##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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Quarterly report pursuant to Section
13 or 15 (d)

of the Securities Exchange Act of 1934



|                                     |  |                            
|------------------------------------ |  | ---------------------------
|For the Quarter Ended March 31, 2005 |  | Commission File No. 0-20948



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AUTOIMMUNE INC.

(Exact Name of Registrant as Specified in its Charter)



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|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 13-348-9062                         
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)



1199 Madia Street,
Pasadena, CA 91103

(Address of Principal Executive Offices)



(626) 792-1235

(Registrants Telephone No., including Area Code)



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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  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).    Yes ̈No  x



Number of shares outstanding of
the registrants Common Stock as of April 30, 2005:



|                             |  |                              
|---------------------------- |  | -----------------------------
|Common Stock, par value $.01 |  | 16,919,623 shares outstanding



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##### Table of Contents

AUTOIMMUNE INC.



QUARTER ENDED MARCH
31, 2005



TABLE OF CONTENTS



|                                                                                               |  |                                                                                                                                           |  |            
|---------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|                                                                                               |  |                                                                                                                                           |  | Page Number
|PART I -
FINANCIAL INFORMATION                                                                 |  |                                                                                                                                          
|                                                                                               | 
|Item 1 -
Financial Statements (Unaudited)                                                      |  |                                                                                                                                          
|                                                                                               |  |                                                                                                                                          
|                                                                                               |  | Balance Sheet                                                                                                                             |  |            
|                                                                                               |  | December 31, 2004 and March 31, 2005                                                                                                      |  | 2          
|                                                                                               |  |                                                                                                                                          
|                                                                                               |  | Statement of Operations                                                                                                                   |  |            
|                                                                                               |  | for the three month periods ended March 31, 2004 and 2005 and for the period from September 9, 1988 (date of inception) to March 31, 2005 |  | 3          
|                                                                                               |  |                                                                                                                                          
|                                                                                               |  | Statement of Cash Flows                                                                                                                   |  |            
|                                                                                               |  | for the three months ended March 31, 2004 and 2005 and for the period from September 9, 1988 (date of inception) to March 31, 2005.       |  | 4          
|                                                                                               |  |                                                                                                                                          
|                                                                                               |  | Notes to the Unaudited Financial Statements                                                                                               |  | 5          
|                                                                                               | 
|Item 2 -
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 8                                                                                                                                        
|                                                                                               | 
|Item 3 
Quantitative and Qualitative Disclosures about Market Risk                            |  | 10                                                                                                                                       
|                                                                                               | 
|Item 4 
Controls and Procedures                                                               |  | 10                                                                                                                                       
|                                                                                               | 
|PART II -
OTHER INFORMATION                                                                    |  |                                                                                                                                          
|                                                                                               | 
|Item 6(a) 
Exhibits                                                                           |  | 11                                                                                                                                       
|                                                                                               | 
|Item 6(b) 
Reports on Form 8-K                                                                |  | 11                                                                                                                                       
|                                                                                               | 
|Signatures                                                                                     |  | 12                                                                                                                                       



1



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##### Table of Contents

PART 1 - FINANCIAL INFORMATION



ITEM 1 - FINANCIAL STATEMENTS



AUTOIMMUNE INC.

(A development stage company)

BALANCE SHEET

(Unaudited)



