.9 million,
€ 3.7 million and € 4.4 million, respectively, of expenses on the development of this product candidate. Transgene incurred
approximately € 27 million of expenses on the development of this product candidate since the initiation of the program in 1992 until December 31, 2004.

MVA-HPV-IL2:
During the years ended December 31, 2004, 2003 and 2002, Transgene incurred approximately € 1.6 million,
€ 2.7 million and € 3.8 million, respectively, of expenses on the development of this product candidate. Since the commencement
of this program in 1992 until December 31, 2004, an estimated € 21 million has been spent on the development of this product candidate.

Ad-IFNg:
During the years ended December 31, 2004, 2003 and 2002, Transgene incurred approximately
€ 3.7 million, € 2.5 million and € 2.0 million, respectively, of expenses on the development
of this product candidate. An estimated € 13 million has been spent on the project since inception in 1995 until December 31, 2004.

The
costs stated above include direct costs incurred on the projects in the fields of research, production, intellectual property and clinical trials as well as an allocation of indirect
research and development support costs and general and administrative expenses. They do not include costs incurred for the development of production processes, which involves principally the testing
of different methods to produce the needed components by modifying the chemical, biological and mechanical parameters of production procedures. The development of production processes also involves
the investigation and testing of procedures which would be appropriate for their industrialization. Because production processes are developed for all projects using the same technology platform
(either MVA or Adenovirus vectors), the associated development costs relate to the technology platform but cannot be allocated to any individual project. Through December 31, 2004, costs
relating to the development of production processes for MVA amounted to € 8.9 million, and costs relating to the development of production processes for adenovirus
amounted to € 16.8 million.

Estimated costs required to complete our research and development projects

The
MVA-MUC1-IL2 cancer therapeutic vaccine completed Phase II clinical trials in early 2005 and is planned to enter into a randomized, controlled Phase IIb trial
at the end of 2005 for the treatment of non-small cell lung cancer, in combination with standard chemotherapy.

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The
MVA-HPV-IL2 therapeutic vaccine is currently in Phase II clinical trials for the treatment of Cervical Intraepithelial Neoplasia (CIN 2-3).

Ad-IFNg,
a non-specific immunotherapy product candidate for the treatment of primary cutaneous lymphoma, is currently in
Phase I/II clinical trials.

We
are unable to estimate with any certainty the timing and costs necessary to complete our research and development projects. Clinical development timelines, likelihood of success and
total development costs vary widely and unpredictably for biotechnology product candidates such as ours. As disclosed in the Risk Factor section in Item 3, our business involves significant
uncertainties that make it very difficult, if not impossible, to provide reliable estimates on timing and costs to project completion. For example, our potential products must undergo further rigorous
clinical testing and regulatory approvals, which could substantially delay or prevent us from marketing any products. These approval processes are typically lengthy and expensive, and approval is
never certain. Clinical trials duration and costs are contingent upon the number of patients required, the patient follow-up time, the patient enrolment rate and speed, and the substantive
results of the clinical trials cannot be predicted. Our business is also subject to uncertainties associated with obtaining and enforcing patent rights and competition from other products.
Furthermore, we intend to enter into collaborative agreements with third parties for the development and commercialisation of MVA-MUC1-IL2 and
MVA-HPV-IL2. In such cases, the development duration and costs would depend not only on Transgene, but also on the development plans of these third parties.

As
indicated above and in the Risk Factor section in Item 3, it is not possible to provide reliable estimates of the time and costs necessary to complete our research and development
projects, particularly since the results of clinical testing, changes in the regulatory environment, developments regarding relevant patents and total capital requirements are so unpredictable. The
length of our current clinical-trial phases until completion may vary depending on patient-enrolment rate, patient follow-up time and regulatory requirements on our clinical procedures.
For the same
reasons, the cost to completion of our current phases of clinical trials cannot be estimated with reasonable reliability.

Nevertheless,
if important potential collaborators judge that Transgene is unable to successfully complete its development projects in a timely manner, Transgene may not be able to enter
into collaborative agreements. As a result, Transgene's capital requirements would significantly increase and it would suffer an adverse impact on liquidity by placing a greater burden on the
Company's cash resources.

General and administrative.General and administrative expenses decreased 2.4% in 2004 to
€ 4.2 million compared to € 4.3 million in 2003.



Loss from operations decreased 1.2% to € 21.7 million for 2004 from € 21.9 million for
2003.



Interest income decreased to € 0.6 million in 2004 from € 1.2 million in 2003. This
decrease was primarily a result of lower cash and cash equivalents held and of lower interest rates. Average cash and cash equivalents held in 2004 and 2003 was
€ 24.7 million and € 44.9 million, respectively. These assets were invested in funds yielding interest based on the EONIA
variable rate (Euro Overnight Index Average) plus a margin. The average EONIA in 2004 and 2003 was 2.07% and 2.36%, respectively.

