##### 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 June 30, 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 July 31, 2005:



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



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##### Table of Contents

AUTOIMMUNE INC.



QUARTER ENDED JUNE 30,
2005



TABLE OF CONTENTS



|                                                                                               |  |                                             |  |                                                                                                                                                 |  |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | -
|                                                                                               |  | Page Number                                
|PART I -
FINANCIAL INFORMATION                                                                 |  |                                            
|                                                                                               | 
|Item 1 -
Financial Statements (Unaudited)                                                      |  |                                            
|                                                                                               |  |                                            
|                                                                                               |  | Balance Sheet                               |  |                                                                                                                                                
|                                                                                               |  |                                             |  | December 31, 2004 and June 30, 2005                                                                                                             |  | 2
|                                                                                               |  |                                            
|                                                                                               |  | Statement of Operations                     |  |                                                                                                                                                
|                                                                                               |  |                                             |  | for the three and six month periods ended June 30, 2004 and 2005 and for the period from September 9, 1988 (date of inception) to June 30, 2005 |  | 3
|                                                                                               |  |                                            
|                                                                                               |  | Statement of Cash Flows                     |  |                                                                                                                                                
|                                                                                               |  |                                             |  | for the six months ended June 30, 2004 and 2005 and for the period from September 9, 1988 (date of inception) to June 30, 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                                                               |  | 11                                         
|                                                                                               | 
|PART II -
OTHER INFORMATION                                                                    |  |                                            
|                                                                                               | 
|Item 4 
Submission of Matters to a Vote of Security Holders                                   |  | 12                                         
|                                                                                               | 
|Item 6(a) -
Exhibits                                                                           |  | 12                                         
|                                                                                               | 
|Item 6(b) 
Reports on Form 8-K                                                                |  | 12                                         
|                                                                                               | 
|Signatures                                                                                     |  | 13                                         



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 |              |   | June 30, 2005 |  
|ASSETS                                                                                                                                      |  |                   |              |   |               |   |              |  
|Current assets:                                                                                                                             |  |                   |              |   |               |   |              |  
|Cash and cash equivalents                                                                                                                   |  | $                 | 9,996,000    |   |               | $ | 5,635,000    |  
|Marketable securities                                                                                                                       |  |                   |             |   |               |   | 3,971,000    |  
|Prepaid expenses and other current assets                                                                                                   |  |                   | 37,000       |   |               |   | 76,000       |  
|                                                                                                                                            |  |                   |              |   |               |   |              |  
|Total current assets                                                                                                                        |  |                   | 10,033,000   |   |               |   | 9,682,000    |  
|                                                                                                                                            |  |                  
|Other assets                                                                                                                                |  |                   | 5,000        |   |               |   |             |  
|                                                                                                                                            |  |                   |              |   |               |   |              |  
|                                                                                                                                            |  | $                 | 10,038,000   |   |               | $ | 9,682,000    |  
|                                                                                                                                            |  |                   |              |   |               |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                        |  |                   |              |   |               |   |              |  
|Current liabilities:                                                                                                                        |  |                   |              |   |               |   |              |  
|Accounts payable                                                                                                                            |  | $                 | 10,000       |   |               | $ | 18,000       |  
|Accrued professional fees and other accrued expenses                                                                                        |  |                   | 85,000       |   |               |   | 90,000       |  
|Deferred revenue                                                                                                                            |  |                   | 13,000       |   |               |   | 13,000       |  
|                                                                                                                                            |  |                   |              |   |               |   |              |  
|Total current liabilities                                                                                                                   |  |                   | 108,000      |   |               |   | 121,000      |  
|                                                                                                                                            |  |                   |              |   |               |   |              |  
|Stockholders equity:                                                                                                                       |  |                   |              |   |               |   |              |  
|Common stock, $.01 par value; 25,000,000 shares authorized; 16,919,623 shares issued and outstanding at December 31, 2004 and June 30,
2005 |  |                   | 169,000      |   |               |   | 169,000      |  
|Additional paid-in capital                                                                                                                  |  |                   | 118,257,000  |   |               |   | 118,257,000  |  
|Deficit accumulated during the development stage                                                                                            |  |                   | (108,496,000 | ) |               |   | (108,863,000 | )
|Accumulated other comprehensive income (loss)                                                                                               |  |                   |             |   |               |   | (2,000       | )
|                                                                                                                                            |  |                   |              |   |               |   |              |  
|Total stockholders equity                                                                                                                  |  |                   | 9,930,000    |   |               |   | 9,561,000    |  
|                                                                                                                                            |  |                   |              |   |               |   |              |  
|                                                                                                                                            |  | $                 | 10,038,000   |   |               | $ | 9,682,000    |  
|                                                                                                                                            |  |                   |              |   |               |   |              |  



