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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
 Form 10-KANNUAL 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, 2007oro

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

(IRS Employerincorporation or
    organization)

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 Inc.   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
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   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, 2007
  TABLE OF
    CONTENTS
   
 PART I.ITEM 1.


BUSINESS


1ITEM 1A.


RISK FACTORS


23ITEM 1B.


UNRESOLVED STAFF COMMENTS


43ITEM 2.


PROPERTIES


43ITEM 3.


LEGAL PROCEEDINGS


43ITEM 4.


SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS


43PART II.


44ITEM 5.


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


44ITEM 6.


SELECTED FINANCIAL DATA


46ITEM 7.


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


47ITEM 7A.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


59ITEM 8.


FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


61ITEM 9.


CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURES


98ITEM 9A.


CONTROLS AND PROCEDURES


98ITEM 9B.


OTHER INFORMATION


100PART III


100ITEM 10.


DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
    GOVERNANCE


100ITEM 11.


EXECUTIVE COMPENSATION


100ITEM 12.


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


100ITEM 13.


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
    AND DIRECTOR INDEPENDENCE


100ITEM 14.


PRINCIPAL ACCOUNTANT FEES AND SERVICES


101PART IV


101ITEM 15.


EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES


101SIGNATURES


106EXHIBIT 10.3EXHIBIT 10.4EXHIBIT 10.5EXHIBIT 10.58EXHIBIT 10.59EXHIBIT 10.60EXHIBIT 10.61EXHIBIT 10.62EXHIBIT 10.63EXHIBIT 10.64EXHIBIT 10.65EXHIBIT 10.66EXHIBIT 10.67EXHIBIT 10.68EXHIBIT 10.69EXHIBIT 10.70EXHIBIT 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;
    the market or markets for our products or product candidates;
    the ability of our products to treat patents in our markets;
    timing and expectations of our clinical trials and when our
    products or product candidates may be marketed;
    opportunities to establish development or commercial alliances;
    governmental regulation and approval;
    requirement of additional funding to complete research and
    development and commercialize products;
    liquidity and sufficiency of our cash resources;
    future revenue, including those from product sales and
    collaborations, adequacy of revenue reserve levels, future
    expenses, future financial performance and trends;
    our future research and development expenses and other
    expenses; and
    our operational and legal risks.    Overview
   1




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® ® ®
    2007


2006


2005(In thousands)Total revenue*

$
66,692


$
90,784


$
110,496Loss from continuing operations


(94,596
)


(105,962
)


(57,648
)Net loss


(89,602
)


(107,206
)


(5,235
)Total assets


262,445



257,583



266,242     *
    
    Total revenue for the year ended 2005 has been adjusted to
    reflect the reclassification of Infergen revenue into
    discontinued operations.  Approved
    Product
   2




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Product
    Development
        
    Pulmonology    in vitro
     3




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
    Hepatology         4




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in vitro and/or
  
    Ovarian
    Cancer  follow-up
  
    Other
    Assets    Product
    Development Status
    Preclinical


Phase I


Phase II


Phase IIIPulmonologyPirfenidone Idiopathic pulmonary
    fibrosis (CAPACITY)














XAnti-inflammatory/antifibrotic


XHepatologyITMN-191 Chronic hepatitis C program;
    protease inhibitor






XNext generation protease inhibitor


XSecond Target in hepatology


X   Our
    Strategy
      Focusing our Development Efforts in the Areas of Pulmonology
    and Hepatology.
 5




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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
  ®
  Development
    Programs
  Pulmonology
   6




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Idiopathic
    Pulmonary Fibrosis.
    Actimmune for Idiopathic Pulmonary
    Fibrosis.
  Pirfenidone
    for Idiopathic Pulmonary Fibrosis and Hermansky-Pudlak
    Syndrome.
       7




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Next-Generation
    Interferon Gamma
    Hepatology
    Protease
    Inhibitor Program
      Other
    Assets
   8




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Divesture
    of Oritavancin
    lock-up
  Divesture
    of Amphotec
    Discontinuation
    of Actimmune Trial for Ovarian Cancer.
  follow-up
 9




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License
    and Other Agreements
  Roche
    License and Collaboration Agreement (Protease
    Inhibitors)
    50-50 and/or
  Genentech,
    Inc. License Agreement (Actimmune)
   10




