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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | ----------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2001

or

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | -----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-18006

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THE IMMUNE RESPONSE CORPORATION(Exact Name of Registrant as Specified in its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

33-0255679(IRS Employer Identification Number)


5935 Darwin Court, Carlsbad, CA 92008(Address of Principal Executive Offices)
(Zip Code)

Telephone (760) 431-7080(Registrant's Telephone Number, Including Area Code)

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
the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date.

As
of April 30, 2001, 35,097,475 shares of common stock were outstanding.

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THE IMMUNE RESPONSE CORPORATION    FORM 10-Q    QUARTERLY REPORT    TABLE OF CONTENTS

|                             |  |                                                                                       |  | Page
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements                                                                  |  |     
|                             |  | Condensed Consolidated Balance Sheets                                                 |  | 3   
|                             |  | Condensed Consolidated Statements of Operations                                       |  | 4   
|                             |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5   
|                             |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6   
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and
Results of Operations |  | 9   
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 20  
|PART IIOTHER INFORMATION   
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                      |  | 21  
|Signature                    |  | 22                                                                                   

2

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Part I. Financial Information
Item 1. Financial Statements

THE IMMUNE RESPONSE CORPORATION        CONDENSED CONSOLIDATED BALANCE SHEETS  (amounts in thousands, except share data)

|                                                                                                                                                                                                       |  | March 31,
2001 |          | December 31,
2000 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | -------- | ----------------- | -
|
|Assets                                                                                                                                                                                                 |  |                |          |                   |  
|Current assets:                                                                                                                                                                                        |  |                |          |                   |  
|Cash and cash equivalents                                                                                                                                                                              |  | $              | 5,805    |                   | $
|Marketable securities  available-for-sale                                                                                                                                                             |  |                | 15,378   |                   |  
|Other current assets                                                                                                                                                                                   |  |                | 1,015    |                   |  
|                                                                                                                                                                                                       |  |                |          |                   |  
|Total current assets                                                                                                                                                                                   |  |                | 22,198   |                   |  
|Property and equipment, net                                                                                                                                                                            |  |                | 8,909    |                   |  
|Licensed technology                                                                                                                                                                                    |  |                | 4,062    |                   |  
|Investment in MicroGenomics, Inc.                                                                                                                                                                      |  |                | 3,000    |                   |  
|Deposits and other assets                                                                                                                                                                              |  |                | 848      |                   |  
|                                                                                                                                                                                                       |  |                |          |                   |  
|                                                                                                                                                                                                       |  | $              | 39,017   |                   | $
|                                                                                                                                                                                                       |  |                |          |                   |  
|Liabilities and stockholders' equity                                                                                                                                                                   |  |                |          |                   |  
|Current liabilities:                                                                                                                                                                                   |  |                |          |                   |  
|Accounts payable                                                                                                                                                                                       |  | $              | 1,001    |                   | $
|Accrued expenses                                                                                                                                                                                       |  |                | 1,783    |                   |  
|Contingent stock liabilities                                                                                                                                                                           |  |                | 1,000    |                   |  
|Current portion of equipment notes payable                                                                                                                                                             |  |                | 589      |                   |  
|Current portion of deferred revenue                                                                                                                                                                    |  |                | 3,905    |                   |  
|Deferred rent obligation                                                                                                                                                                               |  |                |         |                   |  
|                                                                                                                                                                                                       |  |                |          |                   |  
|Total current liabilities                                                                                                                                                                              |  |                | 8,278    |                   |  
|Equipment notes payable                                                                                                                                                                                |  |                | 1,659    |                   |  
|Long-term deferred revenue                                                                                                                                                                             |  |                | 4,965    |                   |  
|Redeemable, convertible preferred stock, $.001 par value, 400 shares authorized, 200 shares issued and outstanding at March 31, 2001 and December 31, 2000, (preference in liquidation of $10,000,000) |  |                | 9,977    |                   |  
|Stockholders' equity:                                                                                                                                                                                  |  |                |          |                   |  
|Preferred stock, 5,000,000 shares authorized; 200 shares issued and outstanding as redeemable, convertible preferred stock                                                                             |  |                |         |                   |  
|Common stock, $.0025 par value, 65,000,000 shares authorized, 30,811,995 and 30,743,017 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively                            |  |                | 77       |                   |  
|Warrants                                                                                                                                                                                               |  |                | 2,144    |                   |  
|Additional paid-in capital                                                                                                                                                                             |  |                | 227,850  |                   |  
|Accumulated other comprehensive income                                                                                                                                                                 |  |                | (21      | )                 |  
|Accumulated deficit                                                                                                                                                                                    |  |                | (215,912 | )                 |  
|                                                                                                                                                                                                       |  |                |          |                   |  
|Total stockholders' equity                                                                                                                                                                             |  |                | 14,138   |                   |  
|                                                                                                                                                                                                       |  |                |          |                   |  
|                                                                                                                                                                                                       |  | $              | 39,017   |                   | $
|                                                                                                                                                                                                       |  |                |          |                   |  

See
accompanying notes.

