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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, DC 20549
  Form 10-K
  ANNUAL REPORT
 PURSUANT TO SECTIONS 13 OR
    15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
    THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 0-29801
    INTERMUNE, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

94-3296648(State or other jurisdiction
    of
    incorporation or organization)

(IRS Employer
    identification No.)   3280 Bayshore Boulevard
 Brisbane, CA 94005
 (Address of principal executive
    offices, including Zip Code)
  (415) 466-2200
 (Registrants telephone
    number, including area code)
    Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $0.001 par value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ
    DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K Items 10-14 Form 10-K.




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##### 



INTERMUNE,
    INC.
  ANNUAL REPORT ON
    FORM 10-K
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
  TABLE OF CONTENTS
  
  PART IITEM 1.


BUSINESS


1ITEM
    1A.


RISK
    FACTORS


22ITEM
    1B.


UNRESOLVED STAFF
    COMMENTS


41ITEM 2.


PROPERTIES


41ITEM 3.


LEGAL
    PROCEEDINGS


41ITEM 4.


SUBMISSION OF
    MATTERS TO A VOTE OF SECURITY HOLDERS


42PART IIITEM 5.


MARKET FOR
    REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
    ISSUER PURCHASES OF EQUITY SECURITIES


42ITEM 6.


SELECTED FINANCIAL
    DATA


44ITEM 7.


MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS


45ITEM
    7A.


QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


58ITEM 8.


FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA


60ITEM 9.


CHANGES IN AND
    DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURES


95ITEM
    9A.


CONTROLS AND
    PROCEDURES


95ITEM
    9B.


OTHER
    INFORMATION


97PART IIIITEM
    10.


DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


97ITEM
    11.


EXECUTIVE
    COMPENSATION


97ITEM
    12.


SECURITY OWNERSHIP
    OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
    STOCKHOLDER MATTERS


97ITEM
    13.


CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR
    INDEPENDENCE


98ITEM
    14.


PRINCIPAL
    ACCOUNTANT FEES AND SERVICES


98PART IVITEM
    15.


EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES


98SIGNATURES


105EXHIBIT 10.109EXHIBIT 10.110EXHIBIT 10.111EXHIBIT 10.112EXHIBIT 10.113EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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PART I ITEM 1.  BUSINESS  Forward
    Looking Statements
  Form 10-K
    
    product and product candidate development;
    governmental regulation and approval;
    sufficiency of our cash resources;
    future revenue, including those from product sales and
    collaborations, and future expenses;
    our research and development expenses and other
    expenses; and
    our operational and legal risks.    Overview
  ® ® ® ®
 1




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® ® ®
    2006


2005


2004(In thousands)Total revenue*

$
90,784


$
110,496


$
128,680Loss from continuing operations


(105,962
)


(57,648
)


(45,043
)Net loss


(107,206
)


(5,235
)


(59,478
)Total assets


257,583



266,242



266,011     *
    
    Total revenue for each of the years ended 2005 and 2004 have
    been adjusted to reflect the reclassification of
    Infergen®
    revenue into discontinued operations.  Approved
    Product
  ® ® ® ® ® ® ® ®
  Product
    Development
   2




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  Pulmonology
      ® ® ® ®
    Hepatology
     3




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##### Table of Contents



  Ovarian
    Cancer
  ® ® follow-up ®
    Other
    Assets
  ®
  Product
    Development Status
    Preclinical


Phase I


Phase II


Phase IIIPulmonologyActimmune® 
    Idiopathic pulmonary fibrosis (INSPIRE)*














XPirfenidone
    Idiopathic pulmonary fibrosis (CAPACITY)














XPirfenidone
    Analog


XNext generation gamma
    interferon


XHepatologyProtease Inhibitor
    program
    ITMN-191






XNext generation protease
    inhibitor


XSecond Target in
    hepatology


X     *
    
    Effective March 2007, this development program has been
    discontinued.  Our
    Strategy
  ®
 4




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Focusing our Development Efforts in the Areas of Pulmonology
    and Hepatology. ®
  Investing in Preclinical and Applied
    Research.
  Obtaining FDA Approval for our Compounds in Pulmonology and
    Hepatology.
  Establishing Appropriate Alliances.
  Evaluating Appropriate Product Acquisition
    Candidates.
  Approved
    Product
  ® ®
  Chronic granulomatous disease. ®
  Severe, malignant osteopetrosis. and/or ®
  ® ® ® ®
 5




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Development
    Programs
  Pulmonology
    Idiopathic
    Pulmonary Fibrosis.
    Actimmune ® for Idiopathic Pulmonary Fibrosis. ® ® ® ®
  Pirfenidone
    for Idiopathic Pulmonary Fibrosis and HPS.
  55-patient, proof-of-concept
     6




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Next-Generation
    Interferon Gamma
  ®
  Hepatology
    Protease
    Inhibitor Program
      PEG-Alfacon-1
    for Chronic Hepatitis C Virus Infections
  ® ® PEG-Alfacon-1
 7




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Other
    Assets
  ® ®
  Divesture
    of Oritavancin
      Divesture
    of
    Amphotec®
  ® ® ® ® ® ® ®
  Discontinuation
    of
    Actimmune®
    Trial for Ovarian Cancer.
  847-patient ® ® follow-up ® ®
 8




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License
    and Other Agreements
  Roche
    License and Collaboration Agreement (Protease
    Inhibitors)
    50-50 and/or ex-United
  Genentech,
    Inc. License Agreement
    (Actimmune®)
  ® ® ® ® ® ® ® ® ® ® ®
  Boehringer
    Ingelheim International GmbH
    (Imukin®)
  ® ®
 9




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##### Table of Contents



® ® and/or country-by-country ®
  Connetics
    Corporation (acquired by Stiefel Laboratories, Inc.)
    (Actimmune®)
  ® ® ® ®
  Amgen
    Inc.
    (Infergen®,
    PEG-Alfacon-1 and Interferon Gamma)
  ® ® ® ® ® ® ® ® ®
  Marnac,
    Inc./KDL GmbH (Pirfenidone)
   10




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disease-by-disease country-by-country paid-up,
  Novartis
    Corporation (formerly Chiron Corporation) (Small Molecule
    Therapeutics)
    Array
    BioPharma Inc. (Small Molecule Therapeutics)
      Shearwater
    Corporation (PEG-Alfacon-1)
  ®
 11




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Maxygen
    Holdings Ltd. (Next-Generation Interferon Gamma)
  ®
    Eli
    Lilly & Company (Oritavancin)
    ALZA
    Corporation
    (Amphotec®)
  ® ®
  Manufacturing
    Boehringer
    Ingelheim Austria GmbH
    (Actimmune®)
  ®
 12




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® ® ® ® ® ® ® ® ® ® ® ® ®
  Amgen
    Inc.
    (Infergen®)
  ® ® ®
  Boehringer
    Ingelheim Austria GmbH
    (Infergen®)
  ® ® ® ® ® ®
  Cardinal
    Health PTS, Inc. (oritavancin and pirfenidone)
   13




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ACIC
    Fine Chemical, Inc. and Signa C.V. (pirfenidone)
  sub-contracts
  Abbott
    Laboratories, Inc. (oritavancin)
    Ben
    Venue Laboratories Supply Agreement
    (Amphotec®)
  ® ®
  Patents
    and Proprietary Rights
    Actimmune
  ® and/or ® ® ® ® composition-of-matter
  Pirfenidone
  composition-of-matter
 14




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Protease
    Inhibitors
    Other
    Intellectual Property
    Competition
  Actimmune®
    for CGD and Severe Malignant Osteopetrosis
  ®
  Pirfenidone
    for IPF
  ® ® ® ® ®
  Protease
    Inhibitor for HCV
    Commercial
    Operations, Product Distribution and Medical Affairs
  Reorganization
    of Commercial Operations
  ® ®
  Product
    Distribution
  ® ®
 15




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Co-Promotion
  ®
  Medical
    Affairs
    Sales by
    Geographic Region
    2006


2005


2004United States

$
90,185


$
110,017


$
126,288Rest of the world


599



479



2,392Totals*

$
90,784


$
110,496


$
128,680     *
    
    Total revenue for each of the years ended 2005 and 2004 have
    been adjusted to reflect the reclassification of
    Infergen®
    revenue into discontinued operations.  Governmental
    Regulation and Product Approval
        
    preclinical laboratory and animal tests;
    submission of an IND, which must become effective before
    clinical trials may begin;
    adequate and well-controlled human clinical trials to establish
    the safety and efficacy of the proposed drug for its intended
    use; and
    FDA approval of a new BLA, a new NDA, or a BLA or NDA supplement.   16




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30-day
    
    Phase I:  The drug is initially introduced
    into healthy human subjects or patients and tested for safety,
    dosage tolerance, absorption, metabolism, distribution and
    excretion.
    Phase II:  Studies are conducted in a
    limited patient population to identify possible adverse effects
    and safety risks, to determine the efficacy of the product for
    specific targeted diseases and to determine dosage tolerance,
    optimal dosage and dosage frequency. These Phase II
    clinical trials may be divided into early Phase II clinical
    trials, which are referred to as Phase IIa clinical trials,
    during which pilot studies are performed to determine initial
    activity and late Phase II clinical trials, which are
    referred to as Phase IIb clinical trials, that generally
    consist of controlled trials often involving several hundred
    patients in traditional drug development programs.
    Phase III:  When Phase II clinical
    trials demonstrate that a dosage range of the product is
    effective and has an acceptable safety profile, Phase III
    clinical trials are undertaken to further evaluate dosage, to
    provide statistically and clinically significant evidence of
    clinical efficacy and to further test for safety in an expanded
    patient population at multiple clinical study sites. It is
    possible for a drug that appears promising in a Phase II
    clinical trial to fail in a more rigorous and reliable
    Phase III clinical trial. For example, after
    Actimmune®
    had shown promising results for the treatment of IPF in an
    investigator sponsored Phase II clinical trial, our initial
    Phase III study of
    Actimmune®
    for the treatment of IPF failed to show significant effect on
    the primary endpoint of progression-free survival or on
    secondary endpoints of lung function and quality of life.           17




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and/or ®
      ® ® ® ®
 18




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® ® ®
    ® ® ®
  Research
    and Development
  ®
  Facilities
  ®
 19




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Employees
  ®
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, (415) 466-2242 e-mail ir@intermune.com.
  Executive
    Officers of the Registrant
    Name

Age

TitleDaniel G. Welch


49


Chief Executive Officer and
    PresidentMarianne T.
    Armstrong, Ph.D.


52


Chief Medical Affairs and
    Regulatory OfficerLawrence M. Blatt, Ph.D.


45


Chief Scientific OfficerWilliamson Z.
    Bradford, M.D., Ph.D.


45


Vice President, Clinical ScienceJohn C. Hodgman


52


Senior Vice President of Finance
    and Chief Financial OfficerThomas R. Kassberg


46


Senior Vice President, Corporate
    Development and Commercial OperationsSteven B.
    Porter, M.D., Ph.D.


50


Chief Medical OfficerCynthia Y. Robinson Ph.D.


48


Senior Vice President, Development
    OperationsHoward A. Simon, Esq., SPHR


48


Senior Vice President, Human
    Resources and Corporate Services and Associate General CounselRobin J. Steele, Esq.