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Boehringer
    Ingelheim International GmbH (Imukin)
  and/or country-by-country
  Connetics
    Corporation (acquired by Stiefel Laboratories, Inc.)
    (Actimmune)
    Amgen
    Inc. (Infergen, PEG-Alfacon-1 and Interferon
    Gamma)
  PEG-Alfacon-1.
 11




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Marnac,
    Inc./KDL GmbH (Pirfenidone)
    Novartis
    Corporation (Small Molecule Therapeutics)
    Array
    BioPharma Inc. (Small Molecule Therapeutics)
      Shearwater
    Corporation (PEG-Alfacon-1)
   12




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Maxygen
    Holdings Ltd. (Next-Generation Interferon Gamma)
    Eli
    Lilly & Company (Oritavancin)
    ALZA
    Corporation (Amphotec)
    Manufacturing
    Boehringer
    Ingelheim Austria GmbH (Actimmune)
   13




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Amgen
    Inc. (Infergen)
    Boehringer
    Ingelheim Austria GmbH (Infergen)
    Cardinal
    Health PTS, Inc. (oritavancin and pirfenidone)
    ACIC
    Fine Chemical, Inc. and Signa C.V. (pirfenidone)
    Abbott
    Laboratories, Inc. (oritavancin)
    Ben
    Venue Laboratories Supply Agreement (Amphotec)
   14




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Patents
    and Proprietary Rights
    Actimmune
  and/or
  Pirfenidone
    Protease
    Inhibitors
    Other
    Intellectual Property
    Competition
  Actimmune
    for CGD and Severe Malignant Osteopetrosis
   15




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Pirfenidone
    for IPF
  ® ®
  Protease
    Inhibitor for HCV
    Commercial
    Operations, Product Distribution and Medical Affairs
  Reorganization
    of Commercial Operations
    Product
    Distribution
    Co-Promotion
  ®
  Medical
    Affairs
   16




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Sales by
    Geographic Region
    2007


2006


2005United States

$
53,321


$
90,185


$
110,017Rest of the world


13,371



599



479Totals*

$
66,692


$
90,784


$
110,496     *
    
    Total revenue for the year ended 2005 has 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.    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 17




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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.               18




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19




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Research
    and Development
    Facilities
    Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, http://www.intermune.com, (415) 466-2242 e-mail ir@intermune.com.
 20




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Executive
    Officers of the Registrant
    Name

Age

TitleDaniel G. Welch


50


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


53


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


46


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


46


Senior Vice President, Clinical Science and BiometricsJohn C. Hodgman


53


Senior Vice President of Finance and Chief Financial OfficerSteven B. Porter, M.D., Ph.D.


51


Chief Medical OfficerHoward A. Simon, Esq., SPHR


49


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


52


Senior Vice President of Legal Affairs, General Counsel and
    Corporate Secretary   Daniel G. Welch.
  Marianne T.
    Armstrong, Ph.D.
  Lawrence M. Blatt, Ph.D.
  Williamson Z. Bradford,
    M.D, Ph.D.
 21




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1999-2001, 1998-1999,
  John C. Hodgman.
  Steven B.
    Porter, M.D., Ph.D.
  Howard A. Simon, Esq, SPHR.
  Robin J. Steele, Esq.
 22




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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 9, 2007, 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.
      Drug
    development is a long, expensive and uncertain process, and
    delay or failure can occur at any stage of any of our clinical
    trials.
    
    We recently terminated our development of Actimmune for patients
    with IPF as a result of our decision to discontinue the INSPIRE
    trial on the recommendation of the studys independent DMC.
    We do not intend to conduct further development of Actimmune for
    the treatment of IPF. In addition, we reported that our
    exploratory Phase II clinical trial evaluating Actimmune
    for the potential treatment of advanced liver fibrosis caused by
    HCV in patients who have failed standard antiviral therapy
    failed to meet its primary endpoint. As a result, we do not
    intend to conduct further development of Actimmune for the
    treatment of liver fibrosis.
    The results of the Shionogi Phase III clinical trial for
    pirfenidone may not be indicative of the results we will have in
    our CAPACITY trials. Despite the similarities of the trials, the
    trials are not the same and different trials can have different
    results as a result of even small differences in the trials,
    including differences in the patient population, the manner in
    which the trial is conducted and external factors.
    The positive results of the Phase Ia SAD trial for ITMN-191 do
    not ensure that the Phase Ib MAD trial or subsequent trials for
    ITMN-191 will be successful at any dosing level. 23