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THE IMMUNE RESPONSE CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except share data)  (unaudited)

|                                                            |  | Three months ended March 31, |           
|----------------------------------------------------------- |  | ---------------------------- | ----------
|
|
|Revenues:                                                   |  |                              |           
|Contract research revenue                                   |  | $                            | 64        
|Licensed research revenue                                   |  |                              | 968       
|                                                            |  |                              |           
|                                                            |  |                              | 1,032     
|                                                            |  |                              |           
|Expenses:                                                   |  |                              |           
|Research and development                                    |  |                              | 5,333     
|General and administrative                                  |  |                              | 1,227     
|                                                            |  |                              |           
|                                                            |  |                              | 6,560     
|                                                            |  |                              |           
|Other revenue and expense:                                  |  |                              |           
|Investment income, net                                      |  |                              | 644       
|Other income                                                |  |                              |          
|                                                            |  |                              |           
|Income (loss) before cumulative effect of accounting change |  |                              | (4,884    
|Cumulative effect of accounting change                      |  |                              |          
|                                                            |  |                              |           
|Net loss                                                    |  |                              | (4,884    
|Accretion of preferred stock                                |  |                              | (70       
|Preferred dividends                                         |  |                              | (185      
|                                                            |  |                              |           
|Net loss applicable to common stockholders                  |  | $                            | (5,139    
|                                                            |  |                              |           
|Loss per share  basic and diluted:                         |  |                              |           
|Income (loss) before cumulative effect of accounting change |  | $                            | (0.16     
|Cumulative effect of accounting change                      |  |                              |          
|                                                            |  |                              |           
|Net loss                                                    |  | $                            | (0.16     
|                                                            |  |                              |           
|Net loss applicable to common stockholders                  |  | $                            | (0.17     
|                                                            |  |                              |           
|Weighted average number of shares outstanding               |  |                              | 30,809,984
|                                                            |  |                              |           

See
accompanying notes.

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THE IMMUNE RESPONSE CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)  (unaudited)

|                                                                            |  | Three months ended March 31, |       
|--------------------------------------------------------------------------- |  | ---------------------------- | ------
|
|
|Operating activities:                                                       |  |                              |       
|Net loss                                                                    |  | $                            | (4,884
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |       
|Cumulative effect of accounting change                                      |  |                              |      
|Depreciation and amortization                                               |  |                              | 507   
|Deferred revenue                                                            |  |                              | 4     
|Recognition of deferred revenue from prior periods                          |  |                              | (975  
|Deferred rent expense                                                       |  |                              | (29   
|Gain on sale of assets                                                      |  |                              |      
|Changes in operating assets and liabilities:                                |  |                              |       
|Other current assets                                                        |  |                              | (408  
|Accounts payable                                                            |  |                              | (440  
|Accrued expenses                                                            |  |                              | 321   
|Licensed contracts payable                                                  |  |                              |      
|                                                                            |  |                              |       
|Net cash used in operating activities                                       |  |                              | (5,904
|                                                                            |  |                              |       
|Investing activities:                                                       |  |                              |       
|Sale (purchase) of marketable securities, net                               |  |                              | 5,416 
|Purchase of property and equipment                                          |  |                              | (686  
|Proceeds from sale of land and equipment                                    |  |                              |      
|Other assets                                                                |  |                              |      
|                                                                            |  |                              |       
|Net cash provided by investing activities                                   |  |                              | 4,730 
|                                                                            |  |                              |       
|Financing activities:                                                       |  |                              |       
|Principal payments under equipment notes payable                            |  |                              | (150  
|Proceeds from other sales of common stock                                   |  |                              |      
|Convertible preferred stock dividends paid in cash                          |  |                              |      
|Net proceeds from exercise of stock options                                 |  |                              | 5     
|                                                                            |  |                              |       
|Net cash provided by (used in) financing activities                         |  |                              | (145  
|                                                                            |  |                              |       
|Net increase (decrease) in cash and cash equivalents                        |  |                              | (1,319
|Cash and cash equivalents at beginning of year                              |  |                              | 7,124 
|                                                                            |  |                              |       
|Cash and cash equivalents at end of period                                  |  | $                            | 5,805 
|                                                                            |  |                              |       
|Supplemental disclosure of cash flow information:                           |  |                              |       
|Interest paid                                                               |  | $                            | 77    
|                                                                            |  |                              |       
|Supplemental disclosure of noncash investing and financing activities:      |  |                              |       
|Unrealized gain (loss) on marketable securities                             |  | $                            | (438  
|                                                                            |  |                              |       
|Settlement of contingent stock liability to equity                          |  | $                            |      
|                                                                            |  |                              |       
|Accretion of convertible preferred stock                                    |  | $                            | 70    
|                                                                            |  |                              |       
|Payment of convertible preferred stock dividends with common stock          |  | $                            | 189   
|                                                                            |  |                              |       

See
accompanying notes.

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THE IMMUNE RESPONSE CORPORATION        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        March 31, 2001

1. Basis of Presentation

The condensed consolidated financial statements of The Immune Response Corporation, or the Company, for the three months ended March 31, 2001 and 2000
are unaudited. These financial statements reflect all adjustments, consisting of only normal recurring adjustments which, in the opinion of management, are necessary to fairly present the consolidated
financial position as of March 31, 2001, and the consolidated results of operations for the three months ended March 31, 2001 and 2000. The results of operations for the three months
ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ended December 31, 2001. For more complete financial information, these financial
statements and the notes thereto should be read in conjunction with the consolidated audited financial statements for the year ended December 31, 2000 included in the Company's
Form 10-K filed with the Securities and Exchange Commission.