|                                                                                                                                             |  |                   |              |   |                |   |              |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------------ | - | -------------- | - | ------------ | -
|                                                                                                                                             |  | December 31, 2004 |              |   | March 31, 2005 |  
|ASSETS                                                                                                                                       |  |                   |              |   |                |   |              |  
|Current assets:                                                                                                                              |  |                   |              |   |                |   |              |  
|Cash and cash equivalents                                                                                                                    |  | $                 | 9,996,000    |   |                | $ | 4,133,000    |  
|Marketable securities                                                                                                                        |  |                   |             |   |                |   | 5,631,000    |  
|Prepaid expenses and other current assets                                                                                                    |  |                   | 37,000       |   |                |   | 95,000       |  
|                                                                                                                                             |  |                   |              |   |                |   |              |  
|Total current assets                                                                                                                         |  |                   | 10,033,000   |   |                |   | 9,859,000    |  
|                                                                                                                                             |  |                  
|Other assets                                                                                                                                 |  |                   | 5,000        |   |                |   |             |  
|                                                                                                                                             |  |                   |              |   |                |   |              |  
|                                                                                                                                             |  | $                 | 10,038,000   |   |                | $ | 9,859,000    |  
|                                                                                                                                             |  |                   |              |   |                |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                         |  |                   |              |   |                |   |              |  
|Current liabilities:                                                                                                                         |  |                   |              |   |                |   |              |  
|Accounts payable                                                                                                                             |  | $                 | 10,000       |   |                | $ | 5,000        |  
|Accrued professional fees                                                                                                                    |  |                   | 85,000       |   |                |   | 98,000       |  
|Deferred revenue                                                                                                                             |  |                   | 13,000       |   |                |   |             |  
|                                                                                                                                             |  |                   |              |   |                |   |              |  
|Total current liabilities                                                                                                                    |  |                   | 108,000      |   |                |   | 103,000      |  
|                                                                                                                                             |  |                   |              |   |                |   |              |  
|Stockholders equity:                                                                                                                        |  |                   |              |   |                |   |              |  
|Common stock, $.01 par value; 25,000,000 shares authorized; 16,919,623 shares issued and outstanding at December 31, 2004 and March 31,
2005 |  |                   | 169,000      |   |                |   | 169,000      |  
|Additional paid-in capital                                                                                                                   |  |                   | 118,257,000  |   |                |   | 118,257,000  |  
|Deficit accumulated during the development stage                                                                                             |  |                   | (108,496,000 | ) |                |   | (108,669,000 | )
|Accumulated other comprehensive income (loss)                                                                                                |  |                   |             |   |                |   | (1,000       | )
|                                                                                                                                             |  |                   |              |   |                |   |              |  
|Total stockholders equity                                                                                                                   |  |                   | 9,930,000    |   |                |   | 9,756,000    |  
|                                                                                                                                             |  |                   |              |   |                |   |              |  
|                                                                                                                                             |  | $                 | 10,038,000   |   |                | $ | 9,859,000    |  
|                                                                                                                                             |  |                   |              |   |                |   |              |  



The accompanying notes
are an integral part of these financial statements.



2



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##### Table of Contents

AUTOIMMUNE INC.

(A development stage company)

STATEMENT OF OPERATIONS

(Unaudited)



|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|--------------------------------------------------------------- |  | ------------------ | ---------- | - | ---------------------------------------------------------------- | - | ---------- | - |  | - | ------------ | -
|                                                                |  | Three months ended |            |   | Period fromSeptember 9, 1988(date of inception)to March 31, 2005 |  
|                                                                |  | March 31,2004      |            |   | March 31,2005                                                    |   |           
|Revenue:                                                        |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|License rights                                                  |  | $                  | 30,000     |   |                                                                  | $ | 38,000     |   |  | $ | 7,041,000    |  
|Option fees                                                     |  |                    |           |   |                                                                  |   |           |   |  |   | 2,200,000    |  
|Research and development revenue under collaborative agreements |  |                    |           |   |                                                                  |   |           |   |  |   | 955,000      |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Total revenues                                                  |  |                    | 30,000     |   |                                                                  |   | 38,000     |   |  |   | 10,196,000   |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Costs and expenses:                                             |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Research and development:                                       |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Related party                                                   |  |                    | 15,000     |   |                                                                  |   | 3,000      |   |  |   | 19,962,000   |  
|All other                                                       |  |                    | 43,000     |   |                                                                  |   | 124,000    |   |  |   | 92,434,000   |  
|General and administrative                                      |  |                    | 171,000    |   |                                                                  |   | 115,000    |   |  |   | 18,912,000   |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Total costs and expenses                                        |  |                    | 229,000    |   |                                                                  |   | 242,000    |   |  |   | 131,308,000  |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Total operating loss                                            |  |                    | (199,000   | ) |                                                                  |   | (204,000   | ) |  |   | (121,112,000 | )
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Interest income                                                 |  |                    | 31,000     |   |                                                                  |   | 61,000     |   |  |   | 13,000,000   |  
|Interest expense                                                |  |                    |           |   |                                                                  |   |           |   |  |   | (303,000     | )
|Equity in net loss of unconsolidated affiliate                  |  |                    |           |   |                                                                  |   | (30,000    | ) |  |   | (150,000     | )
|Other expense                                                   |  |                    |           |   |                                                                  |   |           |   |  |   | (100,000     | )
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net loss                                                        |  | $                  | (168,000   | ) |                                                                  | $ | (173,000   | ) |  | $ | (108,665,000 | )
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net loss per share-basic                                        |  | $                  | (0.01      | ) |                                                                  | $ | (0.01      | ) |  |   |              |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net loss per share-diluted                                      |  | $                  | (0.01      | ) |                                                                  | $ | (0.01      | ) |  |   |              |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Weighted average common shares outstanding-basic                |  |                    | 16,919,623 |   |                                                                  |   | 16,919,623 |   |  |   |              |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Weighted average common shares outstanding-diluted              |  |                    | 16,919,623 |   |                                                                  |   | 16,919,623 |   |  |   |              |  
|                                                                |  |                    |            |   |                                                                  |   |            |   |  |   |              |  



The accompanying notes
are an integral part of these financial statements.