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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.    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.
   24




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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.
    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.
   25




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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
    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.
   26




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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
  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.
   27




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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.
    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.
   28




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
    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 change third party manufacturers of a particular
    pharmaceutical product, 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 or clinical trial needs, which would require us to
    seek new manufacturing arrangements and may result in
    substantial delays in meeting market or clinical trial demands.
    For example, our current agreement with BI does not impose any
    obligation on BI to reserve a minimum annual capacity for the
    production of Actimmune, which could impair our ability to
    obtain product from them in a timely fashion.
    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.    We
    rely on third parties to conduct clinical trials for our
    products and product candidates, and those third parties may not
    perform satisfactorily.
   29




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Risks
    Related to the Commercialization of Our Products and Product
    Candidates
  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.    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 30




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
    other third-party payors.      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; 31




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
    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.    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; 32




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
    we will develop additional proprietary technologies that are
    patentable; or
    the patents of others will not have a material adverse effect on
    our business.    Over
    time, we will lose our ability to rely upon the intellectual
    property we currently own to prevent competing products, and
    after 2011 pirfenidone will only be protected by orphan drug
    designation, which may impair our ability to generate
    revenue.
        If we
    breach our license agreement with Genentech, we may lose our
    ability to develop and market Actimmune.
   33




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Since
    the pirfenidone molecule is in the public domain and the patents
    we acquired from Marnac and KDL are 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.
    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 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.
   34




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##### Table of Contents



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.
    Risks
    Related to Our Financial Results and Other Risks Related to Our
    Business
  Revenue
    from the sale of Actimmune has been declining and is expected to
    decline further.
    
    Actimmune is not 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 clinical trials
    for the treatment of IPF;
    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; or
    a competitors product shows a clinically significant
    treatment effect for IPF.   35




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##### Table of Contents



Negative
    conditions in the global credit markets may impair the liquidity
    of a portion of our investment portfolio.
    If we
    fail to obtain the capital necessary to fund our operations, we
    will be unable to successfully execute our business
    plan.
    If we
    continue to incur net losses for an extended period of time, we
    may be unable to continue our business.
    Failure
    to accurately forecast our revenue could result in additional
    charges for excess inventories or non-cancelable purchase
    obligations.
  and/or
 36




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##### Table of Contents



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.
     37




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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; 38




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##### Table of Contents




    we may not be able to sell a product at the price we expect;
    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.
     39




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##### Table of Contents



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.
    Substantial
    sales of shares may negatively impact the market price of our
    common stock.
        Management
    may invest or spend the proceeds of our September 2007 public
    offering in ways with which you may not agree and in ways that
    may not yield a return to our stockholders.
   40




---



##### Table of Contents



Under
    the terms of our settlement with the U.S. Department of Justice
    concerning promotional activities for Actimmune by certain of
    our former employees, we may be required to apply a portion of
    the proceeds of our September 2007 public offering towards the
    making of an accelerated payment to the U.S. Department of
    Justice.
      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.   41




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##### Table of Contents



We
    have never paid dividends on our capital stock, and we do not
    anticipate paying any cash dividends in the foreseeable
    future.
    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.
     42




---



##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS          ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   43




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##### Table of Contents



PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES      Fiscal Year:

High


Low2007First Quarter

$
35.97


$
21.86Second Quarter


30.62



24.42Third Quarter


27.06



18.61Fourth Quarter


20.00



13.332006First Quarter

$
20.61


$
17.62Second Quarter


18.35



14.20Third Quarter


17.68



14.83Fourth Quarter


30.75



16.25     Dividend
    Policy
   44




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##### Table of Contents



Performance
    Graph
    Comparison
    of Cumulative Five Year Total
  
  Years Ending December 31,Base periodDecemberCompany/Index

2002

2003

2004

2005

2006

2007InterMune, Inc.