2. Long-Lived Assets

The Company evaluates potential impairment of long-lived assets in accordance with Statement of Financial Accounting Standards ("FAS") FAS
No. 121, "Accounting for the Impairment of Long-Lived Assets". FAS No. 121 establishes procedures for review of recoverability and measurement of impairment, if necessary, of
long-lived assets and certain identifiable intangibles held and used by an entity. FAS No. 121 requires that those assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully recoverable based on expected undiscounted cash flows attributable to that asset. The amount of any impairment is measured
as the difference between the carrying value and the fair value of the impaired asset. As of March 31, 2001, the Company believes that there has not been any impairment of the Company's
long-lived assets or other identifiable intangibles.

3. Recent Accounting Pronouncement

In April 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation ("FIN") No. 44, "Accounting for Certain Transactions
Involving Stock Compensation: an Interpretation of FAS No. 25." FIN No. 44 affects awards and modifications made after December 15, 1998. Management believes that their accounting
policies comply with the applicable provisions of FIN No. 44.

4. Change In Accounting Principle

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101"Revenue Recognition in
Financial Statements" ("SAB No. 101"). SAB No. 101 reflects the SEC's views on revenue recognition. Historically the Company recognized revenue from license fees and option agreements in
the period in which the agreement was signed if the fees were non-refundable and there were no significant performance obligations remaining. Milestone payments were recognized as revenue
as the milestones were achieved.

SAB
No. 101 requires that when there has not been the culmination of the earnings process, revenue from upfront fees will be deferred and recognized over the period in which
the revenue is deemed to have been earned. Under the Company's license and option agreements where milestone payments are made, the Company will defer the revenue and recognize it over the remaining
development or expected development period.

6

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Under certain agreements the Company is paid to perform required research and development services during the research period specified in the agreement. For these agreements, the
Company historically recognized the revenue for the research services as the services were provided. This accounting is unchanged under SAB No. 101. However, under SAB No. 101, the
Company believes that any upfront option or license payment under this type of agreement would have to be deferred and recognized over the research period.

The
Company implemented SAB No. 101 in the fourth quarter of 2000, by restating the first, second and third quarters of their 2000 financial statements. The statement of
operations reflects a one-time charge to earnings for the cumulative effect of the change in accounting principle as of January 1, 2000, of $13.2 million. Deferred license
revenue recognized for the first quarter of 2000 was $0.9 million to reflect the SAB No. 101 adjustment. See Note 9. The balance of the deferred revenue will be recognized as
revenue over the expected development period, which is estimated to be through June 2003.

5. Investment in MicroGenomics, Inc.

In December 2000, the Company acquired a 25% ownership interest in MicroGenomics, Inc., ("MGI"), a privately held microbial genomics company, of
which Dr. Dennis J. Carlo, President and CEO of the Company, is a 6.4% stockholder and the chairman of the board of directors of MGI. As part of the agreement, the Company issued 540,540
unregistered shares of its common stock valued at $2 million in exchange for MGI's preferred stock equal, on an as converted basis, to 25% of the equity capitalization of MGI on a diluted
basis. Additionally, as part of the agreement, the Company agreed that should the
common stock issued to MGI be worth less than $3 million on the one-year anniversary of the closing, the Company would issue additional stock up to that value. The Company has
recorded its investment in MGI at cost, including the $1 million stock valuation guarantee. The Company will account for this investment under the equity method of accounting.

6. Net Loss Per Share

Net loss per share for the three months ended March 31, 2001 and 2000 is computed using the weighted average number of common shares outstanding during
the period. Outstanding stock options and warrants are not included in the calculation of earnings per share because their effect would be antidilutive. Therefore, there is no difference between basic
and diluted net loss per share.

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7. Comprehensive Income

The Company accounts for comprehensive income in accordance with FAS No. 130, "Reporting Comprehensive Income." The components of comprehensive income
are as follows:

|                                                    |  | Three Months Ended
March 31, |       
|--------------------------------------------------- |  | ---------------------------- | ------
|
|
|Net loss                                            |  | $                            | (4,884
|Net unrealized gain (loss) on marketable securities |  |                              | (438  
|                                                    |  |                              |       
|Comprehensive loss                                  |  | $                            | (5,322
|                                                    |  |                              |       

8. Redeemable, Convertible Preferred Stock

In April 1998, the Company sold 200 shares of its Series F Redeemable, Convertible Preferred Stock, or Series F Stock, in return for gross
proceeds of $10 million with an initial conversion price of $14.07 per share of common stock. The conversion price has since been adjusted downward to $3.83 per share of common stock. The
conversion price may be further adjusted downward if the Company's common stock does not trade at prices higher than the conversion price over a period of time. The Series F Stock is
convertible into common stock at the option of the holder limited to 4.99% of the Company's outstanding common stock. Additionally on April 28, 2001, the Company will be required to redeem the
Series F stock into shares of the Company's common stock and cash. As of May 2, 2001, the Company had completed the conversion and redemption of the Series F Stock for shares of
common stock and cash. See Note 10.

The
Series F Stock bears a dividend of 7.5% per annum. In general, the dividend is payable in shares of common stock or cash at the Company's option. For the three months ended
March 31, 2001 and 2000, 67,480 and 49,543 shares, respectively, of the Company's common stock were issued as dividends to the Series F shareholders. The Company has an effective
registration statement with the SEC covering the resale of the common stock issuable upon conversion of the Series F Stock.