3



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##### Table of Contents

AUTOIMMUNE INC.

(A development stage company)

STATEMENT OF CASH FLOWS

(Unaudited)



|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---------- | - | ---------------------------------------------------------------- | - | ---------- | - |  | - | ------------ | -
|                                                                                                                   |  | Three months ended |            |   | Period fromSeptember 9, 1988(date of inception)to March 31, 2005 |  
|                                                                                                                   |  | March 31,2004      |            |   | March 31,2005                                                    |   |           
|Cash flows from operating activities:                                                                              |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net loss                                                                                                           |  | $                  | (168,000   | ) |                                                                  | $ | (173,000   | ) |  | $ | (108,665,000 | )
|Adjustment to reconcile net loss to net cash used by operating activities:                                         |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Interest expense related to demand notes converted into Series A mandatorily redeemable covertible preferred stock |  |                    |           |   |                                                                  |   |           |   |  |   | 48,000       |  
|Patent costs paid with junior convertible preferred and common stock                                               |  |                    |           |   |                                                                  |   |           |   |  |   | 3,000        |  
|Valuation of warrants issued in conjunction with license revenue                                                   |  |                    |           |   |                                                                  |   |           |   |  |   | 347,000      |  
|Depreciation and amortization                                                                                      |  |                    |           |   |                                                                  |   |           |   |  |   | 4,464,000    |  
|Loss on sale/disposal of fixed assets                                                                              |  |                    |           |   |                                                                  |   |           |   |  |   | 642,000      |  
|Decrease in patent costs                                                                                           |  |                    |           |   |                                                                  |   |           |   |  |   | 563,000      |  
|Impairment of investment in Oragen                                                                                 |  |                    |           |   |                                                                  |   |           |   |  |   | 100,000      |  
|Equity in net loss of unconsolidated affiliate                                                                     |  |                    |           |   |                                                                  |   | 30,000     |   |  |   | 150,000      |  
|(Increase) decrease in prepaid expenses and other current assets                                                   |  |                    | (109,000   | ) |                                                                  |   | (58,000    | ) |  |   | (95,000      | )
|Increase (decrease) in accounts payable                                                                            |  |                    | 38,000     |   |                                                                  |   | (5,000     | ) |  |   | 5,000        |  
|Increase (decrease) in accrued expenses                                                                            |  |                    | (23,000    | ) |                                                                  |   | 13,000     |   |  |   | 98,000       |  
|Increase (decrease) in deferred revenue                                                                            |  |                    |           |   |                                                                  |   | (13,000    | ) |  |   |             |  
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net cash used by operating activities                                                                              |  |                    | (262,000   | ) |                                                                  |   | (206,000   | ) |  |   | (102,340,000 | )
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Cash flows from investing activities:                                                                              |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Purchase of available-for-sale marketable securities                                                               |  |                    | (1,971,000 | ) |                                                                  |   | (5,632,000 | ) |  |   | (324,280,000 | )
|Proceeds from sale/maturity of available-for-sale marketable securities                                            |  |                    | 3,423,000  |   |                                                                  |   |           |   |  |   | 307,637,000  |  
|Proceeds from maturity of held-to-maturity marketable securities                                                   |  |                    |           |   |                                                                  |   |           |   |  |   | 11,011,000   |  
|Proceeds from sale of equipment                                                                                    |  |                    |           |   |                                                                  |   |           |   |  |   | 306,000      |  
|Purchase of fixed assets                                                                                           |  |                    |           |   |                                                                  |   |           |   |  |   | (5,288,000   | )
|Investment in Oragen                                                                                               |  |                    |           |   |                                                                  |   |           |   |  |   | (100,000     | )
|Investment in Colloral LLC                                                                                         |  |                    |           |   |                                                                  |   | (25,000    | ) |  |   | (150,000     | )
|Increase in patent costs                                                                                           |  |                    |           |   |                                                                  |   |           |   |  |   | (563,000     | )
|Increase in other assets                                                                                           |  |                    |           |   |                                                                  |   |           |   |  |   | (125,000     | )
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net cash provided (used) by investing activities                                                                   |  |                    | 1,452,000  |   |                                                                  |   | (5,657,000 | ) |  |   | (11,552,000  | )
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Cash flows from financing activities:                                                                              |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Proceeds from sale-leaseback of fixed assets                                                                       |  |                    |           |   |                                                                  |   |           |   |  |   | 2,872,000    |  
|Payments on obligations under capital leases                                                                       |  |                    |           |   |                                                                  |   |           |   |  |   | (2,872,000   | )
|Net proceeds from issuance of mandatorily redeemable convertible preferred stock                                   |  |                    |           |   |                                                                  |   |           |   |  |   | 10,011,000   |  
|Proceeds from bridge notes                                                                                         |  |                    |           |   |                                                                  |   |           |   |  |   | 300,000      |  
|Proceeds from issuance of common stock                                                                             |  |                    |           |   |                                                                  |   |           |   |  |   | 105,514,000  |  
|Proceeds from issuance of convertible notes payable                                                                |  |                    |           |   |                                                                  |   |           |   |  |   | 2,200,000    |  
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net cash provided by financing activities                                                                          |  |                    |           |   |                                                                  |   |           |   |  |   | 118,025,000  |  
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Net increase (decrease) in cash and cash equivalents                                                               |  |                    | 1,190,000  |   |                                                                  |   | (5,863,000 | ) |  |   | 4,133,000    |  
|                                                                                                                   |  |                    |           
|Cash and cash equivalents, beginning of period                                                                     |  |                    | 2,280,000  |   |                                                                  |   | 9,996,000  |   |  |   |             |  
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  
|Cash and cash equivalents, end of period                                                                           |  | $                  | 3,470,000  |   |                                                                  | $ | 4,133,000  |   |  | $ | 4,133,000    |  
|                                                                                                                   |  |                    |            |   |                                                                  |   |            |   |  |   |              |  