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)



|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|--------------------------------------------------------------- |  | ------------------ | ---------- | - | ---------------- | - | ---------- | ------------- |  | - | ------------- | - |  | ------------------------------------------------------------------ | ---------- | - |  | - | ------------ | -
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  | Period from September 9, 1988 (date of inception) to June 30, 2005 |           
|                                                                |  | Three months ended |            |   | Six months ended |   |           
|                                                                |  | June 30, 2004      |            |   | June 30, 2005    |   |            | June 30, 2004 |  |   | June 30, 2005 |   | 
|Revenue:                                                        |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|License rights                                                  |  | $                  | 30,000     |   |                  | $ | 37,000     |               |  | $ | 60,000        |   |  | $                                                                  | 75,000     |   |  | $ | 7,078,000    |  
|Option fees                                                     |  |                    |           |   |                  |   |           |               |  |   |              |   |  |                                                                    |           |   |  |   | 2,200,000    |  
|Research and development revenue under collaborative agreements |  |                    |           |   |                  |   |           |               |  |   |              |   |  |                                                                    |           |   |  |   | 955,000      |  
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Total revenues                                                  |  |                    | 30,000     |   |                  |   | 37,000     |               |  |   | 60,000        |   |  |                                                                    | 75,000     |   |  |   | 10,233,000   |  
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Costs and expenses:                                             |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Research and development:                                       |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Related party                                                   |  |                    | 15,000     |   |                  |   | 3,000      |               |  |   | 30,000        |   |  |                                                                    | 6,000      |   |  |   | 19,965,000   |  
|All other                                                       |  |                    | 131,000    |   |                  |   | 18,000     |               |  |   | 174,000       |   |  |                                                                    | 142,000    |   |  |   | 92,452,000   |  
|General and administrative                                      |  |                    | 214,000    |   |                  |   | 182,000    |               |  |   | 385,000       |   |  |                                                                    | 297,000    |   |  |   | 19,094,000   |  
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Total costs and expenses                                        |  |                    | 360,000    |   |                  |   | 203,000    |               |  |   | 589,000       |   |  |                                                                    | 445,000    |   |  |   | 131,511,000  |  
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Total operating loss                                            |  |                    | (330,000   | ) |                  |   | (166,000   | )             |  |   | (529,000      | ) |  |                                                                    | (370,000   | ) |  |   | (121,278,000 | )
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Interest income                                                 |  |                    | 30,000     |   |                  |   | 72,000     |               |  |   | 61,000        |   |  |                                                                    | 133,000    |   |  |   | 13,072,000   |  
|Interest expense                                                |  |                    |           |   |                  |   |           |               |  |   |              |   |  |                                                                    |           |   |  |   | (303,000     | )
|Equity in net loss of unconsolidated affiliate                  |  |                    |           |   |                  |   | (100,000   | )             |  |   |              |   |  |                                                                    | (130,000   | ) |  |   | (250,000     | )
|Other expense                                                   |  |                    |           |   |                  |   |           |               |  |   |              |   |  |                                                                    |           |   |  |   | (100,000     | )
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Net loss                                                        |  | $                  | (300,000   | ) |                  | $ | (194,000   | )             |  | $ | (468,000      | ) |  | $                                                                  | (367,000   | ) |  | $ | (108,859,000 | )
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Net loss per share-basic                                        |  | $                  | (0.02      | ) |                  | $ | (0.01      | )             |  | $ | (0.03         | ) |  | $                                                                  | (0.02      | ) |  |   |              |  
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Net loss per share-diluted                                      |  | $                  | (0.02      | ) |                  | $ | (0.01      | )             |  | $ | (0.03         | ) |  | $                                                                  | (0.02      | ) |  |   |              |  
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Weighted average common shares outstanding-basic                |  |                    | 16,919,623 |   |                  |   | 16,919,623 |               |  |   | 16,919,623    |   |  |                                                                    | 16,919,623 |   |  |   |              |  
|                                                                |  |                    |            |   |                  |   |            |               |  |   |               |   |  |                                                                    |            |   |  |   |              |  
|Weighted average common shares outstanding-diluted              |  |                    | 16,919,623 |   |                  |   | 16,919,623 |               |  |   | 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)