9. REMUNE Collaboration with Pfizer Inc.

During June 1998, the Company and Agouron Pharmaceuticals, Inc., a wholly-owned subsidiary of Pfizer Inc., or Pfizer, entered into a
binding agreement under which the Company agreed to exclusively license to Pfizer certain rights relating to REMUNE, its immune-based therapy under development for the treatment of HIV infection.
Under the terms of the agreement, the Company will exclusively manufacture commercial supplies of REMUNE, and Pfizer will have exclusive rights to market REMUNE in North America, Europe, Japan and
certain other countries, if regulatory approvals are received. As a result of this agreement, the Company may potentially receive in the aggregate up to $77 million, including license and
milestone payments of $45 million, payments to support research and development of $18 million and $14 million for the purchase of the Company's common stock, priced at a premium
to the market, subject to certain rights of termination by Pfizer. In addition, the two companies will share all profits from the commercialization of REMUNE on a 50/50 basis if REMUNE
is successfully developed and receives the necessary regulatory approvals.

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As of March 31, 2001, the Company had received a total of $47 million from Pfizer under the agreement. Pfizer will make additional payments upon achievement of certain
milestones. In January 2000, the Company received a $5 million payment from Pfizer consisting of $3 million for research and development and $2 million for the purchase of
266,667 shares of unregistered common stock priced at a $333,000 premium to the market price. This was the final payment in a series of six quarterly payments made by Pfizer to fund research and
development and to purchase unregistered common stock under the June 1998 agreement. The amounts referenced above were recognized as revenue in the period received and have subsequently been
adjusted to reflect a change in accounting principle. See Note 4. The Company has an effective registration statement with the Securities and
Exchange Commission covering the resale of 1,317,609 shares of common stock owned by Pfizer's affiliate, Agouron Pharmaceuticals, Inc.

10. Subsequent Events

On April 17, 2001, 2,051,281 warrants to purchase common stock expired, unexercised.

On
April 28, 2001, the Company converted 160.7 shares of the 200 shares of its Series F Stock into 4,208,924 shares of common stock of the Company. On May 2,
2001, the Company redeemed the balance of 39.3 shares of Series F Stock for cash of $2,783,045. As of May 2, 2001, the Company had no issued and outstanding shares of Series F
Stock.

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

This discussion contains forward-looking statements concerning our operating results and timing of anticipated revenues and expenditures. Such statements are
subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that could cause or contribute to such differences include those discussed under
"Risk Factors". The following should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-Q. These
forward-looking statements speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Summary

We are a biopharmaceutical company developing immune-based therapies to induce specific immune responses for the treatment of HIV, autoimmune diseases and
cancer. In addition, we are developing a targeted, non-viral delivery technology for gene therapy, which is designed to enable the delivery of genes directly to the liver via intravenous
injection.

We
have not been profitable since inception and had an accumulated deficit of $215.9 million as of March 31, 2001. To date, we have not recorded any revenues from the
sale of products. Revenues recorded through March 31, 2001 were primarily received from contract research, licensing of technology, milestone achievement payments and investment income. We
expect our operating losses to continue, as well as to have quarter-to-quarter fluctuations, some of which could be significant, due to

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research, development and clinical trial activities. We cannot provide assurance that we will be able to generate sufficient product revenue to become profitable at all or on a sustained basis.

On
April 28, 2001, we converted 160.7 shares of the Series F Stock for 4,208,924 shares of our common stock. On May 2, 2001, we redeemed 39.3 shares of the
Series F Stock for cash of $2.8 million. As of May 2, 2001, we had no issued and outstanding shares of Series F Stock.

In
December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB No. 101, "Revenue Recognition in Financial Statements". We implemented SAB No. 101 in the
fourth quarter of 2000 by adjusting the first, second and third quarters of our 2000 financial statements. Our statement of operations reflects a one-time charge to earnings of
$13.2 million for the cumulative effect of the change in accounting principle as of January 1, 2000. Deferred revenue recognized, to reflect the application of the SAB No. 101
adjustment, was approximately $960,000 for the first quarter of 2000. The balance of $9.7 million of deferred revenue from this adjustment will be recognized as revenue over the expected
development period, which is estimated to be through June 2003. See Note 4 to the Condensed Consolidated Financial Statements.

Results of Operations

We recorded revenues for the quarter ended March 2001 of $1.0 million as compared to $4.0 million for the same period in 2000. Revenues
for 2001 were primarily attributed to deferred revenues recognized from the SAB 101 adjustment. The decrease in revenues in 2001 was the result of having received in 2000 the final $3.0 million
quarterly payment under the agreement with Agouron Pharmaceuticals, Inc., a Pfizer Inc. company, or Pfizer. As a result, we expect no additional revenues, other than deferred revenues
recognized from the SAB 101 adjustment, unless it is earned through existing corporate collaborations or new research and development agreements, if any. We have not received any revenues from the
commercial sale of products and do not expect to derive revenue from the sale of products for the foreseeable future.

Our
research and development expenditures of $5.3 million during the first quarter of 2001 increased from $5.1 million during the same period in 2000. The increase in
research and development spending of $200,000 from 2000 to 2001 was due primarily to spending on the scale-up of the manufacturing process of REMUNE. With the current U.S. pivotal HIV
clinical study being conducted and paid for by Pfizer, we expect future clinical study spending to remain consistent with this quarter unless we initiate new clinical studies in our other development
programs. However, spending associated with our scale-up of the manufacturing process for REMUNE and the cost of producing clinical supplies for ongoing and future REMUNE studies could
increase in the foreseeable future. Overall, we expect future research and development expenditures to remain somewhat level with the current quarter, but quarter to quarter fluctuations may occur due
to the timing of expenditures. If we enter into additional collaborations, research and development expenditures would increase over current levels; but we cannot provide assurance that we will enter
into any collaborations, that existing collaborations will not end, or that we will be able to obtain other financing needed to continue our research and development efforts.