Our
interest expense was unchanged at € 0.1 million for both 2004 and 2003 and corresponded to interest on the capital lease for our manufacturing
plant. Foreign currency loss of € 22 thousand in 2004 was principally attributable to the decline in the value of the U.S. dollar compared to the euro.

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Current income tax recorded for 2004 was € 21 thousand, corresponding to the accumulated minimum income tax, the Impôt forfaitaire
annuel, for recent years, since we are incurring losses deductible for tax purposes in France.



The research-related tax credit generated in 2004 amounted to € 0.717 million corresponding to 5% of the eligible research and
development expenses incurred in 2004. The amount of € 0.490 million corresponding to 45% of the increase in eligible research and development expenses over the
average of the two preceding years was offset against the negative tax credit of € 1.395 million caused by the decrease in research and development expenses in 2002
compared to the average of the two preceding years. The resulting negative balance of € 0.905 million is not required to be refunded to the tax authorities, but
will be deducted from future positive tax credits over the next three years.

As
of December 31, 2004, we had a research-related income tax credit receivable of € 0.8 million, of which
€ 0.1 million generated in 2001 and € 0.7 million generated in 2004 would be recoverable in 2005 and 2008, respectively. As
anticipated, we received in 2004 € 0.2 million of research-related tax credit which originated in 2000.



As of December 31, 2004, the significant components of our deferred tax assets included (i) French net operating loss carryforwards of
€ 171 million (which have no expiration date under current French tax policy), (ii) French research and development costs amortized for tax purposes of
€ 10.2 million and (iii) French license costs amortized for tax purposes of € 7.8 million. Deferred tax assets have been
depreciated to zero and no deferred tax income has been recognized in the statement of operations, because we lack reasonable assurance that we will be able to recover these tax assets in the
foreseeable future.



As a result of the foregoing, our net loss decreased to € 20.5 million in 2004 from
€ 20.9 million in 2003.

Year ended December 31, 2003 Compared to Year ended December 31, 2002



For 2003, revenues increased to € 2.5 million from € 2.2 million in 2002.

Contract research and manufacturing.Reimbursements from AFM for our research and development in muscular dystrophy amounted
to € 1.218 million and € 1.390 million in 2003 and 2002, respectively. We also received reimbursement from AFM of
€ 177 thousand in 2002, corresponding to a portion of the costs incurred in the second half of 2001 (see Note 2 to the consolidated financial statements).
For 2003, we also earned revenues of € 0.3 million from contract manufacturing of pre-clinical lots of constructs for the International AIDS Vaccine
Initiative (IAVI) and bioMérieux.

Licensing.Royalties and fees earned on out-licensed technologies contracts increased to
€ 1.0 million in 2003 from € 0.6 million in 2002. They reflected primarily royalties earned on the Raboral
anti-rabies vaccine marketed by Merial and the up-front fee earned on the license contract signed with Merck & Co., Inc in January 2003. The license contract with
Merck is for the use of

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technology
we developed to permit the highly efficient and rapid generation of recombinant viral vectors.



Operating expenses increased 7.5% to € 24.4 million for 2003 from € 22.7 million for 2002.

Research and development.Research and development expenses increased 6.2% to
€ 20.3 million for 2003 from € 19.1 million for 2002.

Expenses
for clinical trials increased in 2003, as we included 149 patients in 2003, compared to 115 patients in 2002. Transgene also opened 13 new clinical trial centers in 2003.

Manufacturing
costs increased in 2003 compared to 2002 mainly due to the scheduled 10-year quality review of our manufacturing equipment. Depreciation expenses also increased
due to our recent investments to upgrade our MVA production facility and to commission our conditioning equipment in late 2002. In 2003, as a result of terminating basic research for synthetic
vectors, some members of the research staff were reassigned to our manufacturing department. Process development expenses were stable in 2003.

In
2003, we pursued the streamlining of our unused patents portfolio to save patent maintenance costs. As a result, patent maintenance costs declined, leading to an overall decrease of
support functions expenses.

General and administrative.General and administrative expenses increased 19.4% to
€ 4.3 million in 2003, compared to € 3.6 million in 2002, principally
as a result of higher business development staff costs (two people joined the business development department in the fourth quarter of 2002) and higher communications and legal expenses.

Restructuring expenses.An unused portion of the restructuring provision amounting to
€ 0.1 million was reversed.



Loss from operations increased 6.9% to € 21.9 million for 2003 from € 20.5 million for
2002.



Interest income decreased to € 1.2 million in 2003 from € 2.1 million in 2002. This
decrease was primarily a result of lower cash and cash equivalents held and of lower interest rates. Average cash and cash equivalents held in 2003 and 2002 was
€ 44.9 million and € 62.2 million, respectively. They were invested in funds yielding interests based on the EONIA variable rate
(Euro Overnight Index Average) plus a margin. The average EONIA in 2003 and 2002 was 2.36% and 3.36% respectively.