The accompanying notes
are an integral part of these financial statements.



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##### Table of Contents

AUTOIMMUNE INC.

(a development stage company)



NOTES TO THE UNAUDITED FINANCIAL STATEMENTS



|1. | Interim Financial Data
|-- | ----------------------



The interim financial data as of March 31, 2005, for the three month periods ended March 31, 2004 and 2005 and for the period from inception (September 9,
1988) through March 31, 2005 are unaudited, however, in our opinion the interim data includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for these interim periods. These financial
statements should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 2004 included in our Form 10-K. Results for interim periods are not necessarily indicative of results for the entire year.



|2. | Stock Compensation
|-- | ------------------



We account for employee and qualified director stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees. We apply the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensationas amended by
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure. Accordingly, no compensation cost has been recognized for options granted to employees with exercise prices equal to or greater than the fair market value
of the common stock at the grant date. Had compensation cost been determined based on the fair value at the time of grant consistent with the provisions of SFAS No. 123, our net income (loss) and net income (loss) per share would have been changed
to the pro forma amounts indicated below:



|                                                                                                                    |  |                              |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                                    |  | Three months ended March 31, |         
|                                                                                                                    |  | 2004                         |          |   | 2005 |  
|Net loss:                                                                                                           |  |                              |          |   |      |   |          |  
|As reported                                                                                                         |  | $                            | (168,000 | ) |      | $ | (173,000 | )
|Deduct: total stock-based employee compensation expense determined under the fair-value-based method for all awards |  |                              | (11,000  | ) |      |   | (8,000   | )
|                                                                                                                    |  |                              |          |   |      |   |          |  
|Pro forma                                                                                                           |  | $                            | (179,000 | ) |      | $ | (181,000 | )
|                                                                                                                    |  |                              |          |   |      |   |          |  
|Net loss per share  basic:                                                                                         |  |                              |          |   |      |   |          |  
|As reported                                                                                                         |  | $                            | (0.01    | ) |      | $ | (0.01    | )
|Pro forma                                                                                                           |  |                              | (0.01    | ) |      |   | (0.01    | )
|                                                                                                                    |  |                             
|Net loss per share  diluted:                                                                                       |  |                              |          |   |      |   |          |  
|As reported                                                                                                         |  | $                            | (0.01    | ) |      | $ | (0.01    | )
|Pro forma                                                                                                           |  |                              | (0.01    | ) |      |   | (0.01    | )



The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2004 and 2005: no dividend yield, expected volatility of 75%, risk free interest rates
ranging from 3.12% to 4.02% and a weighted average expected option term ranging from 3 to 6 years. Because additional option grants are expected to be made in the future, the pro forma impact on the three month period ended March 31, 2005 are not
representative of the pro forma effects which may be expected in future periods.