General
and administrative expenses for the first quarter of 2001 were $1.2 million as compared to $1.1 million for the same period in 2000. This increase in spending
was primarily attributed to higher

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professional fees for the current quarter. We expect quarterly general and administrative expenses for the remainder of 2001 to remain consistent with first quarter levels with possible increases due
to higher professional fees.

Investment
income, net, decreased to $644,000 for the quarter ended March 31, 2001 from $2.5 million during the same period in 2000. The decrease in investment income in
2001 compared to 2000 was due primarily to the sale of approximately $2.3 million of an equity security in 2000 as compared to the sale of approximately $156,000 of an equity security in 2001.

Other
income of $732,000 for the quarter ended March 31, 2000 was attributable to the gain recognized from the sale of undeveloped property adjacent to our headquarters
facility in Carlsbad, California for approximately $2.0 million

Liquidity and Capital Resources

Since our inception through March 31, 2001, we have financed our activities primarily from public and private sales of equity, funding from
collaborations with corporate partners and investment income. At March 31, 2001, we had working capital of $13.9 million, including $21.2 million of cash, cash equivalents and
marketable securities. This compares with working capital as of December 31, 2000 of $20.6 million, including $28.4 million of cash, cash equivalents and marketable securities.
Working capital decreased as a result of the cost of operations of $5.9 million and purchase of equipment coming off lease of $686,000. In April and May 2001, all of the Series F
Stock was converted and redeemed for shares of our common stock along with $2.8 million in cash.

We
will need to raise additional funds to conduct research and development, preclinical studies and clinical trials necessary to bring potential products to market and to establish
manufacturing and marketing capabilities. We anticipate that for the foreseeable future, the scale-up of the manufacturing process for REMUNE and the cost of producing clinical supplies
for ongoing and future REMUNE studies will continue to represent a significant portion of our overall expenditures. Overall, future
research and development expenditures are expected to increase slightly from current levels. However, future spending for research and development may see a greater increase if we enter into
additional collaborations, but there can be no assurance that we will enter into any such collaborations. We anticipate additional capital improvements of approximately $3.0 million for 2001
related to the scale-up of the manufacturing process; some of which we anticipate will be funded with debt financing, if available. Other anticipated costs with respect to REMUNE,
including investment in inventory, will depend on many factors including the results of clinical trials, the continuation of our collaboration with Pfizer and other factors which will influence our
determination of the appropriate continued investment of our financial resources in this program.

Our
future capital requirements will depend on many factors, including continued scientific progress in our research and development programs, the scope and results of preclinical
studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market
developments, the cost of manufacturing scale-up and inventories, effective commercialization activities and arrangements and other factors not within our control. We intend to seek
additional funding through additional research and development agreements with suitable corporate collaborators, extensions of existing corporate

11

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collaborations and through public or private financings, if available. However, we cannot provide assurance that such collaboration arrangements or any public or private financings will be available
on acceptable terms, if at all. If we raise funds through equity arrangements, further dilution to stockholders may result. If adequate funds are not available, we may be required to delay, reduce the
scope of, or eliminate one or more of our research or development programs, or take other measures to cut costs, which could have a material adverse effect on us. We estimate that our existing capital
resources will be sufficient to fund our planned operations through 2001. We cannot provide assurance, however, that changes in our research and development plans or other changes affecting our
operating expenses will not result in the expenditure of such resources before such time. In any event, we will need to raise substantial additional capital to fund our operations in future periods.

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RISK FACTORS

You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business.

If
any of the following risks actually occur, our business could be adversely affected. In those cases, the trading price of our common stock could decline, and you may lose all or
part of your investment.

Our Failure to Develop and Commercialize Products Successfully May Cause Us to Cease Operations

We have not completed the development of any products. Our failure to develop and commercialize products successfully may cause us to cease operations. Our
potential therapies under development will require significant additional research and development efforts and regulatory approvals prior to potential commercialization.

The
discontinuation of a previous Phase 3 trial of Remune in May 1999 due to lack of efficacy has had a material adverse effect on us. If our primary marketing partner, Pfizer,
does not successfully complete the current pivotal trial of REMUNE, we may have to abandon REMUNE or seek additional funding.

Our
other therapies and technologies are at earlier stages of development than Remune and may not be shown to be safe or efficacious or ever receive regulatory approval. Some of our
technologies have not yet been tested in humans. Human testing of potential products based on these technologies may not be permitted by regulatory authorities. Even if human testing is permitted, the
products based on these technologies may not be successfully developed or be shown to be safe and effective.

The
results of our preclinical studies and clinical trials may not be indicative of future clinical trial results. A commitment of substantial resources to conduct
time-consuming research, preclinical studies and clinical trials will be required if we are to develop any products. Delays in planned patient enrollment in our clinical trials may result
in increased costs, program delays or both. None of our potential products may prove to be safe and effective in clinical trials. Food and Drug Administration, or FDA, or other regulatory approvals
may not be obtained and even if successfully developed and
approved, our products may not achieve market acceptance. Any products resulting from our programs may not be successfully developed or commercially available for a number of years, if at all.

Unacceptable
toxicities or side effects may occur at any time in the course of human clinical trials or, if any products are successfully developed and approved for marketing, during
commercial use of our products. The appearance of any unacceptable toxicities or side effects could interrupt, limit, delay or abort the development of any of our products or, if previously approved,
necessitate their withdrawal from the market.