51


Senior Vice President of Legal
    Affairs, General Counsel and Corporate Secretary   Daniel G. Welch.
 20




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Marianne T. Armstrong, Ph.D.
  Lawrence M. Blatt, Ph.D.
  Williamson Z. Bradford, M.D., Ph.D. 1999-2001, 1998-1999,
  John C. Hodgman.
  Thomas R. Kassberg.
  Steven B. Porter, M.D., Ph.D.
 21




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Cynthia Y. Robinson, Ph.D.
  Howard A. Simon, Esq, SPHR.
  Robin J. Steele, Esq.
 ITEM 1A.  RISK
    FACTORS  An investment in our common stock is risky. Stockholders and
    potential purchasers of shares of our stock should carefully
    consider the following risk factors, which hereby update those
    risks contained in the Risk Factors section of
    our Quarterly Report on
    Form 10-Q
    that was filed with the SEC on November 7, 2006, in
    addition to other information and risk factors in this Report.
    We are identifying these risk factors as important factors that
    could cause our actual results to differ materially from those
    contained in any written or oral forward-looking statements made
    by or on behalf of InterMune. We are relying upon the safe
    harbor for all forward-looking statements in this Report, and
    any such statements made by or on behalf of InterMune are
    qualified by reference to the following cautionary statements,
    as well as to those set forth elsewhere in this Report.
  Risks
    Related to the Development of Our Products and Product
    Candidates
  We may
    not succeed in our development efforts or in growing product
    revenue.
  ® ®
 22




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Clinical
    development is a long, expensive and uncertain process, and
    delay or failure can occur at any stage of any of our clinical
    trials.
  ® ® ® ®
  We do
    not know whether our planned clinical trials will begin on time,
    or at all, or will be completed on schedule, or at
    all.
    
    the FDA or other regulatory authorities do not approve a
    clinical trial protocol or place a clinical trial on clinical
    hold;
    patients do not enroll in clinical trials at the rate we expect;
    patients experience adverse side effects;
    patients withdraw or die during a clinical trial for a variety
    of reasons, including adverse events associated with the
    advanced stage of their disease and medical problems that may or
    may not be related to our products or product candidates;
    the interim results of the clinical trial are inconclusive or
    negative;
    our trial design, although approved, is inadequate to
    demonstrate safety
    and/or
    efficacy;
    third-party clinical investigators do not perform our clinical
    trials on our anticipated schedule or consistent with the
    clinical trial protocol and good clinical practices, or other
    third-party organizations do not perform data collection and
    analysis in a timely or accurate manner;
    our contract laboratories fail to follow good laboratory
    practices; or
    sufficient quantities of the trial drug are not available.  ® ®
 23




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Preclinical
    development is a long, expensive and uncertain process, and we
    may terminate one or more of our current preclinical development
    programs.
    We
    currently depend upon one collaboration partner, Roche, for
    support in the development and commercialization of our HCV
    product candidates. If our collaboration agreement with Roche
    terminates, our business and, in particular, the development and
    commercialization of our HCV product candidates would be
    significantly harmed.
    If
    Roche fails to perform its obligations under the Collaboration
    Agreement, we may not be able to successfully commercialize our
    product candidates licensed to Roche and the development and
    commercialization of our product candidates could be delayed,
    curtailed or terminated.
  and/or and/or and/or and/or
  If we
    materially breach the representations and warranties we made to
    Roche under the Collaboration Agreement or any of our other
    contractual obligations, Roche has the right to seek
    indemnification from us for damages it suffers as a result of
    such breach. These amounts could be substantial.
   24




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Roche
    has the right under certain circumstances to market and sell
    products that compete with our product candidates that we have
    licensed to Roche, and any competition by Roche could have a
    material adverse effect on our business.
    Risks
    Related to Government Regulation and Approval of our Products
    and Product Candidates
  If we
    fail to comply or have in the past failed to comply with FDA or
    other government regulations prohibiting the promotion of
    off-label uses and the promotion of products for which marketing
    approval has not been obtained, it could result in regulatory
    enforcement action by the FDA or other governmental authorities,
    including a substantial fine, either of which could harm our
    business.
  ® ® ® ®
  and/or
  ®
 25




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® ® ®
  If the
    FDA imposes significant restrictions or requirements related to
    our products for any disease, or withdraws its approval of any
    of our products for any disease for which it has been approved,
    our revenue would decline.
  ®
    If our
    clinical trials fail to demonstrate to the FDA and foreign
    regulatory authorities that any of our products or product
    candidates are safe and effective for the treatment of
    particular diseases, the FDA and foreign regulatory authorities
    may require us to conduct additional clinical trials or may not
    grant us marketing approval for such products or product
    candidates for those diseases.
    The
    pricing and profitability of our products may be subject to
    control by the government and other third-party
    payors.
  and/or
 26




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®
  Our
    failure or alleged failure to comply with anti-kickback and
    false claims laws could result in civil
    and/or
    criminal sanctions
    and/or harm
    our business.
        Risks
    Related to Manufacturing and Our Dependence on Third
    Parties
  The
    manufacturing and manufacturing development of our products and
    product candidates present technological, logistical and
    regulatory risks, each of which may adversely affect our
    potential revenue.
    
    It may not be technically feasible to scale up an existing
    manufacturing process to meet demand or such
    scale-up may
    take longer than anticipated; and
    Failure to comply with strictly enforced good manufacturing
    practices regulations and similar foreign standards may result
    in delays in product approval or withdrawal of an approved
    product from the market. For example, the FDA has conducted
    routine inspections of our manufacturing contractors, and some
    were issued a standard notice of observations. While
    we believe that all of these observations are being 27




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appropriately corrected without further comment or action from
    the FDA, failure to correct any deficiency could result in
    manufacturing delays.  and/or
  Our
    manufacturing strategy, which relies on third-party
    manufacturers, exposes us to additional risks as a result of
    which we may lose potential revenue.
  ® ®
    
    If market demand for our products is less than our purchase
    obligations to our manufacturers, we may incur substantial
    penalties and substantial inventory write-offs.
    Manufacturers of our products are subject to ongoing periodic
    inspections by the FDA and other regulatory authorities for
    compliance with strictly enforced good manufacturing practices
    regulations and similar foreign standards, and we do not have
    control over our third-party manufacturers compliance with
    these regulations and standards.
    When we need to transfer between manufacturers, the FDA and
    foreign regulatory authorities must approve the new
    manufacturers facilities and processes prior to our use or
    sale of products it manufactures for us. This requires
    demonstrated compatibility of product, process and testing and
    compliance inspections. Delays in transferring manufacturing
    technology between third parties could delay clinical trials,
    regulatory submissions and commercialization of our product
    candidates.
    Our manufacturers might not be able or refuse to fulfill our
    commercial needs, which would require us to seek new
    manufacturing arrangements and may result in substantial delays
    in meeting market demand.
    We may not have intellectual property rights, or may have to
    share intellectual property rights, to any improvements in the
    manufacturing processes or new manufacturing processes for our
    products.
    Our product costs may increase if our manufacturers pass their
    increasing costs of manufacture on to us.
    If third-party manufacturers do not successfully carry out their
    contractual duties or meet expected deadlines, we will not be
    able to obtain or maintain regulatory approvals for our products
    and product candidates and will not be able to successfully
    commercialize our products and product candidates. In such
    event, we may not be able to locate any necessary acceptable
    replacement manufacturers or enter into favorable agreements
    with such replacement manufacturers in a timely manner, if at
    all.
    If our agreement with a third-party manufacturer expires, we may
    not be able to renegotiate a new agreement with that
    manufacturer on favorable terms, if at all. If we cannot
    successfully complete such renegotiation, we may not be able to
    locate any necessary acceptable replacement manufacturers or
    enter into favorable agreements with such replacement
    manufacturers in a timely manner, if at all. 28




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We
    rely on third parties to conduct clinical trials for our
    products and product candidates, and those third parties may not
    perform satisfactorily.
    Risks
    Related to the Commercialization of Our Products and Product
    Candidates
  We
    rely on one customer for approximately 60% of our total revenue.
    If this customer does not continue to sell
    Actimmune®
    at its current levels, our business will be
    harmed.
  ® ®
  If the
    specialty pharmacies and distributors that we rely upon to sell
    our products fail to perform, our business may be adversely
    affected.
    
    not provide us with accurate or timely information regarding
    their inventories, the number of patients who are using
    Actimmune®
    or
    Actimmune®
    complaints;
    not effectively sell or support
    Actimmune®;
    reduce their efforts or discontinue to sell or support
    Actimmune®;
    not devote the resources necessary to sell
    Actimmune®
    in the volumes and within the time frames that we expect;
    be unable to satisfy financial obligations to us or
    others; or
    cease operations.   29




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Even
    if regulatory authorities approve our products or product
    candidates for the treatment of the diseases we are targeting,
    our products may not be marketed or commercially
    successful.
    
    cost of treatment;
    pricing and availability of alternative products;
    ability to obtain third-party coverage or reimbursement for our
    products or product candidates to treat a particular disease;
    perceived efficacy relative to other available therapies;
    shifts in the medical community to new treatment paradigms or
    standards of care;
    relative convenience and ease of administration; and
    prevalence and severity of adverse side effects associated with
    treatment.  If
    third-party payors do not provide coverage or reimburse patients
    for our products, our revenue and prospects for profitability
    will suffer.
    
    private health insurers, including managed care organizations;
    governmental payors, such as Medicaid, the U.S. Public
    Health Service Agency or the Veterans
    Administration; and
    other third-party payors.  ® ®
  ® ® ® ®
  ® ® ®
 30




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® 60-70% ® ®
  ® ®
  Our
    supply agreement with BI may restrict our ability to establish
    alternative sources of
    Actimmune®
    in a timely manner or at an acceptable cost, which may cause us
    to be unable to meet demand for
    Actimmune®
    and to lose potential revenue.
  ® ® ® ® ®
  The
    activities of competitive drug companies, or others, may limit
    our products revenue potential or render them
    obsolete.
    
    are more effective;
    have fewer or less severe adverse side effects;
    are better tolerated;
    have better patient compliance;
    receive better reimbursement terms;
    are more accepted by physicians;
    are more adaptable to various modes of dosing;
    have better distribution channels;
    are easier to administer; or
    are less expensive.   31




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Risks
    Related to Our Intellectual Property Rights
  We may
    not be able to obtain, maintain and protect certain proprietary
    rights necessary for the development and commercialization of
    our products or product candidates.
      
    we were the first to make the inventions covered by each of our
    pending patent applications;
    we were the first to file patent applications for these
    inventions;
    others will not independently develop similar or alternative
    technologies or duplicate any of our technologies;
    any of our pending patent applications will result in issued
    patents;
    any of our issued patents or those of our licensors will be
    valid and enforceable;
    any patents issued to us or our collaborators will provide a
    basis for commercially viable products or will provide us with
    any competitive advantages or will not be challenged by third
    parties;
    we will develop additional proprietary technologies that are
    patentable; or
    the patents of others will not have a material adverse effect on
    our business.    If we
    breach our license agreements, we may lose our ability to
    develop and sell our products.
  ®
  Since
    the pirfenidone molecule is in the public domain and the patent
    we licensed from Marnac is limited to specific methods of use of
    pirfenidone, we may be subject to competition from third party
    products with the same active pharmaceutical ingredients as our
    product candidate.
   32




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Over
    time, we will lose our ability to rely upon the intellectual
    property we currently own to prevent competing products, which
    may impair our ability to generate revenue.
  ®
      Litigation
    or third-party claims of intellectual property infringement
    could require us to spend substantial time and money and could
    adversely affect our ability to develop and commercialize
    products.
  and/or
 33




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and/or
  If the
    owners of the intellectual property we license fail to maintain
    the intellectual property, we may lose our rights to develop our
    products or product candidates.
  ®
  If our
    employees, consultants and vendors do not comply with their
    confidentiality agreements or our trade secrets otherwise become
    known, our ability to generate revenue and profits may be
    impaired.
    By
    working with corporate partners, research collaborators and
    scientific advisors, we are subject to disputes over
    intellectual property, and our ability to obtain patent
    protection or protect proprietary information may be
    impaired.
   34




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##### Table of Contents



Risks
    Related to Our Financial Results and Other Risks Related to Our
    Business
  If
    physicians do not prescribe
    Actimmune®
    or prescribe it less often for the treatment of IPF, our revenue
    will decline.
  ® ®
  
    Actimmune®
    is not, nor do we expect it to be approved by the FDA for the
    treatment of IPF, and we therefore are unable to market or
    promote Actimmune®
    for the treatment of IPF;
    in our initial and Phase III INSPIRE clinical trials,
    Actimmune®
    failed to meet the primary and secondary endpoints;
    physicians prefer to enroll their patients in another trial for
    the treatment of IPF, including our Phase III pirfenidone
    trials;
    Actimmune®
    does not have a drug compendia listing, often a criterion used
    by third-party payors to decide whether or not to reimburse
    off-label prescriptions;
    physicians patients are unable to receive or lose
    reimbursement from a third-party reimbursement organization;
    physicians are not confident that
    Actimmune®
    has a clinically significant treatment effect for IPF;
    a competitors product shows a clinically significant
    treatment effect for IPF; or  ® ® ®
  If we
    fail to obtain the capital necessary to fund our operations, we
    will be unable to successfully execute our business
    plan.
  available-for-sale
  If we
    continue to incur net losses for a period longer than we
    anticipate, we may be unable to continue our
    business.
  ® ®
 35