Our
interest expense was unchanged at € 0.1 million for both 2003 and 2002 and corresponded to interest on the capital lease for our manufacturing
plant. Foreign currency loss of € 32 thousand in 2003 was principally attributable to the decline in the value of the U.S. dollar compared to the euro.



Current income tax is nil, as we are incurring losses deductible for tax purpose in France.

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The research-related tax credit generated in 2003 amounted to € 0.250 million and was offset against the negative tax credit
of € 1.6 million caused by the decrease in research and development expenses in 2002 compared to the average of the two preceding years. The resulting negative
balance of € 1.350 million is not required to be refunded to the tax authorities, but will be deducted from future positive tax credits over the next four years.

As
of December 31, 2003, we had a research-related income tax credit receivable of € 0.3 million, of which
€ 0.2 million generated in 2000 and € 0.1 million generated in 2001 would be recoverable in 2004 and 2005, respectively. As
anticipated, we received in the third quarter of 2003 € 0.8 million of research-related tax credit which originated in 1999.



As of December 31, 2003, the significant components of our deferred tax assets included (i) French net operating loss carryforwards of
€ 143.7 million (which have no expiration date under current French tax policy), (ii) French research and development costs amortized for tax purposes of
€ 13.4 million and (iii) French license costs amortized for tax purposes of € 10.2 million. Deferred tax assets have been
depreciated to zero and no deferred tax income has been recognized in the statement of operations, because we the lack reasonable assurance that we will be able to recover these tax assets in the
foreseeable future.



As a result of the foregoing, our net loss increased to € 20.9 million in 2003 from
€ 18.5 million in 2002.

Liquidity and Capital Resources

Beginning in 1992, when we repositioned ourselves as a biotechnology company dedicated to discovery and development of gene transfer technologies and products, we
have financed our operations primarily through the sale of equity securities, which have provided gross proceeds of € 193.6 million, including gross proceeds of
€ 93.8 million and € 63.1 million from our public offerings in 1998 and 2001, respectively.

As
of December 31, 2004, our long-term debt, consisting of a capital lease obligation but excluding the loan from the AFM, which is repayable only under specific
conditions (see Note 2 to our consolidated financial statements), amounted to € 2.1 million compared to € 2.5 million at
December 31, 2003. As of December 31, 2004, our cash and cash equivalents balance was € 14.7 million. We invest our cash in managed funds consisting
of short-term, interest-bearing, investment-grade securities.

In
2004, our principal uses of cash were funding research and development expenses, investment in our clinical manufacturing plant, investment in equipment and working capital
requirements. Net cash expenditures in 2004 amounted to € 20.3 million compared to € 19.6 million in 2003. In comparison to
2003, net cash expenditures increased due to a lower refund of research-related tax credits (€ 0.2 million in 2004 compared to
€ 0.8 million in 2003) and lower interest income (€ 0.6 million in 2004 compared to
€ 1.1 million in 2003). These negative impacts on net cash expenditures were partially offset by lower operating expenses in 2004
(€ 24.2 million in 2004 compared to € 24.4 million in 2003) and lower capital expenditures
(€ 0.7 million in 2004 compared to € 1.0 million in 2003).

We
incurred capital expenditures of € 0.7 million in 2004, all of which were paid out of our cash reserves, and we expect to incur higher capital
expenditures in 2005 of € 1.1 million to maintain the necessary level of pharmaceutical standards at our research and production facilities.

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See
the "Overview" at the beginning of this Item 5 for our outlook as to uncertainties regarding the funding of our continuing operations.

Research and Development

Our research and development activities are described in detail under "Item 4. Information on the Company".

Research
and development expenditures amounted to € 20.0 million in 2004, € 20.3 million in 2003 and
€ 19.1 million in 2002. In light of the nature of our activities, we intend to continue to invest substantial amounts in our research and development.

Critical accounting policies

Our accounting policies are described in Note 1 to our financial statements. We believe that Revenue Recognition described in Note 1.4 may require
management to make difficult, subjective or complex judgments or estimates, in the event we enter into product development contracts with third parties.

Off balance sheet arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the company's financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Tabular disclosure of contractual obligations (as of December 31, 2004)

|                            |  | Payments due by period
|--------------------------- |  | ----------------------
|
|Long term Debt Obligations  |  |                      
|Capital Lease Obligations   |  | 2,120                 
|Operating Lease Obligations |  | 2,412                 
|Purchase Obligations        |  |                      
|AFM loan                    |  | 3,049                 
|                            |  |                       
|Total                       |  | 7,581                 
|                            |  |                       

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this Amendment No. 1 to its annual report on Form 20-F on its behalf.

|                         |  | TRANSGENE
|------------------------ |  | ---------
|Dated: December 20, 2005 |  | By:      

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