Our Additional Financing Requirements and Limited Access to Financing May Adversely Affect Our Ability to Develop Products

We will need to raise additional funds to conduct research and development, preclinical studies and clinical trials necessary to bring our potential products
to market and to establish manufacturing and marketing capabilities. A failure to raise additional funds would require us to scale back or eliminate some or all of our research and development
programs or license to third parties products or technologies that we would otherwise seek to develop ourselves. We estimate that our existing capital resources will be sufficient to fund our planned
operations through 2001. We will need to obtain additional financial resources to fund operations beyond 2001.

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Although we anticipate that development of REMUNE will continue to represent a significant portion of our overall expenditures, costs related to the development of REMUNE decreased in
2000. We believe costs relating to the development of REMUNE will remain constant in 2001 with the prior year. Other anticipated costs with respect to REMUNE will depend on many factors, in
particular, our collaboration with Pfizer.

The
timing and amount of our future capital requirements will depend on many factors, including:



Our
access to capital could be limited if we are not capable of continued progress in:



It
could also be limited by overall financial market conditions.

If Pfizer Terminates Its Collaboration With Us We May Have To Abandon REMUNE

According to its terms, our binding letter of intent with Pfizer may be terminated at will and at any time by Pfizer. If our agreement with Pfizer were
terminated, that might require us to abandon REMUNE.

We May Be Unable to Enter Into Additional Collaborations or Maintain Existing Ones

We intend to seek additional collaborative arrangements to develop and commercialize our products. We may not be able to negotiate collaborative arrangements
on favorable terms, or at all, in the future and our current or future collaborative arrangements may not be successful or continue. Under the 1998 Schering collaboration for gene delivery technology,
Schering's obligation to fund expired on December 31, 1999. Without funding arrangements, we may have to abandon some of our products under development.

Our Patents and Proprietary Technology May Not Provide Us With Any Benefit and the Patents and Proprietary Technology of Others May Prevent Us From Commercializing Products

A failure to obtain meaningful patent protection for our potential products and processes would greatly diminish the value of our potential products and
processes.

In
addition, whether or not our patents are issued, or issued with limited coverage, others may receive patents which contain claims applicable to our products. We are aware that
AstraZeneca PLC has acquired the rights to a patent, which has been issued in Europe and other countries, that may

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interfere with our ability to develop some of our technologies related to autoimmune disease if the patent is upheld after current opposition proceedings. This patent, and others that we are not aware
of, may adversely affect our ability to develop and commercialize products.

The
patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions. Therefore, the breadth of claims allowed in
biotechnology and pharmaceutical patents cannot be predicted. We also rely upon unpatented trade secrets and know how, and others may independently develop substantially equivalent trade secrets or
know how.

We
also rely on protecting our proprietary technology in part through confidentiality agreements with our corporate collaborators, employees, consultants and certain contractors.
These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or independently discovered by our competitors. Our
products and processes may infringe, or be found to infringe on, patents not owned or controlled by us, such as the patent owned by AstraZeneca PLC. If relevant claims of third-party patents are
upheld as valid and enforceable, we could be prevented from practicing the subject matter claimed in the patents, or would
be required to obtain licenses or redesign our products or processes to avoid infringement. Licenses may not be available at all or on commercially reasonable terms and we may not be able to redesign
our products or processes to avoid infringement. Litigation may be necessary to defend against claims of infringement, to enforce our patents or to protect trade secrets. Litigation could result in
substantial costs and diversion of management efforts regardless of the results of the litigation. An adverse result in litigation could subject us to significant liabilities to third parties, require
disputed rights to be licensed or require us to cease using certain technologies.

Our History of Operating Losses and Our Expectations of Continuing Losses May Hurt Our Ability to Continue Operations

As of March 31, 2001 we had a consolidated accumulated deficit of $215.9 million. We have not generated revenues from the commercialization of
any product. We expect to incur substantial net operating losses over the next several years, which may imperil our ability to continue operations. We may not be able to generate sufficient product
revenue to become profitable on a sustained basis, or at all.

The Lengthy Product Approval Process and Uncertainty of Government Regulatory Requirements May Delay or Prevent Us From Commercializing Products

Clinical testing, manufacture, promotion and sale of our products are subject to extensive regulation by numerous governmental authorities in the United
States, principally the FDA, and corresponding state and foreign regulatory agencies. This regulation may delay or prevent us from commercializing products. Noncompliance with applicable requirements
can result in, among other things, fines, injunctions, seizure of products, total or partial suspension of product marketing, failure of the government to grant premarket approval, withdrawal of
marketing approvals and criminal prosecution.

The
regulatory process for new therapeutic drug products, including the required preclinical studies and clinical testing, is lengthy and expensive. We may not receive necessary FDA
clearances for any of our potential products in a timely manner, or at all. The length of the clinical trial process and the number of patients the FDA will require to be enrolled in the clinical
trials in order to establish the safety and efficacy of our products is uncertain.

Even
if additional clinical trials of REMUNE are successfully completed, the FDA may not approve REMUNE for commercial sale. We may encounter significant delays or excessive costs in
our efforts to secure necessary approvals. Regulatory requirements are evolving and uncertain. Future United States or foreign legislative or administrative acts could also prevent or delay regulatory

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approval of our products. We may not be able to obtain the necessary approvals for clinical trials, manufacturing or marketing of any of our products under development. Even if commercial regulatory
approvals are obtained, they may include significant limitations on the indicated uses for which a product may be marketed.