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##### Table of Contents



Failure
    to accurately forecast our revenue could result in additional
    charges for excess inventories or non-cancelable purchase
    obligations.
  ® and/or and/or and/or
  If
    product liability lawsuits are brought against us, we may incur
    substantial liabilities.
    Our
    use of hazardous materials, chemicals, viruses and radioactive
    compounds exposes us to potential liabilities.
    If we
    fail to fulfill our obligations under the Deferred Prosecution
    Agreement with the U.S. Department of Justice or the
    Corporate Integrity Agreement with the Office of Inspector
    General of the United States Department of Health and Human
    Services it could have a material adverse effect on our
    business.
  ® ®
 36




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##### Table of Contents



Insurance
    coverage is increasingly difficult to obtain or
    maintain.
    Budget
    or cash constraints may force us to delay our efforts to develop
    certain products in favor of developing others, which may
    prevent us from meeting our stated timetables and
    commercializing those products as quickly as
    possible.
    Failure
    to attract, retain and motivate skilled personnel and cultivate
    key academic collaborations will delay our product development
    programs and our business development efforts.
    Risks
    Related to our Common Stock
  We may
    fail to meet our publicly announced revenue
    and/or
    expense projections
    and/or other
    financial guidance, which would cause our stock to decline in
    value.
  and/or and/or
  
    if only a subset of or no affected patients respond to therapy
    with any of our products or product candidates;
    the actual dose or efficacy of the product for a particular
    condition may be different than currently anticipated;
    negative publicity about the results of our clinical studies,
    such as the recent failure of INSPIRE to meet its primary
    endpoint and our resulting decision to discontinue the trial, or
    those of others with similar or related products may reduce
    demand for our products and product candidates;
    the treatment regimen may be different in duration than
    currently anticipated;
    treatment may be sporadic;
    we may not be able to sell a product at the price we expect; 37




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##### Table of Contents




    we may not be able to accurately calculate the number of
    patients using the product;
    we may not be able to supply enough product to meet demand;
    there may be current and future competitive products that have
    greater acceptance in the market than our products do;
    we may decide to divest a product;
    our development activities may proceed faster than planned;
    we may decide to change our marketing and educational programs;
    clinical trial participation may reduce product sales; or
    physicians prescriptions or patient referrals for
    Actimmune®
    may decline.  and/or and/or
  Failure
    to maintain effective internal control over financial reporting
    in accordance with Section 404 of the Sarbanes-Oxley Act of
    2002 could have a material adverse effect on our stock
    price.
    Our
    stock price may be volatile, and an investment in our stock
    could decline in value.
      If our
    officers, directors and certain stockholders choose to act
    together, they may be able to significantly influence our
    management and operations, acting in their own best interests
    and not necessarily those of other stockholders.
   38




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##### Table of Contents



Substantial
    sales of shares may negatively impact the market price of our
    common stock.
        We
    have implemented anti-takeover provisions, which could
    discourage, prevent or delay a takeover, even if the acquisition
    would be beneficial to our stockholders, or frustrate or prevent
    any attempts by our stockholders to replace or remove our
    current management or Board of Directors.
    
    establish a classified board of directors so that not all
    members of our board may be elected at one time;
    authorize the issuance of up to 5,000,000 shares of
    blank check preferred stock that could be issued by
    our board of directors to increase the number of outstanding
    shares and hinder a takeover attempt;
    limit who may call a special meeting of stockholders;
    prohibit stockholder action by written consent, thereby
    requiring all stockholder actions to be taken at a meeting of
    our stockholders; and
    establish advance notice requirements for nominations for
    election to our board of directors or for proposing matters that
    can be acted upon at stockholder meetings. 39




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##### Table of Contents



Risks
    Related to our Outstanding Notes
  Our
    indebtedness and debt service obligations may adversely affect
    our cash flow.
        
    requiring the dedication of a substantial portion of our
    expected cash flow from operations to service our indebtedness,
    thereby reducing the amount of our expected cash flow available
    for other purposes, including capital expenditures;
    increasing our vulnerability to general adverse economic and
    industry conditions;
    limiting our ability to obtain additional financing;
    limiting our flexibility in planning for, or reacting to,
    changes in our business and the industry in which we
    compete; and
    placing us at a possible competitive disadvantage to less
    leveraged competitors and competitors that have better access to
    capital resources.  We may
    not have the ability to raise the funds necessary to finance any
    required redemptions of our outstanding convertible notes, which
    might constitute a default by us.
     40




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##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES  ®
  ITEM 3.
    LEGAL
    PROCEEDINGS  ® ® ®
    ®
   41




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##### Table of Contents



ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES      Fiscal Year:

High


Low2006First Quarter

$
20.61


$
17.62Second Quarter


18.35



14.20Third Quarter


17.68



14.83Fourth Quarter


30.75



16.252005First Quarter

$
13.51


$
9.99Second Quarter


13.22



10.15Third Quarter


18.14



13.16Fourth Quarter


17.23



13.22     Dividend
    Policy
   42




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##### Table of Contents



Performance
    Graph
    
  Years Ending December 31,Base periodDecemberCompany/Index

2001

2002

2003

2004

2005

2006InterMune, Inc.


100


$
51.79


$
47.02


$
26.92


$
34.10


$
62.42NASDAQ Composite


100



69.13



103.36



112.49



114.88



126.22AMEX Biotechnology Index


100



58.26



84.42



93.74



117.28



129.91   10-K
 43




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##### Table of Contents



ITEM 6.  SELECTED
    FINANCIAL DATA    ® ®
  Year Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share data)Statement of Operations
    Data:Revenue, net:Actimmune

$
90,317


$
107,633


$
124,980


$
141,402


$
105,802Other products






2,863



3,700



3,460



3,232Collaboration revenue


467















Total revenue, net


90,784



110,496



128,680



144,862



109,034Costs and expenses:Cost of goods sold


24,108



33,842



33,139



33,233



23,396Amortization and impairment of
    acquired product rights(1)


500



1,180



743



5,998



1,233Research and development


103,849



82,736



75,683



118,771



128,326Selling, general and administrative


40,372



58,854



55,132



56,167



54,233Provision for government settlement


36,944















Acquired research and development
    and milestone (credits) payments(2)






(10,000
)






12,150



33,750Restructuring charges






5,549











Total costs and expenses


205,773



172,161



164,697



226,319



240,938Loss from operations


(114,989
)


(61,665
)


(36,017
)


(81,457
)


(131,904
)Interest income


9,512



3,965



3,490



4,024



7,375Interest and other income (expense)


(485
)


52



(12,516
)


(10,037
)


(9,803
)Loss from continuing operations


(105,962
)


(57,648
)


(45,043
)


(87,470
)


(134,332
)Discontinued operations:Loss from discontinued operations


(1,244
)


(32,925
)


(14,435
)


(9,531
)


(9,977
)Gain on sale of discontinued
    operations (net of transaction costs)






85,338











Net income (loss) from
    discontinued operations


(1,244
)


52,413



(14,435
)


(9,531
)


(9,977
)Net loss

$
(107,206
)

$
(5,235
)

$
(59,478
)

$
(97,001
)

$
(144,309
)Basic and diluted net loss per
    share:Continuing operations

$
(3.18
)

$
(1.79
)

$
(1.42
)

$
(2.76
)

$
(4.39
)Discontinued operations

$
(0.04
)

$
1.63


$
(0.45
)

$
(0.30
)

$
(0.33
)Net loss per share

$
(3.22
)

$
(0.16
)

$
(1.87
)

$
(3.06
)

$
(4.72
)Shares used in computing basic and
    diluted net loss per share


33,277



32,220



31,760



31,665



30,589   44




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##### Table of Contents



As of December 31,2006


2005


2004


2003


2002(In thousands)Balance sheet data:Cash, cash equivalents and
    available-for-sale
    securities

$
214,549


$
215,525


$
183,025


$
216,107


$
316,411Working capital


201,924



185,295



185,133



201,855



285,633Total assets


257,583



263,452



266,011



288,501



384,881Long-term obligations


170,000



170,000



170,000



149,500



149,500Accumulated deficit


(568,087
)


(460,881
)


(455,646
)


(396,168
)


(299,167
)Total stockholders equity
    (deficit)


(39,797
)


31,767



32,791



87,744



182,718     (1)
    
    The amortization and impairment of acquired product rights also
    included charges of $0.6 million and $4.8 million for
    the impairment of
    Amphotec®
    product rights recognized during 2005 and 2003, respectively.(2)
    
    These charges represent acquired research and development and
    milestone payments for projects that were in development, had
    not reached technical feasibility and had no foreseeable
    alternative future uses at the time of acquisition or when the
    milestone became payable. The 2005 balance reflects the reversal
    of the milestone liability in connection with the divestiture of
    oritavancin. Please see Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Results of Operations and
    Note 5 of the Notes to Consolidated Financial Statements.  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
  ®
  Significant
    License/Acquisition Agreements
  ®
    Our Need
    for Additional Capital
  ® ® available-for-sale
 45




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##### Table of Contents



Discontinuation
    of
    Actimmune®
    Trial for IPF
  ® ®
    2006Finished goods inventory

$
8,188Acquired product rights, net


1,167Total

$
9,355     Critical
    Accounting Policies
      Stock-based
    Compensation
  Share-Based Payment.
 46




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##### Table of Contents



®
    Revenue
    Recognition and Revenue Reserves
  and/or ®
    Years Ended December 31,Reductions to Revenue

2006


2005


2004Cash discounts

$
1,887


$
2,280


$
2,663Product returns






428



254Chargebacks


1,106



1,258



4,290Medicaid rebates


2,032



3,474



3,971Total

$
5,025


$
7,440


$
11,178   47




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##### Table of Contents



Years Ended December 31,2006


2005


2004Gross product revenue

$
95,342


$
117,936


$
139,858Revenue reserve as a % of gross
    product revenue:Cash discounts


2.0
%


1.9
%


1.9
%Product returns






0.4
%


0.2
%Chargebacks


1.2
%


1.1
%


3.1
%Medicaid rebates


2.1
%


2.9
%


2.8
%Total


5.3
%


6.3
%


8.0
%   ®
      Clinical
    Trial Accruals
    Inventory
    Reserves and Non-Cancelable Purchase Obligations for
    Inventory
  first-in
 48




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##### Table of Contents



® ®
  ® and/or
  Results
    of Operations
  ® ®
  Comparison
    of years ended December 31, 2006 and 2005
  Revenue
  ® ® ®
  ® ® ® ® ® ® ®
 49




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##### Table of Contents



Cost of
    Goods Sold
  ®
  ®
  Amortization
    and Impairment of Acquired Product Rights
  ® ® ® ®
  Research
    and Development Expenses
      Year Ended December 31,Development Program

2006


2005


2004(In thousands)Pulmonology

$
50,065


$
34,779


$
19,589Hepatology


30,035



17,820



15,253Oncology


1,561



14,156



18,307Programs  Non-specific


22,188



15,981



22,534Total

$
103,849


$
82,736


$
75,683    50




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##### Table of Contents




    the successful conclusion of preclinical laboratory and animal
    tests, if appropriate, to gain preliminary information on the
    products safety;
    the submission of an IND with the FDA to conduct human clinical
    trials for drugs;
    the successful completion of adequate and well-controlled human
    clinical investigations to establish the safety and efficacy of
    the product for its recommended use; and
    the submission by a company and acceptance and approval by the
    FDA of an NDA or BLA for a drug product to allow commercial
    distribution of the drug.    Selling,
    General and Administrative Expenses
    Acquired
    Research and Development and Milestone (Credits)
    Payments
    Provision
    for Government Settlement
  ® ® ®
  Restructuring
    Charges
  ®
 51




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##### Table of Contents



Interest
    Income
    Interest
    Expense
    Other
    Income (Expense)
    Loss from
    Discontinued Operations
  ® ® ®
  Gain on
    Sale of Discontinued Operations
  ® ®
 52




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##### Table of Contents



Provision
    for Income Taxes
    Comparison
    of years ended December 31, 2005 and 2004
  Revenue
  ® ® ®
  Cost of
    Goods Sold
    ®
  Amortization
    and Impairment of Acquired Product Rights
  ® ® ® ®
  Research
    and Development Expenses
   53




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##### Table of Contents



Selling,
    General and Administrative Expenses
    Acquired
    Research and Development and Milestone (Credits)
    Payments
    Restructuring
    Charges
  ®
    Interest
    Income
  ®
  Interest
    Expense
    Other
    Income (Expense)
   54