|3. | Net Income (Loss) Per Share  Basic and Diluted
|-- | -----------------------------------------------



Basic earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per
share is calculated based on the weighted average number of common shares and dilutive common equivalent shares assumed outstanding during the period. For the three month periods ended March 31, 2004 and 2005, shares used to compute diluted earnings
per share excluded 1,950,661 stock options and warrants in 2004 and 1,930,100 in 2005, as their inclusion would have been anti-dilutive due to the net losses incurred in these periods.



|4. | Cash Equivalents and Marketable Securities
|-- | ------------------------------------------



Cash equivalents are carried at amortized cost, which approximated fair value at December 31, 2004 and March 31, 2005, and were primarily invested in a
money market account and U.S. Treasury obligations. As of December 31, 2004, all investments had original maturities of 90 days or less and, therefore, were classified as cash equivalents.





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##### Table of Contents

AUTOIMMUNE INC.

(a development stage company)



NOTES TO THE UNAUDITED FINANCIAL STATEMENTS



The following is a summary of available-for-sale marketable securities held by us at March 31, 2005:



|                                |  |               |  |            |           |                 |   |                  |  |   |               |   |  |   |          
|------------------------------- |  | ------------- |  | ---------- | --------- | --------------- | - | ---------------- |  | - | ------------- | - |  | - | ---------
|                                |  | Maturity Term |  | Fair value |           | UnrealizedGains |   | Unrealizedlosses |  |   | Amortizedcost
|March 31, 2005:                 |  |               |  |            |           |                 |   |                  |  |   |               |   |  |   |          
|U.S. Government debt securities |  | Within 1 year |  | $          | 5,631,000 |                 | $ |                 |  | $ | (1,000        | ) |  | $ | 5,632,000
|                                |  |               |  |            |           |                 |   |                  |  |   |               |   |  |   |          
|                                |  |               |  | $          | 5,631,000 |                 | $ |                 |  | $ | (1,000        | ) |  | $ | 5,632,000
|                                |  |               |  |            |           |                 |   |                  |  |   |               |   |  |   |          



All of our marketable
securities were classified as current at December 31, 2004 and March 31, 2005 as these funds are highly liquid and are available to meet working capital needs and to fund current operations. Gross realized gains and losses on sales of marketable
securities for the three month periods ended March 31, 2004 and 2005 were not significant.



Marketable securities that were purchased and sold in periods prior to adoption of Statement of Financial Accounting Standards (SFAS) No. 115 on January 1, 1994, other than held-to-maturity marketable securities, are
included in the category available-for-sale marketable securities in the period from inception column of the statement of cash flows.



|5. | Other Assets
|-- | ------------



At March 31, 2005, we had two investments, one in OraGen Corporation and one in Colloral LLC.



OraGen Corporation (OraGen) is a private company in which our
interest is less than 20% of its common stock and is accounted for under the cost method. In 2002, we determined that the entire value of our investment in OraGen should be reduced to zero to reflect OraGens continued difficulty in obtaining
funding for its operations. In February 2004, Enzo Biochem, Inc. acquired the assets of OraGen. As of March 31, 2005, the total amount and timing of distributions we expect to receive is unknown. We will recognize a gain on this investment if and
when distributions from this sale are paid to us.



Colloral
LLC is a joint venture created in August 2002 between AutoImmune and Deseret Laboratories Inc., (a private company headquartered in St. George, Utah) to manufacture, market and sell Colloral®, as a dietary supplement. Our interest in Colloral LLC is greater than 50%, but
AutoImmune does not have control of Colloral LLC. Therefore, the investment is accounted for using the equity method. In 2002 AutoImmune contributed the equipment used to manufacture bulk product and a license to certain Colloral-related
intellectual property to Colloral LLC. These assets had a net book value of $0. Deseret contributed cash and is committed to providing additional amounts, which additional amounts are refundable if the board of directors of Colloral LLC determines
that the money is no longer needed. In September 2003, November 2004 and March 2005, AutoImmune made additional capital contributions of $25,000, $100,000 and $25,000, respectively, to Colloral LLC to support sales and marketing initiatives. We are
not obligated to make additional capital contributions, but may do so in the future.