100


$
90.79


$
51.98


$
65.86


$
120.54


$
52.25NASDAQ Composite


100



150.36



163.00



166.58



183.68



201.91AMEX Biotechnology Index


100



144.91



160.92



201.32



223.01



232.54   10-K
 45




---



##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA      Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)Statement of Operations Data:Revenue, net:Actimmune

$
53,420


$
90,317


$
107,633


$
124,980


$
141,402Other products










2,863



3,700



3,460Collaboration revenue


13,272



467











Total revenue, net


66,692



90,784



110,496



128,680



144,862Costs and expenses:Cost of goods sold


14,109



24,608



35,022



33,882



39,231Research and development


105,939



103,849



82,736



75,683



118,771Acquired research and development and milestone (credits)
    payments(1)


13,725







(10,000
)






12,150General and administrative


29,577



40,372



58,854



55,132



56,167Provision for government settlement






36,944











Restructuring charges


10,246







5,549







Total costs and expenses


173,596



205,773



172,161



164,697



226,319Loss from operations


(106,904
)


(114,989
)


(61,665
)


(36,017
)


(81,457
)Interest income


10,699



9,512



3,965



3,490



4,024Interest and other income (expense)


(666
)


(485
)


52



(12,516
)


(10,037
)Loss from continuing operations before income taxes


(96,871
)


(105,962
)


(57,648
)


(45,043
)


(87,470
)Income tax benefit


(2,275
)














Loss from continuing operations


(94,596
)


(105,962
)


(57,648
)


(45,043
)


(87,470
)Discontinued operations:Income (loss) from discontinued operations


4,994



(1,244
)


(32,925
)


(14,435
)


(9,531
)Gain on sale of discontinued operations (net of transaction
    costs)










85,338







Income (loss) from discontinued operations


4,994



(1,244
)


52,413



(14,435
)


(9,531
)Net loss

$
(89,602
)

$
(107,206
)

$
(5,235
)

$
(59,478
)

$
(97,001
)Basic and diluted loss per share:Continuing operations

$
(2.67
)

$
(3.18
)

$
(1.79
)

$
(1.42
)

$
(2.76
)Discontinued operations

$
0.15


$
(0.04
)

$
1.63


$
(0.45
)

$
(0.30
)Net loss per share

$
(2.52
)

$
(3.22
)

$
(0.16
)

$
(1.87
)

$
(3.06
)Shares used in computing basic and diluted net loss per share


35,493



33,277



32,220



31,760



31,665   46




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##### Table of Contents



As of December 31,2007


2006


2005


2004


2003(In thousands)Balance sheet data:Cash, cash equivalents and available-for-sale securities

$
235,292


$
214,549


$
215,525


$
183,025


$
216,107Working capital


214,463



201,924



185,295



185,133



201,855Total assets


262,445



257,583



266,242



268,795



291,070Long-term obligations


170,000



170,000



170,000



170,000



149,500Accumulated deficit


(657,689
)


(568,087
)


(460,881
)


(455,646
)


(396,168
)Total stockholders equity (deficit)


(30,888
)


(39,797
)


31,767



32,791



87,744     (1)
    
    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
   47




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##### Table of Contents



Discontinuation
    of Actimmune Trial for IPF
      Finished goods inventory

$
1,776Acquired product rights, net


667Total

$
2,443     Critical
    Accounting Policies
      Stock-based
    Compensation
  Share-Based Payment
 48




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##### Table of Contents



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

2007


2006


2005Cash discounts

$
1,116


$
1,887


$
2,280Product returns










428Chargebacks


1,222



1,106



1,258Medicaid rebates


1,160



2,032



3,474Total

$
3,498


$
5,025


$
7,440   49




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##### Table of Contents



Years Ended December 31,2007


2006


2005Gross product revenue

$
56,918


$
95,342


$
117,936Revenue reductions as a% of gross product revenueCash discounts


2.0
%


2.0
%


1.9
%Product returns










0.4
%Chargebacks


2.1
%


1.2
%


1.1
%Medicaid rebates


2.0
%


2.1
%


2.9
%Total


6.1
%


5.3
%


6.3
%         Clinical
    Trial Accruals
    Inventory
    Reserves
  first-in
 50




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##### Table of Contents



Results
    of Operations
    Comparison
    of years ended December 31, 2007 and 2006
  Revenue
      Cost of
    Goods Sold
   51




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##### Table of Contents



Research
    and Development Expenses
      Year Ended December 31,Development Program