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##### Table of Contents



Loss from
    Discontinued Operations
  ® ® ® ® ® ®
  Gain on
    Sale of Discontinued Operations
  ® ®
  Provision
    for Income Taxes
    Liquidity
    and Capital Resources
  available-for-sale
    Operating
    Activities
  ® ®
 55




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##### Table of Contents



®
  Investing
    Activities
  ® available-for-sale
  Financing
    Activities
      available-for-sale
  
    sales of
    Actimmune®
    or any of our product candidates in development that receive
    commercial approval;
    our ability to partner our programs or products;
    the progress of our research and development efforts;
    the scope and results of preclinical studies and clinical trials;
    the costs, timing and outcome of regulatory reviews;
    determinations as to the commercial potential of our product
    candidates in development;
    the pace of expansion of administrative expenses;
    the status of competitive products and competitive barriers to
    entry;
    the establishment and maintenance of manufacturing capacity
    through third-party manufacturing agreements;
    the pace of expansion of our sales and marketing capabilities,
    in preparation for product launches;
    the establishment of collaborative relationships with other
    companies;
    the payments of annual interest on our long-term debt;
    the payments related to the Civil Settlement Agreement with the
    government;
    the timing and size of the payments we may receive from Roche
    pursuant to the Collaboration Agreement; and
    whether we must repay the principal in connection with our
    convertible debt obligations. 56




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##### Table of Contents



Contractual
    Obligations
    Contractual Obligations

Total


2007


2008-2009


2010-2011


After 2011Long-term debt obligations(1)

$
172.2


$
0.4


$
0.9


$
170.9


$
Government settlement


38.4



5.9



13.5



19.0



Operating leases


20.0



4.4



9.3



6.3



Non-cancelable purchase
    obligations  Inventory(4)


91.6



15.9



29.8



30.6



15.3Non-cancelable purchase
    obligations  Other(2)


13.8



12.3



1.3



0.2



Research and development
    commitments(3)


35.4



14.0



21.4







Total contractual cash obligations

$
371.4


$
52.9


$
76.2


$
227.0


$
15.3     (1)
    
    These amounts include accrued interest and the principal amount
    of the 0.25% convertible senior notes due 2011.(2)
    
    These amounts consist of clinical, process development and
    marketing related obligations.(3)
    
    These amounts consist of clinical related obligations and are
    cancelable upon discontinuation of the trial.(4)
    
    See Note 15 to the Consolidated Financial Statements for a
    discussion regarding the commitment.    ®
  Recent
    Accounting Pronouncements
     57




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##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  available-for-sale
      Fair Value at2011 and





December 31,2007


2008


2009


2010


Beyond


Total


2006Assets:Available-for-sale
    securities

$
172.2


$
29.0


$



$



$



$
201.2


$
202.1Average interest rate


5.2
%


5.3
%














5.2
%


Liabilities:0.25% convertible senior
    notes due 2011

















$
170.0


$
170.0


$
249.1Average interest rate


















0.25
%


0.25
%


  58




---



##### Table of Contents



Fair Value at2010 and





December 31,2006


2007


2008


2009


Beyond


Total


2005Assets:Available-for-sale
    securities

$
78.2


$
1.0






$
6.7


$



$
85.9


$
86.1Average interest rate


4.0
%


2.2
%






2.8
%






4.0
%


Liabilities:0.25% convertible senior
    notes due 2011

















$
170.0


$
170.0


$
151.1Average interest rate


















0.25
%


0.25
%


   Foreign
    Currency Market Risk
  ®
 59




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Report of
    Independent Registered Public Accounting Firm


61Consolidated
    Balance Sheets


62Consolidated
    Statements of Operations


63Consolidated
    Statements of Stockholders Equity (Deficit)


64Consolidated
    Statements of Cash Flows


65Notes to
    Consolidated Financial Statements


66  60




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               ERNST &
    YOUNG LLP
    61




---



##### Table of Contents



INTERMUNE,
    INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands, exceptper share data)ASSETSCurrent assets:Cash and cash equivalents

$
109,386


$
187,335Available-for-sale
    securities


105,163



28,190Accounts receivable, net of
    allowances of $164 in 2006 and $1,444 in 2005


11,799



16,223Inventories


8,188



12,437Prepaid expenses and other current
    assets


7,691



3,942Total current assets


242,227



248,127Property and equipment, net


9,210



7,274Acquired product rights, net


1,167



1,667Other assets (includes restricted
    cash of $1,425)


4,979



9,174Total assets

$
257,583


$
266,242LIABILITIES AND
    STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
10,572


$
26,655Accrued compensation


6,181



14,188Other accrued liabilities


23,550



21,989Total current liabilities


40,303



62,832Deferred rent


1,804



1,643Deferred collaboration revenue


56,732



Liability under government
    settlement


28,541



Convertible notes


170,000



170,000Commitments and contingencies
    (Note 15)Stockholders equity
    (deficit):Convertible preferred stock,
    $0.001 par value; 5,000 shares authorized, no shares
    issued and outstanding at December 31, 2006 and 2005,
    respectively






Common stock, $0.001 par
    value, 70,000 shares authorized; 34,264 and
    32,589 shares issued and outstanding at December 31,
    2006 and 2005, respectively


34



33Additional paid-in capital


528,116



493,953Deferred stock compensation






(2,092
)Accumulated other comprehensive
    income


140



754Accumulated deficit


(568,087
)


(460,881
)Total stockholders equity
    (deficit)


(39,797
)


31,767Total liabilities and
    stockholders equity (deficit)

$
257,583


$
266,242    62




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##### Table of Contents



INTERMUNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2006


2005


2004(In thousands, except per share amounts)Revenue, netActimmune

$
90,317


$
107,633


$
124,980Other products






2,863



3,700Collaboration revenue


467







Total revenue, net


90,784



110,496



128,680Costs and expenses:Cost of goods sold


24,108



33,842



33,139Amortization and impairment of
    acquired product rights


500



1,180



743Research and development


103,849



82,736



75,683Selling, general and administrative


40,372



58,854



55,132Acquired research and development
    and milestone credits






(10,000
)


Restructuring charges






5,549



Provision for government settlement


36,944







Total costs and expenses


205,773



172,161



164,697Loss from operations


(114,989
)


(61,665
)


(36,017
)Other income (expense):Interest income


9,512



3,965



3,490Interest expense


(1,542
)


(1,261
)


(5,065
)Other income (expense)


1,057



1,313



(7,451
)Loss from continuing operations


(105,962
)


(57,648
)


(45,043
)Discontinued operations:Loss from discontinued operations


(1,244
)


(32,925
)


(14,435
)Gain on sale of discontinued
    operations (net of transaction costs)






85,338



Income (loss) from discontinued
    operations


(1,244
)


52,413



(14,435
)Net loss

$
(107,206
)

$
(5,235
)

$
(59,478
)Basic and diluted net loss per
    shareContinuing operations

$
(3.18
)

$
(1.79
)

$
(1.42
)Discontinued operations

$
(0.04
)

$
1.63


$
(0.45
)$
(3.22
)

$
(0.16
)

$
(1.87
)Shares used in computing basic and
    diluted net loss per share


33,277



32,220



31,760    63




---



##### Table of Contents



INTERMUNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
  AccumulatedAdditional





Other





TotalCommon Stock


Paid-In


Deferred Stock


Comprehensive


Accumulated


StockholdersShares


Amount


Capital


Compensation


Income


Deficit


Equity (Deficit)(In thousands)Balances at December 31,
    2003


31,845


$
32


$
483,697


$
(217
)

$
400


$
(396,168
)

$
87,744Net unrealized loss on
    available-for-sale
    securities


















(638
)






(638
)Net realized gain on foreign
    exchange contract


















1,824







1,824Net loss






















(59,478
)


(59,478
)Comprehensive loss


























(58,292
)Exercise of stock options


109







879















879Stock issued under employee stock
    purchase plan


97







1,161















1,161Stock compensation related to the
    modification of unvested stock options










110















110Stock compensation related to
    options granted to consultants for services










45















45Issuance of restricted stock to
    employees


532



1



8,129



(8,067
)










63Reversal of deferred stock
    compensation due to employee terminations










(1,358
)


1,193











(165
)Amortization of deferred stock
    compensation, net of reversals














1,246











1,246Balances at December 31,
    2004


32,583


$
33


$
492,663


$
(5,845
)

$
1,586


$
(455,646
)

$
32,791Net unrealized gain on
    available-for-sale
    securities


















173







173Net realized gain on foreign
    exchange contract


















(1,005
)






(1,005
)Net loss






















(5,235
)


(5,235
)Comprehensive loss


























(6,067
)Exercise of stock options


19







236















236Stock issued under employee stock
    purchase plan


203







1,847















1,847Stock compensation related to the
    modification of unvested stock options










1,301















1,301Issuance of restricted stock to
    employees


11







175















175Reversal of deferred stock
    compensation due to employee terminations


(227
)






(2,269
)


2,269











Amortization of deferred stock
    compensation, net of reversals














1,484











1,484Balances at December 31,
    2005


32,589


$
33


$
493,953


$
(2,092
)

$
754


$
(460,881
)

$
31,767Net unrealized loss on
    available-for-sale
    securities


















(7
)






(7
)Net realized gain on foreign
    exchange contract


















(607
)






(607
)Net loss






















(107,206
)


(107,206
)Comprehensive loss


























(107,820
)Exercise of stock options


1,225



1



18,605















18,606Stock issued under employee stock
    purchase plan


117







1,128















1,128Reclassification of deferred
    compensation upon adoption of SFAS 123(R)










(2,092
)


2,092











Issuance of restricted stock to
    employees


333







5,960















5,960Stock compensation related to the
    modification of stock options










253















253Stock compensation related to
    employee stock benefit plans










10,309















10,309Balances at December 31,
    2006


34,264


$
34


$
528,116


$



$
140


$
(568,087
)

$
(39,797
)    64




---



##### Table of Contents



INTERMUNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Year Ended December 31,2006


2005


2004(In thousands)Cash flows used for operating
    activities:Net loss

$
(107,206
)

$
(5,235
)

$
(59,478
)Adjustments to reconcile net loss
    to net cash used in operating activities:Gain on sale of discontinued
    operations






(85,338
)


Restructuring charges






5,549



Stock-based compensation expense


16,522



2,144



1,298Acquired research and development
    and milestone (credits) payments






(10,000
)


Amortization


1,331



4,555



4,264Depreciation


2,516



2,860



2,700Deferred rent


161



130



257Impairment of intangible asset






600



Change in unrealized gain on
    foreign currency cash flow hedge


(607
)


(1,005
)


1,096Loss on early extinguishment of debt










7,072Changes in operating assets and
    liabilities:Accounts receivable, net


4,424



(1,335
)


1,172Inventories


4,249



14,053



(12,928
)Prepaid expenses


(1,319
)


(291
)


(332
)Other assets


927



(760
)


32Accounts payable and accrued
    compensation


(24,090
)


(1,084
)


10,556Other accrued liabilities


(5,816
)


4,386



1,150Liability under government
    settlement


33,116







Deferred collaboration revenue


59,534







Net cash used in operating
    activities


(16,258
)


(70,771
)


(43,141
)Cash flows from investing
    activities:Purchase of property and equipment


(4,452
)


(2,144
)


(1,340
)Proceeds from the divestiture of
    Infergen






120,000



Purchase of manufacturing
    technology rights






(16,832
)


Purchases of
    available-for-sale
    securities


(130,434
)


(77,353
)


(139,617
)Maturities of
    available-for-sale
    securities


41,396



103,516



124,287Sales of
    available-for-sale
    securities


12,065



72,903



61,471Other






163



Net cash provided by (used in)
    investing activities


(81,425
)


200,253



44,801Cash flows from financing
    activities:Proceeds from issuance of common
    stock, net


19,734



2,084



2,040Proceeds from convertible senior
    notes, net










164,221Repurchase of convertible
    subordinated notes










(154,451
)Repayment of notes receivable from
    stockholder










228Net cash provided by financing
    activities


19,734



2,084



12,038Net increase (decrease) in cash and
    cash equivalents


(77,949
)


131,566



13,698Cash and cash equivalents at
    beginning of period


187,335



55,769



42,071Cash and cash equivalents at end of
    period

$
109,386


$
187,335


$
55,769Supplemental disclosure of cash
    flow information:Interest paid

$
445


$
425


$
3,903    65




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    ORGANIZATION  Overview
  ® ® ® ®
  2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Principles
    of Consolidation
    Basis
    of Presentation
    Use of
    Estimates
      Cash,
    Cash Equivalents and
    Available-For-Sale
    Securities
  available-for-sale. available-for-sale
 66