|                                                                                                                    |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---------- | - | ------------ | - | ---------- | ---------------------------------------------------------------- |  | - | ------------ | -
|                                                                                                                    |  |                  |            |   |              |   |            | Period fromSeptember 9, 1988 (date of inception) to
June 30 2005 | 
|                                                                                                                    |  | Six months ended |            |  
|                                                                                                                    |  | June 30 2004     |            |   | June 30 2005 |   |           
|Cash flows from operating activities:                                                                               |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|Net loss                                                                                                            |  | $                | (468,000   | ) |              | $ | (367,000   | )                                                                |  | $ | (108,859,000 | )
|Adjustment to reconcile net loss to net cash used by operating activities:                                          |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|Interest expense related to demand notes converted into Series A mandatorily redeemable convertible 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                                                                      |  |                  |           |   |              |   | 130,000    |                                                                  |  |   | 250,000      |  
|(Increase) decrease in prepaid expenses and other current assets                                                    |  |                  | (46,000    | ) |              |   | (39,000    | )                                                                |  |   | (76,000      | )
|Increase (decrease) in accounts payable                                                                             |  |                  | 52,000     |   |              |   | 8,000      |                                                                  |  |   | 18,000       |  
|Increase (decrease) in accrued expenses                                                                             |  |                  | (8,000     | ) |              |   | (15,000    | )                                                                |  |   | 70,000       |  
|Increase (decrease) in deferred revenue                                                                             |  |                  |           |   |              |   |           |                                                                  |  |   | 13,000       |  
|                                                                                                                    |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|Net cash used by operating activities                                                                               |  |                  | (470,000   | ) |              |   | (283,000   | )                                                                |  |   | (102,417,000 | )
|                                                                                                                    |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|Cash flows from investing activities:                                                                               |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|Purchase of available-for-sale marketable securities                                                                |  |                  | (1,974,000 | ) |              |   | (3,973,000 | )                                                                |  |   | (322,621,000 | )
|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                                                                                          |  |                  |           |   |              |   | (105,000   | )                                                                |  |   | (230,000     | )
|Increase in patent costs                                                                                            |  |                  |           |   |              |   |           |                                                                  |  |   | (563,000     | )
|Increase in other assets                                                                                            |  |                  |           |   |              |   |           |                                                                  |  |   | (125,000     | )
|                                                                                                                    |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|Net cash provided (used) by investing activities                                                                    |  |                  | 1,449,000  |   |              |   | (4,078,000 | )                                                                |  |   | (9,973,000   | )
|                                                                                                                    |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|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                                                                |  |                  | 979,000    |   |              |   | (4,361,000 | )                                                                |  |   | 5,635,000    |  
|                                                                                                                    |  |                  |           
|Cash and cash equivalents, beginning of period                                                                      |  |                  | 2,280,000  |   |              |   | 9,996,000  |                                                                  |  |   |             |  
|                                                                                                                    |  |                  |            |   |              |   |            |                                                                  |  |   |              |  
|Cash and cash equivalents, end of period                                                                            |  | $                | 3,259,000  |   |              | $ | 5,635,000  |                                                                  |  | $ | 5,635,000    |  
|                                                                                                                    |  |                  |            |   |              |   |            |                                                                  |  |   |              |  