We initially recorded the investment in Colloral at a cost of $0 and increased it to reflect the cash contribution paid in September 2003. Profits and losses will be allocated in accordance with the joint venture
agreement. Our equity in prior accumulated net losses at September 30, 2003 was greater than $25,000, therefore, the additional investment has been reduced by the full $25,000. As of December 31, 2004, our previously unrecorded equity in additional
prior accumulated net losses was $95,000. Therefore, the $100,000 investment was reduced by $95,000 which was recognized as equity in net loss of unconsolidated affiliate in the fourth quarter of 2004. As of March 31, 2005, our unrecorded equity in
prior accumulated net losses was $30,000. Therefore, the $25,000 investment in March 31, 2005 and the remaining balance of $5,000 as of December 31, 2005 was reduced by a total of $30,000 which was recognized as equity in net loss of unconsolidated
affiliate. Under equity accounting, we will not recognize equity income from this investment until our share of the profits of Colloral LLC exceeds our share of the unrecognized cumulative losses, if any. As of March 31, 2005, Colloral LLC has not
generated any profit. At March 31, 2005, the investment is carried at zero because our cash contributions to date have equaled our share of cumulative losses.



In 2000, we completed a market analysis of Colloral as a nutritional supplement and subsequently filed a Notice of New Dietary Ingredient
with the FDA that was accepted without comment. On February 18, 2005, we received a letter from the FDA stating that the FDA reconsidered the information contained in our Notice of New Dietary Ingredient and concluded that Colloral is not a dietary
supplement but appears to be a drug under the Federal Food, Drug, and Cosmetic Act, and thus subject to the regulatory requirements for drugs. We have submitted a response to the FDAs letter and hope to have demonstrated that Colloral meets
the statutory definition of a dietary supplement. We cannot predict what the effect of the FDAs letter will be. It is possible that Colloral LLC will be unable to market Colloral as a dietary supplement and that Colloral will be subject to the
regulatory requirements for drugs. If the FDA makes a final determination that requires us to comply with the regulatory requirements for drugs, Colloral will be withdrawn from the market, which would eliminate the possibility of future
distributions to us from Colloral LLC.



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(a development stage company)



NOTES TO THE UNAUDITED FINANCIAL STATEMENTS



|6. | Accumulated Other Comprehensive Loss
|-- | ------------------------------------



The components of comprehensive loss consisted of the following:



|                                                |  |                                     |          |   |      |   |          |  
|----------------------------------------------- |  | ----------------------------------- | -------- | - | ---- | - | -------- | -
|                                                |  | For the three months endedMarch 31, |         
|                                                |  | 2004                                |          |   | 2005 |  
|Net loss                                        |  | $                                   | (168,000 | ) |      | $ | (173,000 | )
|Change in unrealized gain (loss) on investments |  |                                     | 2,000    |   |      |   | (1,000   | )
|                                                |  |                                     |          |   |      |   |          |  
|Comprehensive loss                              |  | $                                   | (166,000 | ) |      | $ | (174,000 | )
|                                                |  |                                     |          |   |      |   |          |  



|7. | Indemnification
|-- | ---------------



We enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we indemnify, hold harmless, and agree
to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners, in connection with any U.S. patent, any copyright or other intellectual property infringement claim by any third party with
respect to our products. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments that could be required under these indemnification agreements is unlimited. We have never incurred costs to
defend lawsuits or settle claims related to these indemnification agreements. As a result, the estimated fair value of these agreements is minimal.



|8. | Recent Accounting Pronouncements
|-- | --------------------------------



SFAS No. 123R (revised 2004) Share-Based Payment was issued in December 2004. This standard requires companies to measure and recognize the
cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the equity award. SFAS No. 123R is required to be adopted commencing with our first quarter of 2006. We are currently evaluating
the transition provisions of this standard and will begin expensing stock options in the first quarter of 2006. The pro forma presentation included above under Stock Compensation approximates what the impact of SFAS No. 123R would have
had on the periods presented.



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



Results of Operations



Overview



The sections of
Managements Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 which involve risks and uncertainties. Our actual results may differ significantly from results discussed in the forward-looking statements due to a number of important factors,
including, but not limited to, our extremely limited operations, the uncertainties of clinical trial results and product development efforts, our dependence on third parties for licensing and other revenue, our dependence on determinations of
regulatory authorities and risks of technological change and competition. These factors are more fully discussed in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission in the section Business-Factors to
be Considered. The discussion in the Annual Report on Form 10-K is hereby incorporated by reference into this Quarterly Report.



From our inception through March 31, 2005, we have incurred ongoing losses from operations and have cumulative losses as of March 31, 2005 totaling $108,665,000. To date,
we have not recorded any revenue from the sale of products. Revenues recorded through March 31, 2005 were earned in connection with license rights, contract research and the granting of certain short-term rights. As a result, inflation has not
materially affected our revenues and income from continuing operations.