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Fair
    Value of Other Financial Instruments
    Inventory
    Valuation
      ®
  Concentration
    of Risks
    Foreign
    Currency and Derivative Instruments
    ®
 67




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    ® ®
  Property
    and Equipment
    Useful LivesComputer and laboratory equipment

3 to 5 yearsOffice furniture and fixtures

3 to 5 yearsLeasehold improvements

Length of lease   Acquired
    Product Rights
    Impairment
    of Long-Lived Assets
    Revenue
    Recognition and Revenue Reserves
   68




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        ®
  Research
    and Development Expenses
  scale-up scale-up
      Advertising
    Costs
   69




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Income
    Taxes
  Accounting
    for Income Taxes,
  Comprehensive
    Income (Loss)
  Reporting Comprehensive
    Income, available-for-sale available-for-sale
  Net
    Loss Per Share
      Year Ended December 31,2006


2005


2004Options


5,390



6,449



4,945Shares issuable upon conversion of
    convertible notes


7,859



7,859



7,859     Year Ended December 31,2006


2005


2004Net loss

$
(107,206
)

$
(5,235
)

$
(59,478
)Basic and diluted net loss per
    share:Weighted-average shares of common
    stock outstanding


33,702



32,577



32,089Less: weighted-average shares
    subject to repurchase


(425
)


(357
)


(329
)Weighted-average shares used in
    computing basic and diluted net loss per common share


33,277



32,220



31,760Basic and diluted net loss per
    share

$
(3.22
)

$
(0.16
)

$
(1.87
)   Stock-Based
    Compensation
   70




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           71




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Recent
    Accounting Pronouncements
         72




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    DISCONTINUED
    OPERATIONS  Product
    Acquisition Agreement
  ® ®
  ® ® ® ® ®
  Manufacturing
    Technology Rights
  ® ® ® ® ® ®
  Purchase
    Option
  ®
 73




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Results
    of Discontinued Operations
    Year Ended December 31,2006


2005


2004Infergen revenue, net

$
(1,024
)

$
36,399


$
22,307Costs and expenses:Cost of goods sold


81



17,296



7,723Amortization and impairment of
    acquired product rights






2,360



2,360Research and development


(531
)


13,652



5,636Selling, general and administrative


230



36,016



21,023Total costs and expenses


(220
)


69,324



36,742Loss from discontinued operations

$
(1,244
)

$
(32,925
)

$
(14,435
)   ,
  Gain
    on Sale of Discontinued Operations
    Cash proceeds received from sale

$
120,000Note receivable from Valeant


2,130122,130Less
    Infergen®
    assets sold:Acquired product rights, net


(12,889
)Manufacturing technology rights


(16,832
)Inventories


(6,500
)Property and equipment, net


(271
)Less direct transaction costs:Legal, accounting and regulatory


(300
)Total

$
85,338   4.
    RESTRUCTURING
    CHARGES  ®
 74




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Restructuring








RestructuringLiabilities at








Liabilities atDecember 31,


Cash


Accrual


December 31,2005


Payments


Reversals


2006Workforce reduction

$
4,733


$
(4,653
)

$
(80
)

$
   5.  AMPHOTEC®
    AND ORITAVANCIN
  ® ® ® ® ®
  ® ®
     75




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    6.
    ACQUIRED
    PRODUCT RIGHTS  Marnac,
    Inc./KDL GmbH (Pirfenidone)
  disease-by-disease country-by-country paid-up,
  Amgen
    Inc. (Interferon Gamma)
  ®
  Shearwater
    Corporation (PEG-Alfacon-1)
  ®
  Genentech,
    Inc. License Agreement
    (Actimmune®)
  ®
 76




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ® ® ® ® ® ® ® ® ®
  Connetics
    Corporation
    (Actimmune®)
  ® ® ® ®
  7.
    SPONSORED
    RESEARCH, LICENSE AND COLLABORATION AGREEMENTS  Roche
    (Protease Inhibitors)
    50-50
 77




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
  Novartis
    Corporation (formerly Chiron Corporation) (Small Molecule
    Therapeutics)
    Array
    BioPharma Inc. (Small Molecule Therapeutics)
    Maxygen
    Holdings Ltd. (Next-Generation Interferon Gamma)
  ®
 78




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Boehringer
    Ingelheim International GmbH
    (Imukin®)
  ® ® ® and/or country-by-country ®
  Funding
    Commitments
   79




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    AVAILABLE-FOR-SALE
    INVESTMENTS  available-for-sale
  Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueDecember 31, 2006Obligations of
    government-sponsored enterprises

$
111,487


$
16


$
(72
)

$
111,431Corporate debt securities


41,070



5



(5
)


41,070Auction rate preferred stock and
    other debt securities


49,607







(16
)


49,591Total

$
202,164


$
21


$
(93
)

$
202,092   Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueReported as:Cash equivalents

$
96,915


$
18


$
(4
)

$
96,929Available-for-sale
    securities


105,249



3



(89
)


105,163Total

$
202,164


$
21


$
(93
)

$
202,092   Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueDecember 31, 2005Obligations of
    government-sponsored enterprises

$
46,865


$
6


$
(57
)

$
46,814Corporate debt securities


30,531



5



(19
)


30,517Auction rate preferred stock and
    other debt securities


8,727











8,727Total

$
86,123


$
11


$
(76
)

$
86,058   Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueReported as:Cash equivalents

$
57,858


$
11


$
(1
)

$
57,868Available-for-sale
    securities


28,265







(75
)


28,190Total

$
86,123


$
11


$
(76
)

$
86,058    80




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   available-for-sale
  December 31, 2006AmortizedCost


Fair ValueMature in less than one year

$
172,827


$
172,801Mature in one to three years


29,337



29,291Mature in over three years






Total

$
202,164


$
202,092   9.
    BALANCE
    SHEET DETAIL    2006


2005Finished goods

$
8,188


$
12,437Total

$
8,188


$
12,437       2006


2005Computer and laboratory equipment

$
9,444


$
6,125Office furniture and fixtures


3,693



3,577Leasehold improvements


9,139



8,12222,276



17,824Less accumulated depreciation and
    amortization


(13,066
)


(10,550
)Total

$
9,210


$
7,274     2006


2005Accrued clinical trial costs

$
7,654


$
8,289Royalties payable


1,955



7,061Liability under government
    settlement  current


4,575



Deferred collaboration
    revenue  current


2,802



Medicaid rebates


534



1,424Provision for returns and rebates


1,174



1,366Accrued interest


142



142Accrued research and development


2,733



271Other accrued liabilities


1,981



3,436Total other accrued liabilities

$
23,550


$
21,989  81




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10.
    COMPREHENSIVE
    INCOME (LOSS)  available-for-sale
  Year Ended December 31,2006


2005


2004Net loss

$
(107,206
)

$
(5,235
)

$
(59,478
)Change in unrealized gain/(loss)
    on
    available-for-sale
    securities


(7
)


173



(638
)Change in realized and unrealized
    gain on foreign currency hedge


(607
)


(1,005
)


1,824Comprehensive loss

$
(107,820
)

$
(6,067
)

$
(58,292
)     December 31,2006


2005Net unrealized loss on
    available-for-sale
    securities

$
(72
)

$
(65
)Gain on foreign currency hedge


212



819Accumulated other comprehensive
    income

$
140


$
754   11.
    CONVERTIBLE
    SUBORDINATED NOTES    12.
    CONVERTIBLE
    SENIOR NOTES   82




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   13.
    STOCKHOLDERS
    EQUITY  Employee
    Stock Purchase Plan
    Restricted
    Stock Awards
      Weighted-AverageGrant Date FairRestricted Stock Awards

Shares


ValueNonvested at January 1, 2006


175,651


$
16.02Granted


424,450



19.43Vested


(161,959
)


18.08Forfeited


(92,774
)


17.77Nonvested at December 31, 2006


345,368


$
18.78   Stock
    Compensation Plans
   83




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Outstanding OptionsShares





WeightedAvailable for


Number of


Average ExerciseGrant


Shares


Price per ShareBalance at December 31, 2003


1,311,685



5,727,992


$
27.52Authorized


1,550,000







Shares terminated under 1999 plan
    and not available for future grants


(13,667
)






Granted


(1,603,077
)


1,603,077


$
13.79Restricted shares granted


(525,600
)






Forfeited stock options


2,276,414



(2,276,414
)

$
29.02Restricted shares forfeited


74,620







Exercised






(109,203
)

$
8.04Balance at December 31, 2004


3,070,375



4,945,452


$
22.81Granted


(2,317,724
)


2,317,724


$
12.44Forfeited stock options


795,980



(795,980
)

$
21.88Restricted shares forfeited


152,275







Exercised






(18,166
)

$
12.95Balance at December 31, 2005


1,700,906



6,449,030


$
19.22Granted


(1,406,716
)


1,406,716


$
16.15Restricted shares granted


(424,450
)






Forfeited stock options


1,240,435



(1,240,435
)

$
25.10Restricted shares forfeited


92,774







Exercised






(1,225,763
)

$
15.18Balance at December 31, 2006


1,202,949



5,389,548


$
17.99  84




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Options Outstanding


Options ExercisableWeighted


Weighted





WeightedAverage


Average





AverageNumber of


Remaining


Exercise


Number of


ExerciseRange of Exercise Prices

Shares


Contractual Life


Price


Shares


Price$ 4.50 - $12.74


1,763,940



8.01


$
11.45



833,423


$
11.09$12.95 - $16.40


1,355,190



9.09


$
15.09



256,777


$
14.74$16.42 - $23.16


1,347,815



7.32


$
19.68



876,234


$
19.88$23.50 - $53.00


922,603



5.39


$
32.27



922,431


$
32.275,389,548



7.66


$
17.99



2,888,865


$
20.85     Stockholder
    Rights Agreement
     85




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reserved
    Shares
    Common stock issuable upon
    conversion of convertible senior notes


7,858,811Outstanding common stock options


5,389,548Common stock available for grant
    under stock option plans


1,202,949Common stock available for grant
    under the 2000 Employee Stock Purchase Plan


1,003,632Total


15,454,940   Valuation
    and Expense Information under SFAS 123(R)
      
    Previously under SFAS 123, we estimated volatility using
    only our historical share price performance over the expected
    life of the option. Under SFAS No. 123(R), however,
    the Company, with the assistance of an outside consulting
    service, has refined its valuation methodology and estimated
    expected volatility using a blend of implied volatility based on
    market-traded options on the Companys common stock and
    historical volatility of the Companys common stock over
    the contractual life of the options
    The risk-free interest rate is based on the U.S. Treasury
    yield curve in effect at the time of grant for periods within
    the contractual life of the option.
    The expected life of options granted represents the period of
    time the options are expected to be outstanding. The Company has
    applied the provisions of SAB 107 to determine the expected
    term.
    The expected dividend yield is based on the Companys
    current dividend yield as the best estimate of projected
    dividend yield for periods within the contractual life of the
    option. 86




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year EndedDecember 31,2006Expected stock price volatility


56
%Risk-free interest rate


5.0
%Expected term (in years)


6.0Expected dividend yield


       Year EndedDecember 31,2006Expected stock price volatility


65
%Risk-free interest rate


4.1
%Expected term (in years)


1.8Expected dividend yield


       Pro
    Forma Information under SFAS 123 for Periods Prior to
    January 1, 2006
    Year EndedDecember 31,2005


2004Net loss, as reported

$
(5,235
)

$
(59,478
)Add: Stock-based employee
    compensation expense, included in reported net loss


2,960



1,081Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards


(17,003
)


(9,549
)Pro forma net loss

$
(19,278
)

$
(67,946
)Net loss per share:Basic and diluted  as
    reported

$
(0.16
)

$
(1.87
)Basic and diluted  pro
    forma

$
(0.60
)

$
(2.14
)  87




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2005


2004Expected stock price volatility


72
%


74
%Risk-free interest rate


4.0
%


3.6
%Expected term (in years)


6.5



6.0Expected dividend yield






       Year EndedDecember 31,2005


2004Expected stock price volatility


75
%


80
%Risk-free interest rate


3.0
%


2.5
%Expected term (in years)


2.0



2.0Expected dividend yield






     14.
    INCOME
    TAXES      2006


2005Deferred tax assets:Net operating loss carryforwards

$
171,000


$
139,000Research and development credits


22,000



17,000Capitalized research and
    development costs


12,000



12,000Other, net


47,000



26,000Total deferred tax assets


252,000



194,000Valuation allowance


(252,000
)