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



4



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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 June 30, 2005, for the three and six month periods ended June 30, 2004 and 2005 and for the period from inception
(September 9, 1988) through June 30, 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 June 30, |          |   | Six months ended June 30, |  
|                                                                                                                    |  | 2004                        |          |   | 2005                      |   |          | 2004 |  |   | 2005     |  
|Net income (loss):                                                                                                  |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|As reported                                                                                                         |  | $                           | (300,000 | ) |                           | $ | (194,000 | )    |  | $ | (468,000 | ) |  | $ | (367,000 | )
|Deduct: total stock-based employee compensation expense determined under the fair-value-based method for all awards |  |                             | (12,000  | ) |                           |   | (14,000  | )    |  |   | (23,000  | ) |  |   | (22,000  | )
|                                                                                                                    |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|Pro forma                                                                                                           |  | $                           | (312,000 | ) |                           | $ | (208,000 | )    |  | $ | (491,000 | ) |  | $ | (389,000 | )
|                                                                                                                    |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|Net income (loss) per share  basic:                                                                                |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|As reported                                                                                                         |  | $                           | (0.02    | ) |                           | $ | (0.01    | )    |  | $ | (0.03    | ) |  | $ | (0.02    | )
|Pro forma                                                                                                           |  |                             | (0.02    | ) |                           |   | (0.01    | )    |  |   | (0.03    | ) |  |   | (0.02    | )
|                                                                                                                    |  |                             |          |  
|Net income (loss) per share  diluted:                                                                              |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|As reported                                                                                                         |  | $                           | (0.02    | ) |                           | $ | (0.01    | )    |  | $ | (0.03    | ) |  | $ | (0.02    | )
|Pro forma                                                                                                           |  |                             | (0.02    | ) |                           |   | (0.01    | )    |  |   | (0.03    | ) |  |   | (0.02    | )



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 and six month periods ended June 30, 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 and six month periods ended June 30, 2005, shares used to compute diluted earnings
per share excluded 1,952,600 stock options and warrants, as their inclusion would have been anti-dilutive due to net losses incurred in these periods For the three and six month periods ended June 30, 2004 , shares used to compute diluted earnings
per share excluded 1,936,536 stock options and warrants, respectively, as their inclusion would have been anti-dilutive due to net losses incurred in these periods.



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AUTOIMMUNE INC.

(a development stage company)



NOTES TO THE UNAUDITED FINANCIAL STATEMENTS



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



Cash equivalents are carried at amortized cost, which approximated fair value at December 31, 2004 and June 30, 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.



The following is a summary of available-for-sale marketable securities held
by us at June 30, 2005:



|                                |  |               |  |            |           |                  |   |                   |  |   |                |   |  |   |          
|------------------------------- |  | ------------- |  | ---------- | --------- | ---------------- | - | ----------------- |  | - | -------------- | - |  | - | ---------
|                                |  | Maturity Term |  | Fair value |           | Unrealized Gains |   | Unrealized losses |  |   | Amortized cost
|June 30, 2005:                  |  |               |  |            |           |                  |   |                   |  |   |                |   |  |   |          
|U.S. Government debt securities |  | Within 1 year |  | $          | 3,971,000 |                  | $ |                  |  | $ | (2,000         | ) |  | $ | 3,973,000
|                                |  |               |  |            |           |                  |   |                   |  |   |                |   |  |   |          
|                                |  |               |  | $          | 3,971,000 |                  | $ |                  |  | $ | (2,000         | ) |  | $ | 3,973,000
|                                |  |               |  |            |           |                  |   |                   |  |   |                |   |  |   |          



All of our marketable
securities were classified as current at December 31, 2004 and June 30, 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 June 30, 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 June 30, 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 June 30, 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, March 2005, April 2005 and June 2005, AutoImmune made additional capital contributions of $25,000, $100,000, $25,000, $26,000 and $54,000, respectively, to Colloral
LLC to support sales and marketing initiatives. We are not currently obligated to make additional capital contributions but intend to fund Colloral LLCs implementation of its marketing plan and may make additional capital contributions in the
future.



We initially recorded the investment in Colloral at a
cost of $0 and have increased it to reflect the cash contributions paid and reduced it to reflect our share of the losses. Profits and losses will be allocated in accordance with the joint venture agreement. Our investment balance as of December 31,
2004 was $5,000. At June 30, 2005, our share of the cumulative losses of Colloral LLC exceeded our cash contributions to date and, as a result, our investment has been reduced to less than zero. We have recorded a liability of $20,000 which
represents our portion of the cumulative net losses of Colloral LLC in excess of the carrying value of our investment.



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AUTOIMMUNE INC.