In
addition, a marketed product is subject to continual FDA review. Later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may
result in restrictions on the marketing of a product or withdrawal of the product from the market, as well as possible civil or criminal sanctions.

Among
the other requirements for regulatory approval is the requirement that prospective manufacturers conform to the FDA's Good Manufacturing Practices, or GMP. In complying with the
FDA's GMP requirements, manufacturers must continue to expend time, money and effort in production, record keeping and quality control to assure that products meet applicable specifications and other
requirements. Failure to comply with the FDA's GMP requirements subjects manufacturers to possible FDA regulatory action. We or our contract manufacturers, if any, may not be able to maintain
compliance with the FDA's GMP requirements on a continuing basis. Failure to maintain compliance could have a material adverse effect on us.

The
FDA has not designated expanded access protocols for REMUNE as "treatment" protocols. The FDA may not determine that REMUNE meets all of the FDA's criteria for use of an
investigational drug for treatment use. Even if REMUNE is allowed for treatment use, third party payers may not provide reimbursement for the costs of treatment with REMUNE.

The
FDA may not consider REMUNE or any other of our products under development to be appropriate candidates for accelerated approval, expedited review or fast track designation.

Marketing
any drug products outside of the United States will subject us to numerous and varying foreign regulatory requirements governing the design and conduct of human clinical
trials and marketing approval. Approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA
approval. Foreign regulatory approval processes include all of the risks associated with obtaining FDA approval set forth above, and approval by the FDA does not ensure approval by the health
authorities of any other country.

Technological Change and Competition May Render Our Potential Products Obsolete

The biotechnology industry continues to undergo rapid change and competition is intense and is expected to increase. Competitors may succeed in developing
technologies and products that are more
effective or affordable than any that we are developing or that would render our technology and products obsolete and noncompetitive. Many of our competitors have substantially greater experience,
financial and technical resources and production, marketing and development capabilities than us. Accordingly, some of our competitors may succeed in obtaining regulatory approval for products more
rapidly or effectively than us.

Our Lack of Commercial Manufacturing and Marketing Experience May Prevent Us from Successfully Commercializing Products

We have not manufactured any of our product candidates in commercial quantities. We may not successfully make the transition from manufacturing clinical trial
quantities to commercial production quantities or be able to arrange for contract manufacturing and this could prevent us from commercializing products. Even if REMUNE is successfully developed and
receives FDA approval, we have not demonstrated the capability to manufacture REMUNE in commercial quantities. Except for REMUNE, we have not demonstrated the ability to manufacture our treatments in
large-scale clinical

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quantities either. We rely on a third party for the final inactivation step of the REMUNE manufacturing process. If the existing manufacturing operations prove inadequate, there can be no assurance
that any arrangement with a third party can be established on a timely basis or that we can establish other manufacturing capacity on a timely basis.

We
have no experience in the sales, marketing and distribution of pharmaceutical products. Thus, our products may not be successfully commercialized even if they are developed and
approved for commercialization.

The
manufacturing process of our products involves a number of steps and requires compliance with stringent quality control specifications imposed by us and by the FDA. Moreover, our
products can only be manufactured in a facility that has undergone a satisfactory inspection by the FDA. For these reasons, we would not be able quickly to replace our manufacturing capacity if we
were unable to use our manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure or other difficulty, or if such facilities are deemed not in
compliance with the FDA's GMP requirements and the non-compliance could not be rapidly rectified. Our inability or reduced capacity to manufacture our products would prevent us from
successfully commercializing products.

We
may enter into arrangements with contract manufacturing companies to expand our own production capacity in order to meet requirements for our products, or to attempt to improve
manufacturing efficiency. If we choose to contract for manufacturing services and encounter delays or difficulties in establishing relationships with manufacturers to produce, package and distribute
our finished products, clinical trials, market introduction and subsequent sales of the products would be delayed. Further,
contract manufacturers must also operate in compliance with the FDA's GMP requirements; failure to do so could result in, among other things, the disruption of product supplies. Our potential
dependence upon third parties for the manufacture of our products may adversely affect our profit margins and our ability to develop and deliver products on a timely and competitive basis.

Adverse Determinations Concerning Product Pricing, Reimbursement and Related Matters Could Prevent Us from Successfully Commercializing Products

Our ability to earn sufficient revenue on our products will depend in part on the extent to which reimbursement for the costs of the products and related
treatments will be available from government health administration authorities, private health coverage insurers, managed care organizations and other organizations. Failure to obtain appropriate
reimbursement could prevent us from successfully commercializing products. Third party payors are increasingly challenging the price of medical products and services. If purchasers or users of our
products are not able to obtain adequate reimbursement for the cost of using the products, they may forego or reduce their use. Significant uncertainty exists as to the reimbursement status of newly
approved health care products and whether adequate third party coverage will be available.

Product Liability Exposure May Expose Us to Significant Liability

We face an inherent business risk of exposure to product liability and other claims in the event that the development or use of our technology or prospective
products is alleged to have resulted in adverse effects. We may not avoid significant liability exposure. We may not have sufficient insurance coverage, and we may not be able to obtain sufficient
coverage at a reasonable cost. An inability to obtain product liability insurance at acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the
commercialization of our products. A product liability claim could hurt our financial performance. Even if we avoid liability exposure, significant costs could be incurred that could hurt our
financial performance.