(194,000
)Net deferred tax assets

$



$
    88




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           15.
    COMMITMENTS
    AND CONTINGENCIES  Leases
      OperatingYear

Leases2007

$
4,3742008


4,6172009


4,6592010


4,8032011


1,578Thereafter


$
20,031    89




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Purchase
    Commitments
  ® ® ® ® ® ® ® ® ®
  Contingent
    Payments
    Department
    of Justice Settlement
  ® ® ®
   90




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    ®
      Year

Principal


Interest


Total2007

$
4,309


$
1,597


$
5,9062008


5,073



1,427



6,5002009


5,826



1,174



7,0002010


8,118



882



9,0002011


9,524



476



10,000Total

$
32,850


$
5,556


$
38,406   16.
    DISCLOSURES
    ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
    INFORMATION  ® ® ® ®
    2006


2005


2004Actimmune®

$
90,317


$
107,633


$
124,980Other products






2,863



3,700Collaboration revenue


467







Totals

$
90,784


$
110,496


$
128,680  91




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004United States

$
90,185


$
110,017


$
126,288Rest of world


599



479



2,392Totals

$
90,784


$
110,496


$
128,680       Customer

2006


2005


2004CuraScript, Inc (formerly Priority
    Healthcare)


57
%


59
%


61
%Caremark


22
%


21
%


14
%Merck Medco


11
%


7
%


11
%   17.
    RELATED
    PARTY TRANSACTIONS    18.
    EMPLOYEE
    SAVINGS PLAN  length-of-service
 92




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   19.
    GUARANTEES
    AND INDEMNIFICATIONS  Guarantors Accounting and Disclosure Requirements
    for Guarantees, including Indirect Guarantees of Indebtedness of
    Others
    20.
    SUBSEQUENT
    EVENT  ® ®
    2006Finished goods inventory

$
8,188Acquired product rights, net


1,167Total

$
9,355    93




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  21.
    QUARTERLY
    FINANCIAL DATA (Unaudited)  First


Second


Third


Fourth


TotalQuarter


Quarter


Quarter


Quarter


Year(In thousands, except per share amounts)2006Revenue, netActimmune

$
24,356


$
24,111


$
22,496


$
19,354


$
90,317Collaboration revenue














467



467Total revenue, net

$
24,356


$
24,111


$
22,496


$
19,821


$
90,784Cost of goods sold

$
6,248


$
5,013


$
4,421


$
8,426


$
24,108Provision for settlement






30,000



6,944







36,944Loss from operations


(14,283
)


(45,881
)


(30,290
)


(24,535
)


(114,989
)Loss from continuing operations


(12,532
)


(44,018
)


(28,361
)


(21,051
)


(105,962
)Income (loss) from discontinued
    operations


(254
)


38



(623
)


(405
)


(1,244
)Net income (loss)


(12,786
)


(43,980
)


(28,984
)


(21,456
)


(107,206
)Basic and diluted net loss per
    share:Continuing operations

$
(0.38
)

$
(1.33
)

$
(0.86
)

$
(0.63
)

$
(3.18
)Discontinued operations


(0.01
)






(0.02
)


(0.01
)


(0.04
)Net loss per share

$
(0.39
)

$
(1.33
)

$
(0.88
)

$
(0.64
)

$
(3.22
)2005Revenue, netActimmune

$
27,705


$
25,892


$
25,793


$
28,243


$
107,633Others


642



782



667



772



2,863Total revenue, net

$
28,347


$
26,674


$
26,460


$
29,015


$
110,496Cost of goods sold

$
6,585


$
7,535


$
12,487


$
7,235


$
33,842Restructuring charges














5,549



5,549Loss from operations


(11,623
)


(15,068
)


(19,770
)


(15,204
)


(61,665
)Loss from continuing operations


(10,227
)


(14,566
)


(18,741
)


(14,114
)


(57,648
)Loss from discontinued operations


(7,179
)


(9,162
)


(5,027
)


73,781



52,413Net income (loss)


(17,406
)


(23,728
)


(23,768
)


59,667



(5,235
)Basic and diluted net loss per
    share:Continuing operations

$
(0.32
)

$
(0.45
)

$
(0.58
)

$
(0.44
)

$
(1.79
)Discontinued operations


(0.22
)


(0.29
)


(0.16
)


2.28



1.63Net income (loss) per share

$
(0.54
)

$
(0.74
)

$
(0.74
)

$
1.84


$
(0.16
)  94




---



##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURES    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation of Disclosure Controls and
    Procedures. Rule 13a-15(e)
  Form 10-K,
  Managements Report on Internal Control Over Financial
    Reporting. Rule 13a-15(f)
  Internal Control  Integrated Framework.
   95




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Form 10-K,
            /s/  ERNST &
    YOUNG LLP    96




---



##### Table of Contents



Changes in Internal Control over Financial
    Reporting.
  Limitations on the Effectiveness of
    Controls.
  ITEM 9B.
    OTHER
    INFORMATION.   PART III  Form 10-K Form 10-K,
  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Identification
    of Directors and Executive Officers
  Form 10-K.
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Code
    of Business Conduct and Ethics
    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS   97




---



##### Table of Contents



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  (a) The following documents are filed as part of this
    Annual Report on
    Form 10-K:
  Financial Statements
  Form 10-K.
  Financial Statement Schedules
  Form 10-K.
 98




---



##### Table of Contents



Schedule II
  InterMune,
    Inc.
  Valuation
    and Qualifying Accounts and Reserves
 Years
    ended December 31, 2006, 2005 and 2004
  Balance at


Charged toBeginning of


Revenue or





Balance atDescription

Year


Expense


Utilizations


End of YearAllowance for cash
    discounts:Year ended December 31, 2006

$
337


$
1,887


$
(2,060
)

$
164Year ended December 31, 2005


526



3,108



(3,297
)


337Year ended December 31, 2004


358



3,151



(2,983
)


526Allowance for doubtful
    accounts:Year ended December 31, 2006

$
108


$



$
(108
)

$
Year ended December 31, 2005


94



43



(29
)


108Year ended December 31, 2004


50



44







94  99




---



##### Table of Contents



Exhibits
  Number

Description of Document3
.1

Certificate of Incorporation of
    Registrant.(1)3
.2

Certificate of Ownership and
    Merger, dated April 26, 2001.(10)3
.3

Bylaws of Registrant.(1)3
.4

Certificate of Amendment of
    Certificate of Incorporation of Registrant.(16)3
.5

Certificate of Amendment of
    Amended and Restated Certificate of Incorporation of
    Registrant.(24)3
.6

Registrants Certificate of
    Designation of Series A Junior Participating Preferred
    Stock.(8)4
.1

Specimen Common Stock
    Certificate.(1)4
.6

Indenture, dated as of
    February 17, 2004, between Registrant and The Bank of New
    York.(20)4
.7

Registration Rights Agreement,
    dated as of February 17, 2004, among Registrant, Morgan
    Stanley & Co. Incorporated, Banc of America Securities
    LLC, Credit Suisse First Boston LLC, Harris Nesbitt Corp. and
    RBC Capital Markets Corporation.(20)10
.1+

Form of Indemnity Agreement.(1)10
.2+

1999 Equity Incentive Plan and
    related documents.(1)10
.3+

Stock option grant notice, stock
    option agreement and notice of exercise for Amended and Restated
    2000 Equity Incentive Plan.(2)10
.4+

2000 Employee Stock Purchase Plan
    and related documents.(1)10
.5+

Annual stock option grant notice
    and initial stock option grant notice for Amended and Restated
    2000 Non-Employee Directors Stock Option Plan.(14)10
.6

Amended and Restated Investor
    Rights Agreement, dated January 7, 2000, between Registrant
    and certain holders of the common stock.(1)10
.7

Rights Agreement, dated
    July 17, 2001, between Registrant and Mellon Investor
    Services LLC.(8)10
.8

Preliminary Stipulation of
    Settlement Agreement, dated May 6, 2005.(27)10
.19*

Data Transfer, Clinical Trial, and
    Market Supply Agreement, dated January 27, 2000, between
    the Registrant and Boehringer Ingelheim.(1)10
.20+

Form of Change of Control
    Provisions for Officers.(3)10
.24

Assignment and Option Agreement,
    dated June 23, 2000, between Registrant and Connetics
    Corporation.(4)10
.25

Consent to Assignment Agreement,
    dated June 23, 2000, between Registrant, Connetics
    Corporation and Genentech, Inc.(4)10
.27

Notice re: Return of Rights to
    Gamma Interferon for Treatment of Infectious Diseases in Japan,
    dated July 25, 2000, between Registrant and Genentech,
    Inc.(4)10
.29

Form of Common Stock Purchase
    Agreement, dated August 11, 2000, between the Company and
    Investors.(5)10
.31

Lease Agreement, dated
    December 18, 2000, between Registrant and GAL-BRISBANE,
    L.P.(6)10
.32

First Amendment to Brisbane
    Technology Park Lease, effective as of December 18, 2000,
    between Registrant and GAL-BRISBANE, L.P.(6)10
.34

Product Acquisition Agreement,
    dated January 2, 2001, between Registrant and ALZA
    Corporation.(7)10
.35

Development and Marketing
    Agreement, dated March 23, 2001, between Registrant and
    Boehringer Ingelheim International GmbH.(7)10
.38

Amendment No. 5, dated
    January 25, 2001, to License Agreement, dated May 5,
    1998, between Registrant and Genentech, Inc.(7)10
.39*

License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen, Inc.(9)10
.40

Letter Amendment, dated
    August 1, 2001, to Development and Marketing Agreement,
    dated March 23, 2001, between Registrant and Boehringer
    Ingelheim International GmbH.(10)10
.42*

Asset Purchase and License
    Agreement, dated September 19, 2001, between Registrant and
    Eli Lilly and Company.(10) 100




---



##### Table of Contents



Number

Description of Document10
.43*

Development and Supply Agreement,
    dated December 28, 2001, between Registrant and Abbott
    Laboratories.(11)10
.47+

Employment Offer Letter, dated
    April 5, 2002, between Registrant and Marianne
    Armstrong, Ph.D.(12)10
.48+

Bonus Plan Memorandum, dated
    April 18, 2002, from Registrant to Marianne
    Armstrong, Ph.D.(12)10
.49+

Secured Promissory Note, dated
    May 1, 2002, between Registrant and Marianne
    Armstrong, Ph.D.(12)10
.50*

Amendment No. 1, dated
    April 26, 2002, to the Development and Supply Agreement,
    dated December 28, 2001, between Registrant and Abbott
    Laboratories.(12)10
.51*

Amendment No. 1, dated
    April 25, 2002, to the License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc.(12)10
.52*

First Amendment, dated
    June 19, 2002, to the Data Transfer, Clinical Trial and
    Market Supply Agreement, dated January 27, 2000, between
    Registrant and Boehringer Ingelheim International GmbH.(12)10
.53

Letter Amendment, dated
    May 28, 2002, to Development and Marketing Agreement, dated
    March 23, 2001, between Registrant and Boehringer Ingelheim
    International GmbH.(12)10
.54

Letter Amendment, dated
    July 1, 2002, to Development and Marketing Agreement, dated
    March 23, 2001, between Registrant and Boehringer Ingelheim
    International GmbH.(12)10
.57*

Amendment No. 4, dated
    January 28, 2003, to Development and Marketing Agreement,
    dated March 23, 2001, between Registrant and Boehringer
    Ingelheim International GmbH.(14)10
.58+

Employment Offer Letter, dated
    April 30, 2002, between Registrant and Lawrence M.
    Blatt, Ph.D.(15)10
.59+

Bonus Plan Memorandum, dated
    May 22, 2002, from Registrant to Lawrence M.
    Blatt, Ph.D.(15)10
.60+

Promissory Note, dated
    May 22, 2002, between Registrant and Lawrence M.
    Blatt, Ph.D.(15)10
.64*

Amendment No. 2 to Data
    Transfer, Clinical Trial and Market Supply Agreement, dated
    January 27, 2000, between Registrant and Boehringer
    Ingelheim Austria, GmbH.(17)10
.65+

Employment Offer Letter, dated
    September 24, 2003, between Registrant and Daniel G.
    Welch.(16)10
.68*

License Agreement, dated
    March 29, 2002, among Registrant, Marnac, Inc., KDL, Inc.,
    KDL GmbH, Dr. Solomon Margolin and Dr. Shitotomo
    Yamauchi.(20)10
.69+