(a development stage company)



NOTES TO THE UNAUDITED FINANCIAL STATEMENTS



The following table contains selected financial data for Colloral LLC:



|                              |  |                             |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|----------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | -------- | ---- |  | - | ------- | - |  | - | -------- | -
|                              |  | Three months ended June 30, |         |   | Six months ended June 30, |  
|                              |  | 2004                        |         |   | 2005                      |   |          | 2004 |  |   | 2005    |  
|Statement of Operations Data: |  |                             |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Revenue                       |  | $                           | 7,000   |   |                           | $ | 7,000    |      |  | $ | 12,000  |   |  | $ | 15,000   |  
|Net loss                      |  |                             | (26,000 | ) |                           |   | (198,000 | )    |  |   | (48,000 | ) |  |   | (257,000 | )



|                      |  |                   |       |               |   |       
|--------------------- |  | ----------------- | ----- | ------------- | - | ------
|                      |  | December 31, 2004 |       | June 30, 2005
|Balance Sheet Data:   |  |                   |       |               |   |       
|Current assets        |  | $                 | 6,000 |               | $ | 15,000
|Long term assets      |  |                   |      |               |   |      
|Current liabilities   |  |                   | 1,000 |               |   | 43,000
|Long term liabilities |  |                   |      |               |   |      



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. On April 15, 2005, we 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.



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



The components of comprehensive loss consisted of the following:



|                                                |  |                                     |          |   |                                   |   |          |      |  |   |          |   |  |   |          |  
|----------------------------------------------- |  | ----------------------------------- | -------- | - | --------------------------------- | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                |  | For the three months ended June 30, |          |   | For the six months ended June 30, |  
|                                                |  | 2004                                |          |   | 2005                              |   |          | 2004 |  |   | 2005     |  
|Net income (loss)                               |  | $                                   | (300,000 | ) |                                   | $ | (194,000 | )    |  | $ | (468,000 | ) |  | $ | (367,000 | )
|Change in unrealized gain (loss) on investments |  |                                     | (11,000  | ) |                                   |   | (1,000   | )    |  |   | (9,000   | ) |  |   | (2,000   | )
|                                                |  |                                     |          |   |                                   |   |          |      |  |   |          |   |  |   |          |  
|Comprehensive income (loss)                     |  | $                                   | (311,000 | ) |                                   | $ | (195,000 | )    |  | $ | (477,000 | ) |  | $ | (369,000 | )
|                                                |  |                                     |          |   |                                   |   |          |      |  |   |          |   |  |   |          |  



|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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AUTOIMMUNE INC.



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 June 30, 2005, we have incurred ongoing losses from operations and have cumulative losses as of June 30, 2005 totaling $108,859,000. To date,
we have not recorded any revenue from the sale of products. Revenues recorded through June 30, 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, March 2005, April 2005, and June 2005, AutoImmune made additional
capital contributions of $25,000, $100,000, $25,000, $26,000, and $54,000, 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. Colloral LLC has decided to implement this plan and implementation will require substantial additional contributions to the joint venture. Despite any additional investment, 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:



|                              |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|----------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | -------- | ---- |  | - | ------- | - |  | - | -------- | -
|                              |  | Three months endedJune 30, |         |   | Six months ended June 30, |  
|                              |  | 2004                       |         |   | 2005                      |   |          | 2004 |  |   | 2005    |  
|Statement of Operations Data: |  |                            |         |   |                           |   |          |      |  |   |         |   |  |   |          |  
|Revenue                       |  | $                          | 7,000   |   |                           | $ | 7,000    |      |  | $ | 12,000  |   |  | $ | 15,000   |  
|Net loss                      |  |                            | (26,000 | ) |                           |   | (198,000 | )    |  |   | (48,000 | ) |  |   | (257,000 | )



|                      |  |                  |       |              |   |       
|--------------------- |  | ---------------- | ----- | ------------ | - | ------
|                      |  | December 31,2004 |       | June 30,2005
|Balance Sheet Data:   |  |                  |       |              |   |       
|Current assets        |  | $                | 6,000 |              | $ | 15,000
|Long term assets      |  |                  |      |              |   |      
|Current liabilities   |  |                  | 1,000 |              |   | 43,000
|Long term liabilities |  |                  |      |              |   |      



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AUTOIMMUNE INC.



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. On April 15, 2005, we 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.



Three and Six Month Periods Ended June 30, 2004 and 2005



Revenue was $30,000 and $37,000 for the three month periods ended June 30, 2004 and 2005,
respectively. Revenue was $60,000 and $75,000 for the six month periods ended June 30, 2004 and 2005, respectively. The revenue in 2004 and 2005 was comprised of monthly license payments from BioMS for their use of our patents pertaining to an
injectable therapy for the treatment of multiple sclerosis.