In
August 2002, we entered into a joint venture with Deseret Laboratories, Inc. by forming an entity called Colloral LLC to manufacture, market and sell Colloral® as a dietary supplement. Our interest in Colloral LLC is greater than 50% and we actively participate in its
management, but we do not have control of Colloral LLC. Therefore, the investment is accounted for using the equity method. To the extent that Colloral LLC generates revenues in excess of cumulative losses, we will record income. In February 2003,
Colloral LLC began marketing Colloral through direct mail solicitation of individuals who had previously expressed interest in obtaining the product. In September 2003, November 2004 and March 2005, AutoImmune made additional capital contributions
of $25,000, $100,000 and $25,000, respectively, to support sales and marketing initiatives. In the fourth quarter of 2004, Colloral LLC contracted with Business Development Resources, Inc. for the development of a consumer oriented marketing plan.
If a decision is made to implement this plan, substantial additional contributions to the joint venture will be required, and there can be no assurance that these efforts will be successful. Accordingly, we may continue to incur substantial losses.



Selected financial data for Colloral, LLC is as follows:



|                              |  |                                     |   |  |         |  
|----------------------------- |  | ----------------------------------- | - |  | ------- | -
|                              |  | For the three monthsended March 31, |  
|                              |  | 2004                                |   |  | 2005    |  
|Statement of Operations Data: |  |                                     |   |  |         |  
|Revenue                       |  | 5,000                               |   |  | 8,000   |  
|Net loss                      |  | (22,000                             | ) |  | (59,000 | )



On February 18, 2005, we received a
letter from the FDA stating that the FDA has concluded that Colloral is not a dietary supplement but appears to be a drug under the Federal Food, Drug, and Cosmetic Act, and thus subject to the regulatory requirements for drugs. We have submitted a
response to the FDAs letter and hope to have demonstrated that Colloral meets the statutory definition of a dietary supplement. It is possible that Colloral LLC will be unable to market Colloral as a dietary supplement, and that Colloral will
be subject to the regulatory requirements for drugs. If the FDA makes a final determination that requires us to comply with the regulatory requirements for drugs, Colloral will be withdrawn from the market, which would eliminate the possibility of
future distributions to us from Colloral LLC.



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Three Month Periods Ended March 31, 2004 and 2005



Revenue was $30,000 and $38,000 for the three month periods ended March 31, 2004 and 2005, respectively. The revenue in 2004 and 2005 was
comprised of monthly license payments from BioMS.



Research and development
expenses were $58,000 and $127,000 for the three month periods ended March 31, 2004 and 2005, respectively. The increase is due to the timing of patent related legal costs and offset slightly by the non-renewal of the current fiscal year contract
with The Brigham and Womens Hospital. We currently expect to renew the agreement and renew financing under the agreement effective June 30, 2005, which may result in additional research and development expense for the year ended December 31, 2005.



General and administrative expenses were $171,000 and $115,000 for the three
month periods ended March 31, 2004 and 2005, respectively. The decrease is a result of our incurrence in 2004 of legal costs and filing fees in connection with the appeal of the notice of delisting we received in February 2004 from the Nasdaq
Listing Qualifications Staff and to lower corporate expenditures.



Interest
income was $31,000 and $61,000 for the three month periods ended March 31, 2004 and 2005, respectively. The increase is due to a higher average return on investment offset partially by a lower average balance of cash and marketable securities
available for investment.



Other expense in the three months ended
March 31, 2005 was $30,000, which reflects our March 2005 capital contribution of $25,000 to Colloral LLC to support further sales and marketing initiatives. Our equity in prior accumulated net losses of Colloral LLC was $30,000. The additional
investment and the remaining asset value at December 31, 2004 of $5,000, therefore, was reduced by the $30,000 and was recognized as equity in net loss of unconsolidated afilliate.



Liquidity and Capital Resources



Our needs for funds have historically fluctuated from period to period as we have increased or decreased the scope of our research and development activities. Since
inception, we have funded these needs almost entirely through sales of our equity securities. Our current needs have been significantly reduced as a result of the termination of our direct research, development activities, all full-time employees
and other sources of operating expenses in 1999.



As of March 31, 2005 we hold
an interest in an entity called Colloral LLC, which is manufacturing, marketing and selling Colloral as a dietary supplement. We have no obligation to make additional capital contributions to Colloral LLC, but we may do so in the future. To the
extent that Colloral LLC generates income in excess of cumulative losses, we may receive cash distributions from the joint venture.