Stock Bonus Award Agreement, dated
    November 5, 2003, between Registrant and William R.
    Ringo, Jr.(18)10
.74

Aralast Promotion Agreement, dated
    as of March 26, 2004, by and between Registrant and Baxter
    Healthcare Corporation.(22)10
.79

Amended and Restated Standstill
    Agreement, dated October 29, 2004, among Registrant,
    Warburg Pincus & Co. and certain affiliates of Warburg
    Pincus & Co.(26)10
.80

Registration Rights Agreement,
    dated October 29, 2004, among Registrant, Warburg
    Pincus & Co. and certain affiliates of Warburg
    Pincus & Co.(26)10
.81

Amendment, dated October 29,
    2004 to Rights Agreement, dated July 17, 2001, between
    Registrant and Mellon Investor Services LLC.(26)10
.82+

Employment Offer Letter Agreement,
    dated October 29, 2004 and effective as of November 1,
    2004, between Registrant and Cynthia Robinson.(26)10
.83+

Employment Offer Letter Agreement,
    dated June 13, 2001, between Registrant and Williamson
    Bradford, M.D., Ph.D.(28)10
.84+

Employment Offer Letter Agreement,
    dated May 14, 2004, between Registrant and Thomas
    Kassberg.(28)10
.85+

Employment Offer Letter Agreement,
    dated June 1, 2001, between Registrant and Steven
    Porter, M.D., Ph.D. (28)10
.86+

Employment Offer Letter Agreement,
    dated August 9, 2004, between Registrant and Robin Steele.
    (28)10
.87+

Salary Information for Executive
    Officers. (28)10
.88+

Compensation Arrangements with
    Non-Employee Directors. (28) 101




---



##### Table of Contents



Number

Description of Document10
.89+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated August 18, 2004,
    between Registrant and Marianne Armstrong, Ph.D. (28)10
.90+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated August 18, 2004,
    between Registrant and Lawrence M. Blatt, Ph.D. (28)10
.91+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated July 27, 2004,
    between Registrant and Williamson
    Bradford, M.D., Ph.D. (28)10
.93+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated August 10, 2004,
    between Registrant and Thomas Kassberg. (28)10
.94+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated July 26, 2004,
    between Registrant and Steven Porter, M.D., Ph.D. (28)10
.95+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated July 27, 2004,
    between Registrant and Howard A. Simon, Esq. (28)10
.96*

Amendment No. 2, dated
    December 31, 2004, to the License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc. (28)10
.97*

Amendment No. 3, dated
    December 31, 2004, to the License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc. (28)10
.98**

Amendment No. 3, dated
    July 26, 2005, to Data Transfer, Clinical Trial and Market
    Supply Agreement, dated January 27, 2000, between
    Registrant and Boehringer Ingelheim Austria, GmbH.(29)10
.99**

Data Transfer, Clinical Trial and
    Market Supply Agreement, dated November 3, 2005, between
    Registrant and Boehringer Ingelheim Austria, GmbH.(31)10
.100**

Product Acquisition Agreement,
    dated November 28, 2005, between Registrant and Valeant
    Pharmaceuticals North America.(30)10
.101**

Amendment Number 3, dated
    December 22, 2005, to Development and Supply Agreement
    dated December 28, 2001, between Registrant and Abbott
    Laboratories.(31)10
.102**

Amendment Number 4, dated
    December 22, 2005, to License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc.(31)10
.103**

Asset Purchase Agreement dated
    December 23, 2005, between Registrant and Targanta
    Therapeutics Corporation.(31)10
.104**

License Agreement, dated
    December 23, 2005, between Registrant and Eli
    Lilly & Company.(31)10
.105+

Severance Agreement and General
    Release, dated January 6, 2006, between Registrant and
    Roger L. Hawley.(31)10
.106**

Amendment No. 6, dated
    February 27, 2006, to License Agreement dated May 5,
    1998, between Registrant and Genentech, Inc.(31)10
.107+

Amended and Restated 2000 Equity
    Incentive Plan.(31)10
.108+

Amended and Restated 2000
    Non-Employee Directors Stock Option Plan.(31)10
.109**

Exclusive License and
    Collaboration Agreement dated October 16, 2006 between
    Registrant and Hoffmann-La Roche, Inc. and F.
    Hoffmann-La Roche Ltd. (32)10
.110**

Amendment No. 4, dated
    December 21, 2006, to Data Transfer, Clinical Trial and
    Market Supply Agreement, dated January 27, 2000, between
    Registrant and Boehringer Ingelheim Austria, GmbH.(32)10
.111

Deferred Prosecution Agreement
    between Registrant and the United States Attorneys Office
    for the Northern District of California (32)10
.112

Civil Settlement Agreement between
    Registrant and the United States Department of Justice and the
    United States Attorneys Office for the Northern District
    of California (32)10
.113

Corporate Integrity Agreement
    between Registrant and the Office of the Inspector General of
    the United States Department of Health and Human Services (32)21
.1

List of Subsidiaries(32)23
.1

Consent of Independent Registered
    Public Accounting Firm(32)24
.1

Power of Attorney (included on the
    signature pages hereto)31
.1

Certification required by
    Rule 13a-14(a)
    or
    Rule 15d-14(a)(32) 102




---



##### Table of Contents



Number

Description of Document31
.2

Certification required by
    Rule 13a-14(a)
    or
    Rule 15d-14(a)(32)32
.1

Certification required by
    Rule 13a-14(b)
    or
    Rule 15d-14(b)
    and Section 1350 of Chapter 63 of Title 18 of the
    United States Code (18 U.S.C. §1350)(32)     *
    
    Confidential treatment has been granted with respect to certain
    portions of this exhibit. Omitted portions have been filed
    separately with the Securities and Exchange Commission.**
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the Securities and Exchange Commission.+
    
    Management contract or compensation plan or arrangement.
    
    This certification accompanies the Periodic Report pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 and shall not
    be deemed filed by the Company for purposes of
    Section 18 of the Securities Exchange Act of 1934, as
    amended.(1)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    February 2, 2000
    (No. 333-96029),
    as amended by Amendment No. 1 filed with the Commission on
    February 18, 2000, as amended by Amendment No. 2 filed
    with the Commission on March 6, 2000, as amended by
    Amendment No. 3 filed with the Commission on March 22,
    2000, as amended by Amendment No. 4 filed with the
    Commission on March 23, 2000 and as amended by Amendment
    No. 5 filed with the Commission on March 23, 2000.(2)
    
    Incorporated by reference to pages 16 through 26 of
    Exhibit 10.3 to Amendment No. 1 to the
    Registrants Registration Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    February 18, 2000
    (No. 333-45460).(3)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2000.(4)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000.(5)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on August 23, 2000.(6)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000.(7)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2001.(8)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on July 18, 2001.(9)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001.(10)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.(11)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001.(12)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2002.(13)
    
    Incorporated by reference to pages following page 10 of
    Exhibit 10.5 to Amendment No. 1 to the
    Registrants Registration Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    February 18, 2000
    (No. 333-45460).(14)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2003.(15)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2003.(16)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2003.(17)
    
    Filed as an exhibit to the Registrants amended Quarterly
    Report on
    Form 10-Q/A
    (Amendment No. 1) filed for the quarter ended
    September 30, 2003.(18)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003.(19)
    
    Filed as an exhibit to the Registrants amended Annual
    Report on
    Form 10-K/A
    (Amendment No. 1) for the year ended December 31,
    2003. 103




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##### Table of Contents



(20)
    
    Filed as an exhibit to the Registrants amended Annual
    Report on
    Form 10-K/A
    (Amendment No. 2) for the year ended December 31,
    2003.(21)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2004.(22)
    
    Filed as an exhibit to the Registrants amended Quarterly
    Report on
    Form 10-Q/A
    (Amendment No. 1) filed for the quarter ended
    March 31, 2004.(23)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2004.(24)
    
    Filed as an exhibit to the Registrants amended Quarterly
    Report on
    Form 10-Q/A
    (Amendment No. 1) filed for the quarter ended
    June 30, 2004.(25)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2004.(26)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on November 4, 2004.(27)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2005.(28)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004.(29)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2005.(30)
    
    Incorporated by reference to Exhibit 2.1 of
    Form 8-K
    (File
    No. 001-11397)
    filed by Valeant Pharmaceuticals International, the parent
    company of Valeant Pharmaceuticals North America on
    January 5, 2006.(31)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.(32)
    
    Filed herewith.  Exhibits
    Financial Statement Schedules
   104




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##### Table of Contents



SIGNATURES    InterMune, Inc.
  By:
    /s/  JOHN
    C. HODGMAN   Senior Vice President of Finance Administration
 and Chief Financial Officer
    POWER OF
    ATTORNEY
  attorneys-in-fact Form 10-K, attorneys-in-fact attorneys-in-fact
    Signatures

Title

Date/s/  William
    R.
    Ringo, Jr.William
    R. Ringo, Jr.

Chairman of the Board of Directors

March 26, 2007/s/  Daniel
    G. WelchDaniel
    G. Welch

President and Chief Executive
    Officer and Director (Principal Executive Officer)

March 26, 2007/s/  John
    C. HodgmanJohn
    C. Hodgman

Senior Vice President of Finance
    Administration and Chief Financial Officer (Principal Financial
    Officer)

March 26, 2007/s/  Bruce
    W.
    TomlinsonBruce
    W. Tomlinson

Vice President, Controller and
    Principal Accounting Officer

March 26, 2007/s/  Lars
    EkmanLars
    Ekman

Director

March 26, 2007/s/  James
    I. HealyJames
    I. Healy

Director

March 26, 2007 105




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##### Table of Contents



Signatures

Title

Date/s/  David
    S. KabakoffDavid
    S. Kabakoff

Director

March 26, 2007/s/  Jonathan
    S. LeffJonathan
    S. Leff

Director

March 26, 2007/s/  Michael
    L. SmithMichael
    L. Smith

Director

March 26, 2007  106




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##### Table of Contents



EXHIBIT INDEX
  Number

Description of Document3
.1

Certificate of Incorporation of
    Registrant.(1)3
.2

Certificate of Ownership and
    Merger, dated April 26, 2001.(10)3
.3

Bylaws of Registrant.(1)3
.4

Certificate of Amendment of
    Certificate of Incorporation of Registrant.(16)3
.5

Certificate of Amendment of
    Amended and Restated Certificate of Incorporation of
    Registrant.(24)3
.6

Registrants Certificate of
    Designation of Series A Junior Participating Preferred
    Stock.(8)4
.1

Specimen Common Stock
    Certificate.(1)4
.6

Indenture, dated as of
    February 17, 2004, between Registrant and The Bank of New
    York.(20)4
.7

Registration Rights Agreement,
    dated as of February 17, 2004, among Registrant, Morgan
    Stanley & Co. Incorporated, Banc of America Securities
    LLC, Credit Suisse First Boston LLC, Harris Nesbitt Corp. and
    RBC Capital Markets Corporation.(20)10
.1+

Form of Indemnity Agreement.(1)10
.2+

1999 Equity Incentive Plan and
    related documents.(1)10
.3+

Stock option grant notice, stock
    option agreement and notice of exercise for Amended and Restated
    2000 Equity Incentive Plan.(2)10
.4+

2000 Employee Stock Purchase Plan
    and related documents.(1)10
.5+

Annual stock option grant notice
    and initial stock option grant notice for Amended and Restated
    2000 Non-Employee Directors Stock Option Plan.(14)10
.6

Amended and Restated Investor
    Rights Agreement, dated January 7, 2000, between Registrant
    and certain holders of the common stock.(1)10
.7

Rights Agreement, dated
    July 17, 2001, between Registrant and Mellon Investor
    Services LLC.(8)10
.8

Preliminary Stipulation of
    Settlement Agreement, dated May 6, 2005.(27)10
.19*

Data Transfer, Clinical Trial, and
    Market Supply Agreement, dated January 27, 2000, between
    the Registrant and Boehringer Ingelheim.(1)10
.20+

Form of Change of Control
    Provisions for Officers.(3)10
.24

Assignment and Option Agreement,
    dated June 23, 2000, between Registrant and Connetics
    Corporation.(4)10
.25

Consent to Assignment Agreement,
    dated June 23, 2000, between Registrant, Connetics
    Corporation and Genentech, Inc.(4)10
.27