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Hazardous Materials and Environmental Matters Could Expose Us to Significant Costs

We may be required to incur significant costs to comply with current or future environmental laws and regulations. Although we do not currently manufacture
commercial quantities of our product candidates, we produce limited quantities of these products for our clinical trials. Our research and development and manufacturing processes involve the
controlled storage, use and disposal of hazardous materials, biological hazardous materials and radioactive compounds. We are subject to federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposal of these
materials and some waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, the
risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result, and any liability
could exceed our resources. Our operations, business or assets may be materially and adversely affected by current or future environmental laws or regulations.

Subordination of Common Stock to Preferred Stock Could Hurt Common Stockholders

Our common stock is expressly subordinate to our Series F Stock, in the event of our liquidation, dissolution or winding up. If we were to cease
operations and liquidate our assets, there may not be any remaining value available for distribution to the holders of common stock after providing for the Series F Stock liquidation
preference. On April 28, 2001, we converted 160.7 shares of the Series F Stock into shares of our common stock. On May 2, 2001, we redeemed the remaining 39.3 shares of
Series F Stock for cash. As of May 2, 2001, we had no issued and outstanding shares of Series F Stock.

You Could Suffer Substantial Dilution of Your Investment if Our Preferred Stock is Converted Into Common Stock or Certain Options or Warrants to Purchase
Common Stock are Exercised

In
1998 we sold 200 shares of Series F Stock, in return for gross proceeds of $10 million. These shares of Series F Stock are currently convertible into at least
4.2 million shares of our common stock, which number is subject to increase if our common stock does not meet certain specified price trading levels. Additionally, on April 28, 2001 we
will be required to redeem the Series F Stock in shares of our common stock. As of March 31, 2001 we had reserved 7.9 million shares of our common stock for potential issuance
upon the exercise of stock options and warrants and payment of dividends on the Series F Stock. Issuance of any of these additional shares could substantially dilute your interest in our
company.

On
April 28, 2001, we partially converted the Series F Stock into 4,208,924 shares of our common stock and paid the final Series F Stock dividend. We redeemed the
remaining shares of Series F Stock on May 2, 2001 for cash of $2.8 million, and there are no issued and outstanding shares of Series F Stock remaining. On April 17,
2001, 2,051,281 warrants to purchase common stock expired, unexercised.

Volatility Of Stock Price and Absence Of Dividends May Hurt Common Stockholders

The market price of our common stock, like that of the common stock of many other biopharmaceutical companies, has been and is likely to be highly volatile.
Factors such as the following could have a significant adverse impact on the market price of our common stock:



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We
have never paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.

Changes to Financial Accounting Standards May Affect Our Reported Results of Operations

We prepare our financial statements to conform with generally accepted accounting principles, or GAAP. GAAP are subject to interpretation by the American
Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have
a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. Accounting policies affecting many other aspects of our business,
including rules relating to purchase and pooling-of-interests accounting for business combinations, employee stock option grants and revenue recognition have recently been
revised or are under review. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. In
December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial Statements." We implemented SAB No. 101 in the fourth quarter of 2000 by adjusting the first, second
and third quarters of our 2000 financial statements. Our statement of operations reflects a one-time charge to earnings of $13.2 million for the cumulative effect of the change in
accounting principle as of January 1, 2000. Deferred revenue recognized, to reflect the application of the SAB No. 101 adjustment, was approximately $960,000 for each quarter of 2000.
The balance of $9.7 million of deferred revenue from this adjustment will be recognized as revenue over the expected development period, which is estimated to be through June 2003. See
Note 4 to the Condensed Consolidated Financial Statements.

In
addition, our preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the recorded amounts of assets and
liabilities, disclosure of those assets and liabilities at the date of the financial statements and the recorded amounts of expenses during the reporting period. A change in the facts and
circumstances surrounding those estimates could result in a change to our estimates and could impact our future operating results.

Our Certificate of Incorporation and Bylaws Include Provisions that Could Make Attempts by Stockholders to Change Management More Difficult

The approval of 662/3 percent of our voting stock is required to approve certain transactions and to take certain stockholder actions, including
the calling of special meetings of stockholders and the amendment of any of the anti-takeover provisions, such as those providing for a classified board of directors, contained in our
certificate of incorporation. The practical effect of these provisions is to make attempts by stockholders to change management more difficult.

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We May Experience Power Blackouts and Higher Electricity and Gas Prices as a Result of California's Current Energy Crisis, Which Could Disrupt Our Operations and Increase Our
Expenses

California is in the midst of an energy crisis that could disrupt our operations and increase our expenses. We rely on a major southern California public
utility to supply power to our facilities in southern California. Due to problems associated with the deregulation of the power industry in California and shortages in wholesale electricity and gas
supplies, customers have been faced with increased utility prices, power shortages and, in some cases, rolling blackouts. If blackouts interrupt our power supply, we may be temporarily unable to
continue operations at our facilities. Any such interruption of operations at our facilities could delay research and development activities as well as delay our ability to develop or provide our
clinical supplies or services, all of which could damage our reputation and result in potentially lost revenue, either of which could substantially harm our business and results of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We invest our excess cash primarily in U.S. government securities and money market accounts. These instruments have maturities of two years or less when
acquired. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions. Accordingly, we believe that,
while the instruments we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates,
foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

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PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

None

None

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SIGNATURE

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.

|                   |  | THE IMMUNE RESPONSE CORPORATION                                                                         
|------------------ |  | --------------------------------------------------------------------------------------------------------
|Date: May 10, 2001 |  | /s/ Howard SampsonHoward Sampson
Vice President, Finance
Chief Financial Officer
Secretary and Treasurer

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