Our working capital and capital requirements will depend on numerous factors, including the strategic direction that we and our shareholders choose, the level of
resources that we devote to the development of our patented products, the extent to which we proceed by means of collaborative relationships with pharmaceutical or nutraceutical companies and our competitive environment. During the three months
ended March 31, 2005, we utilized $206,000 of cash to fund operations. The most significant uses of cash for the three months ended March 31, 2005 were the prepayment of our annual insurance premiums for 2005 of which $87,000 is included in prepaid
expenses and other current assets as of March 31, 2005 and legal expenses totaling $131,000. We expect to continue to use our current cash and marketable investments on hand to fund our future operations and development efforts. We do not believe we
currently have the ability to raise significant additional funds. Based upon our budget for calendar year 2005 and current expectations for future years, we believe that current cash and marketable securities, and the interest earned from the
investment thereof, will be sufficient to meet our operating expenses and capital requirements for at least five years. At the appropriate time, we may seek additional funding through public or private equity or debt financing, collaborative
arrangements with pharmaceutical companies or from other sources. If additional funds are necessary but not available, we will have to





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reduce or not pursue certain activities, which could include areas of research, product development, marketing activity, or otherwise modify
our business strategy. Such a reduction would have a material adverse effect on us.



In order to preserve principal and maintain liquidity, our funds are invested in U.S. Treasury obligations, high-grade corporate obligations and money market instruments. As of March 31, 2005, our cash and cash equivalents and marketable
securities totaled $9,764,000. Current liabilities at March 31, 2005 were $103,000.



Off-Balance Sheet Arrangements



We have not created, and are
not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements other than Colloral LLC, a joint venture
for the development and marketing of Colloral. In November 2004 and March 2005, we made capital contributions of $100,000 and $25,000 to support sales and marketing initiatives. We are not obligated to make additional capital contributions. We
account for our investment in Colloral LLC using the equity method. We will not recognize income from this investment until our share of future profits of Colloral LLC exceeds our share of the LLCs cumulative losses. As of March 31, 2005,
Colloral LLC has not generated any profit.



Recent Accounting Pronouncements



SFAS No. 123R (revised 2004) Share-Based Payment was issued
in December 2004. This standard requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the equity award. SFAS No. 123R is required to be
adopted commencing with our first quarter of 2006. We are currently evaluating the transition provisions of this standard and will begin expensing stock options in the first quarter of 2006. The pro forma presentation included above under
Stock Compensation approximates what the impact of SFAS No. 123R would have had on the periods presented.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We have invested all of our cash in U.S. Treasury obligations, high-grade corporate obligations and money market instruments. These investments are denominated in U.S. dollars. Due to the conservative nature of these
instruments, we do not have material exposure to interest rate or market risk.



ITEM 4. CONTROLS AND PROCEDURES



(a) Evaluation of Disclosure Controls and Procedures



Our Chief Executive Officer and Director of Finance and Treasurer evaluated the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of March 31, 2005. Based upon this evaluation, our Chief Executive Officer and Director of Finance and Treasurer conclude that, as of March 31, 2005, our disclosure controls and procedures are adequately designed to ensure that the
information that we are required to disclose in this report has been accumulated and communicated to our management to allow timely decisions regarding such required disclosures.



There have been no significant changes in the our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934) or in other factors that have materially affected or are reasonably likely to materially affect our internal control over financial reporting subsequent to March 31, 2005.



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PART II - OTHER INFORMATION



ITEM 6  EXHIBITS



Item 6(a)  Exhibits
(numbered in accordance with Item 601 of Regulation S-K)



|              |  |                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                          
|31.1          |  | Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a)                      
|              | 
|31.2          |  | Certification of the Director of Finance and Treasurer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a)            
|              | 
|32.1          |  | Certification of the Chief Executive Officer and Director of Finance and Treasurer pursuant to 18 U.S.C. Section 1350



Item 6(b)  Reports on Form 8-K



A Form 8-K was filed on March 18, 2005 to furnish our press release issued on March 15, 2005 announcing our financial results for the quarter ended December 31, 2004. No other Form 8-K was filed during the first quarter of 2005.



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                                     
|------------------ |  | ------------------------------------
|                   |  | AUTOIMMUNE INC.                     
|                   | 
|Date: May 12, 2005 |  | /s/ Robert C. Bishop                
|                   |  | Robert C. Bishop                    
|                   |  | Chairman and Chief Executive Officer
|                   | 
|                   |  | /s/ Heather A. Ellerkamp            
|                   |  | Heather A. Ellerkamp                
|                   |  | Director of Finance and Treasurer   



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