Research and
development expenses were $146,000 and $21,000 for the three month periods ended June 30, 2004 and 2005, respectively. Research and development expenses were $204,000 and $148,000 for the six month periods ended June 30, 2004 and 2005, respectively.
The decreases are due to the timing of patent related legal costs and by the non-renewal of the current fiscal year contract with The Brigham and Womens Hospital. We are currently discussing new clinical research options with Brigham and Womens and
may provide funding, which may result in additional research and development expense for the year ended December 31, 2005.



General and administrative expenses were $214,000 and $182,000 for the three month periods ended June 30, 2004 and 2005, respectively. General and administrative expenses
were $385,000 and $297,000 for the six month periods ended June 30, 2004 and 2005, respectively. The decreases are 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 $30,000 and $72,000 for the three month periods ended June 30, 2004 and 2005, respectively. Interest income was $61,000 and $133,000 for the six month periods ended June 30, 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.



Equity in net loss of unconsolidated affiliate in the three and six month periods ended June 30, 2005 were $100,000 and $130,000,
respectively, which reflects our equity in prior accumulated net losses of Colloral LLC. Additional capital contributions of $26,000 in April 2005 and $54,000 in June 2005 were made to Colloral LLC to support further sales and marketing initiatives.
At June 30, 2005, our share of the cumulative losses of Colloral LLC exceeded our cash contributions to date and, as a result, our investment has been reduced to less than zero. We have recorded a liability of $20,000 which represents our portion of
the cumulative net losses of Colloral LLC in excess of the carrying value of our investment.



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 June 30, 2005 we hold an interest in an entity called Colloral LLC, which is
manufacturing, marketing and selling Colloral as a dietary supplement. We currently have no contractual obligation to make additional capital contributions to Colloral LLC, but intend to fund Colloral LLCs implementation of its marketing plan
and may make additional capital contributions 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.



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AUTOIMMUNE INC.



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 six months ended June 30, 2005, we utilized $283,000 of cash to fund operations. The most significant uses of cash for the six months ended June 30, 2005 were the prepayment of our annual insurance premiums for 2005 of which $61,000 is included
in prepaid expenses and other current assets as of June 30, 2005 and legal expenses totaling $183,000. 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 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 June 30, 2005, our cash and cash equivalents and marketable securities totaled $9,606,000. Current liabilities at June 30, 2005 were $121,000.



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 dietary supplements. In November 2004, March 2005, April 2005 and June 2005 we made capital contributions
of $100,000, $25,000, $26,000 and $54,000, respectively to support sales and marketing initiatives. We are not currently obligated to make additional capital contributions, but intend to fund Colloral LLCs implementation of its marketing plan
and may make additional capital contributions in the future. We account for our investment in Colloral LLC using the equity method.



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 in Note 2 of our Unaudited Financial Statements 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.



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AUTOIMMUNE INC.



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 June 30, 2005. Based upon this evaluation, our Chief Executive Officer and Director of Finance and Treasurer conclude that, as of June 30, 2005, our disclosure controls and procedures operated effectively 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 June 30, 2005.



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AUTOIMMUNE INC.



PART II - OTHER INFORMATION



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



| | (a) | The Annual Meeting of Stockholders was held on May 19, 2005.
| | --- | ------------------------------------------------------------



| | (b) | The following directors were elected to serve until the next Annual Meeting or until their successors are elected and qualified, by the following votes:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |  |                     |  |                         
|----------------- |  | ------------------- |  | ------------------------
|Name              |  | Number of Votes For |  | Number of Votes Withheld
|Robert C. Bishop  |  | 16,318,029          |  | 215,034                 
|Hugh A. DAndrade |  | 16,374,729          |  | 158,334                 
|Allan R. Ferguson |  | 16,318,479          |  | 214,584                 
|R. John Fletcher  |  | 16,280,179          |  | 252,884                 



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 May 12, 2005 to furnish our press release issued on May 10, 2005 announcing our financial results for the quarter ended March 31, 2005. No other Form 8-K was filed during the second quarter of 2005.



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AUTOIMMUNE INC.



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: August 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   



13