Notice re: Return of Rights to
    Gamma Interferon for Treatment of Infectious Diseases in Japan,
    dated July 25, 2000, between Registrant and Genentech,
    Inc.(4)10
.29

Form of Common Stock Purchase
    Agreement, dated August 11, 2000, between the Company and
    Investors.(5)10
.31

Lease Agreement, dated
    December 18, 2000, between Registrant and GAL-BRISBANE,
    L.P.(6)10
.32

First Amendment to Brisbane
    Technology Park Lease, effective as of December 18, 2000,
    between Registrant and GAL-BRISBANE, L.P.(6)10
.34

Product Acquisition Agreement,
    dated January 2, 2001, between Registrant and ALZA
    Corporation.(7)10
.35

Development and Marketing
    Agreement, dated March 23, 2001, between Registrant and
    Boehringer Ingelheim International GmbH.(7)10
.38

Amendment No. 5, dated
    January 25, 2001, to License Agreement, dated May 5,
    1998, between Registrant and Genentech, Inc.(7)10
.39*

License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen, Inc.(9)10
.40

Letter Amendment, dated
    August 1, 2001, to Development and Marketing Agreement,
    dated March 23, 2001, between Registrant and Boehringer
    Ingelheim International GmbH.(10)10
.42*

Asset Purchase and License
    Agreement, dated September 19, 2001, between Registrant and
    Eli Lilly and Company.(10)




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##### Table of Contents



Number

Description of Document10
.43*

Development and Supply Agreement,
    dated December 28, 2001, between Registrant and Abbott
    Laboratories.(11)10
.47+

Employment Offer Letter, dated
    April 5, 2002, between Registrant and Marianne Armstrong,
    Ph.D.(12)10
.48+

Bonus Plan Memorandum, dated
    April 18, 2002, from Registrant to Marianne Armstrong,
    Ph.D.(12)10
.49+

Secured Promissory Note, dated
    May 1, 2002, between Registrant and Marianne Armstrong,
    Ph.D.(12)10
.50*

Amendment No. 1, dated
    April 26, 2002, to the Development and Supply Agreement,
    dated December 28, 2001, between Registrant and Abbott
    Laboratories.(12)10
.51*

Amendment No. 1, dated
    April 25, 2002, to the License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc.(12)10
.52*

First Amendment, dated
    June 19, 2002, to the Data Transfer, Clinical Trial and
    Market Supply Agreement, dated January 27, 2000, between
    Registrant and Boehringer Ingelheim International GmbH.(12)10
.53

Letter Amendment, dated
    May 28, 2002, to Development and Marketing Agreement, dated
    March 23, 2001, between Registrant and Boehringer Ingelheim
    International GmbH.(12)10
.54

Letter Amendment, dated
    July 1, 2002, to Development and Marketing Agreement, dated
    March 23, 2001, between Registrant and Boehringer Ingelheim
    International GmbH.(12)10
.57*

Amendment No. 4, dated
    January 28, 2003, to Development and Marketing Agreement,
    dated March 23, 2001, between Registrant and Boehringer
    Ingelheim International GmbH.(14)10
.58+

Employment Offer Letter, dated
    April 30, 2002, between Registrant and Lawrence M. Blatt,
    Ph.D.(15)10
.59+

Bonus Plan Memorandum, dated
    May 22, 2002, from Registrant to Lawrence M. Blatt,
    Ph.D.(15)10
.60+

Promissory Note, dated
    May 22, 2002, between Registrant and Lawrence M. Blatt,
    Ph.D.(15)10
.64*

Amendment No. 2 to Data
    Transfer, Clinical Trial and Market Supply Agreement, dated
    January 27, 2000, between Registrant and Boehringer
    Ingelheim Austria, GmbH.(17)10
.65+

Employment Offer Letter, dated
    September 24, 2003, between Registrant and Daniel G.
    Welch.(16)10
.68*

License Agreement, dated
    March 29, 2002, among Registrant, Marnac, Inc., KDL, Inc.,
    KDL GmbH, Dr. Solomon Margolin and Dr. Shitotomo
    Yamauchi.(20)10
.69+

Stock Bonus Award Agreement, dated
    November 5, 2003, between Registrant and William R. Ringo,
    Jr.(18)10
.74

Aralast®
    Promotion Agreement, dated as of March 26, 2004, by and
    between Registrant and Baxter Healthcare Corporation.(22)10
.79

Amended and Restated Standstill
    Agreement, dated October 29, 2004, among Registrant,
    Warburg Pincus & Co. and certain affiliates of Warburg
    Pincus & Co.(26)10
.80

Registration Rights Agreement,
    dated October 29, 2004, among Registrant, Warburg
    Pincus & Co. and certain affiliates of Warburg
    Pincus & Co.(26)10
.81

Amendment, dated October 29,
    2004 to Rights Agreement, dated July 17, 2001, between
    Registrant and Mellon Investor Services LLC.(26)10
.82+

Employment Offer Letter Agreement,
    dated October 29, 2004 and effective as of November 1,
    2004, between Registrant and Cynthia Robinson.(26)10
.83+

Employment Offer Letter Agreement,
    dated June 13, 2001, between Registrant and Williamson
    Bradford, M.D., Ph.D.(28)10
.84+

Employment Offer Letter Agreement,
    dated May 14, 2004, between Registrant and Thomas
    Kassberg.(28)10
.85+

Employment Offer Letter Agreement,
    dated June 1, 2001, between Registrant and Steven Porter,
    M.D., Ph.D. (28)10
.86+

Employment Offer Letter Agreement,
    dated August 9, 2004, between Registrant and Robin Steele.
    (28)10
.87+

Salary Information for Executive
    Officers. (28)10
.88+

Compensation Arrangements with
    Non-Employee Directors. (28)10
.89+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated August 18, 2004,
    between Registrant and Marianne Armstrong, Ph.D. (28)10
.90+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated August 18, 2004,
    between Registrant and Lawrence M. Blatt, Ph.D. (28)




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##### Table of Contents



Number

Description of Document10
.91+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated July 27, 2004,
    between Registrant and Williamson Bradford, M.D., Ph.D. (28)10
.93+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated August 10, 2004,
    between Registrant and Thomas Kassberg. (28)10
.94+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated July 26, 2004,
    between Registrant and Steven Porter, M.D., Ph.D. (28)10
.95+

Amendment to Offer Letter re
    Severance Pay and Change in Control, dated July 27, 2004,
    between Registrant and Howard A. Simon, Esq. (28)10
.96*

Amendment No. 2, dated
    December 31, 2004, to the License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc. (28)10
.97*

Amendment No. 3, dated
    December 31, 2004, to the License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc. (28)10
.98**

Amendment No. 3, dated
    July 26, 2005, to Data Transfer, Clinical Trial and Market
    Supply Agreement, dated January 27, 2000, between
    Registrant and Boehringer Ingelheim Austria, GmbH.(29)10
.99**

Data Transfer, Clinical Trial and
    Market Supply Agreement, dated November 3, 2005, between
    Registrant and Boehringer Ingelheim Austria, GmbH.(31)10
.100**

Product Acquisition Agreement,
    dated November 28, 2005, between Registrant and Valeant
    Pharmaceuticals North America.(30)10
.101**

Amendment Number 3, dated
    December 22, 2005, to Development and Supply Agreement
    dated December 28, 2001, between Registrant and Abbott
    Laboratories.(31)10
.102**

Amendment Number 4, dated
    December 22, 2005, to License and Commercialization
    Agreement, dated June 15, 2001, between Registrant and
    Amgen Inc.(31)10
.103**

Asset Purchase Agreement dated
    December 23, 2005, between Registrant and Targanta
    Therapeutics Corporation.(31)10
.104**

License Agreement, dated
    December 23, 2005, between Registrant and Eli
    Lilly & Company.(31)10
.105+

Severance Agreement and General
    Release, dated January 6, 2006, between Registrant and
    Roger L. Hawley.(31)10
.106**

Amendment No. 6, dated
    February 27, 2006, to License Agreement dated May 5,
    1998, between Registrant and Genentech, Inc.(31)10
.107+

Amended and Restated 2000 Equity
    Incentive Plan.(31)10
.108+

Amended and Restated 2000
    Non-Employee Directors Stock Option Plan.(31)10
.109**

Exclusive License and
    Collaboration Agreement dated October 16, 2006 between
    Registrant and Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche
    Ltd. (32)10
.110**

Amendment No. 4, dated
    December 21, 2006, to Data Transfer, Clinical Trial and
    Market Supply Agreement, dated January 27, 2000, between
    Registrant and Boehringer Ingelheim Austria, GmbH.(32)10
.111

Deferred Prosecution Agreement
    between Registrant and the United States Attorneys Office
    for the Northern District of California (32)10
.112

Civil Settlement Agreement between
    Registrant and the United States Department of Justice and the
    United States Attorneys Office for the Northern District
    of California (32)10
.113

Corporate Integrity Agreement
    between Registrant and the Office of the Inspector General of
    the United States Department of Health and Human Services (32)21
.1

List of Subsidiaries(32)23
.1

Consent of Independent Registered
    Public Accounting Firm(32)24
.1

Power of Attorney (included on the
    signature pages hereto)31
.1

Certification required by
    Rule 13a-14(a)
    or
    Rule 15d-14(a)(32)31
.2

Certification required by
    Rule 13a-14(a)
    or
    Rule 15d-14(a)(32)32
.1

Certification required by
    Rule 13a-14(b)
    or
    Rule 15d-14(b)
    and Section 1350 of Chapter 63 of Title 18 of the
    United States Code (18 U.S.C. §1350)(32)     *
    
    Confidential treatment has been granted with respect to certain
    portions of this exhibit. Omitted portions have been filed
    separately with the Securities and Exchange Commission.




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##### Table of Contents



**
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the Securities and Exchange Commission.+
    
    Management contract or compensation plan or arrangement.
    
    This certification accompanies the Periodic Report pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 and shall not
    be deemed filed by the Company for purposes of
    Section 18 of the Securities Exchange Act of 1934, as
    amended.(1)
    
    Filed as an exhibit to the Registrants Registration
    Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    February 2, 2000
    (No. 333-96029),
    as amended by Amendment No. 1 filed with the Commission on
    February 18, 2000, as amended by Amendment No. 2 filed
    with the Commission on March 6, 2000, as amended by
    Amendment No. 3 filed with the Commission on March 22,
    2000, as amended by Amendment No. 4 filed with the
    Commission on March 23, 2000 and as amended by Amendment
    No. 5 filed with the Commission on March 23, 2000.(2)
    
    Incorporated by reference to pages 16 through 26 of
    Exhibit 10.3 to Amendment No. 1 to the
    Registrants Registration Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    February 18, 2000
    (No. 333-45460).(3)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2000.(4)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000.(5)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on August 23, 2000.(6)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000.(7)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2001.(8)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on July 18, 2001.(9)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001.(10)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.(11)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001.(12)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2002.(13)
    
    Incorporated by reference to pages following page 10 of
    Exhibit 10.5 to Amendment No. 1 to the
    Registrants Registration Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    February 18, 2000
    (No. 333-45460).(14)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2003.(15)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2003.(16)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2003.(17)
    
    Filed as an exhibit to the Registrants amended Quarterly
    Report on
    Form 10-Q/A
    (Amendment No. 1) filed for the quarter ended
    September 30, 2003.(18)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003.(19)
    
    Filed as an exhibit to the Registrants amended Annual
    Report on
    Form 10-K/A
    (Amendment No. 1) for the year ended December 31,
    2003.(20)
    
    Filed as an exhibit to the Registrants amended Annual
    Report on
    Form 10-K/A
    (Amendment No. 2) for the year ended December 31,
    2003.(21)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2004.(22)
    
    Filed as an exhibit to the Registrants amended Quarterly
    Report on
    Form 10-Q/A
    (Amendment No. 1) filed for the quarter ended
    March 31, 2004.(23)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2004.(24)
    
    Filed as an exhibit to the Registrants amended Quarterly
    Report on
    Form 10-Q/A
    (Amendment No. 1) filed for the quarter ended
    June 30, 2004.




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##### Table of Contents



(25)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2004.(26)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on November 4, 2004.(27)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2005.(28)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004.(29)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2005.(30)
    
    Incorporated by reference to Exhibit 2.1 of
    Form 8-K
    (File
    No. 001-11397)
    filed by Valeant Pharmaceuticals International, the parent
    company of Valeant Pharmaceuticals North America on
    January 5, 2006.(31)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.(32)
    
    Filed herewith.