2007


2006


2005(In thousands)Pulmonology

$
56,169


$
50,065


$
34,779Hepatology


21,965



30,035



17,820Oncology






1,561



14,156Programs  Non-specific


27,805



22,188



15,981Total

$
105,939


$
103,849


$
82,736     
    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.   52




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##### Table of Contents



Acquired
    Research and Development and Milestone
    Expense/(Credits)
    General
    and Administrative Expenses
    Provision
    for Government Settlement
    Restructuring
    Charges
    Interest
    Income
    Interest
    Expense
   53




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##### Table of Contents



Other
    Income
    Income
    (loss) from Discontinued Operations
    Provision
    for Income Taxes
      Comparison
    of years ended December 31, 2006 and 2005
  Revenue
    Cost of
    Goods Sold
   54




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##### Table of Contents



Research
    and Development Expenses
    Acquired
    Research and Development and Milestone
    Expense/(Credits)
    General
    and Administrative Expenses
    Restructuring
    Charges
      Interest
    Income
   55




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##### Table of Contents



Interest
    Expense
    Other
    Income
    Loss from
    Discontinued Operations
    Gain on
    Sale of Discontinued Operations
    Provision
    for Income Taxes
    Liquidity
    and Capital Resources
     56




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##### Table of Contents



Operating
    Activities
    Investing
    Activities
    Financing
    Activities
      
    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 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. 57




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##### Table of Contents



Off-Balance
    Sheet Arrangements
    Contractual
    Obligations
    Contractual Obligations

Total


2008


2009-2010


2011-2012


After 2012Long-term debt obligations(1)

$
171.5


$
0.4


$
0.9


$
170.2


$
Government settlement


34.4



8.4



16.0



10.0



Operating leases


16.3



4.8



9.9



1.6



Non-cancelable purchase obligations  Other(2)


6.8



5.3



1.5







Research and development commitments(3)


21.0



15.4



5.6







Total contractual cash obligations

$
250.0


$
34.3


$
33.9


$
181.8


$
     (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. They do not
    include any amounts related to the collaboration agreement with
    Roche given the inherent difficulties in the estimation process.    Recent
    Accounting Pronouncements
  No. 07-1, Accounting for Collaborative Arrangements Related to the
    Development and Commercialization of Intellectual Property EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent EITF 07-1
 58




---



##### Table of Contents



No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or
    Services Received for Use in Future Research and Development
    Activities EITF 07-3, EITF 07-3
  The Fair Value Option for Financial Assets and Financial
    Liabilities instrument-by-instrument
  Fair Value Measurements,
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Interest
    Rate and Market Risk
       59




---



##### Table of Contents



Fair Value at2012 and





December 31,2008


2009


2010


2011


beyond


Total


2007Assets:Available-for-sale securities

$
211.7


$
6.4


$
2.9


$



$



$
221.0


$
222.5Average interest rate


4.8
%


5.1
%


5.1
%










4.8
%


Liabilities:0.25% convertible senior notes due 2011













$
170.0






$
170.0


$
159.5Average interest rate














0.25
%






0.25
%


     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
%


   Foreign
    Currency Market Risk
   60




---



##### 



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


62Consolidated Balance Sheets


63Consolidated Statements of Operations


64Consolidated Statements of Stockholders
    Equity (Deficit)


65Consolidated Statements of Cash Flows


66Notes to Consolidated Financial Statements


67   61




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   62




---



##### Table of Contents



INTERMUNE,
    INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(In thousands, except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
88,946


$
109,386Available-for-sale
    securities


146,346



105,163Accounts receivable, net of allowances of $44 in 2007 and $164
    in 2006


3,117



11,799Inventories


1,776



8,188Deferred taxes


2,275



Prepaid expenses and other current assets


7,112



7,691Total current assets


249,572



242,227Property and equipment, net


8,118



9,210Acquired product rights, net


667



1,167Other assets (includes restricted cash of $1,425)


4,088



4,979Total assets

$
262,445


$
257,583LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable

$
7,392


$
10,572Accrued compensation


7,282



6,181Deferred taxes


2,275



Other accrued liabilities


18,160



23,550Total current liabilities


35,109



40,303Deferred rent


1,767



1,804Deferred collaboration revenue


62,989



56,732Liability under government settlement


23,468



28,541Convertible notes


170,000



170,000Commitments and contingencies (Note 14)Stockholders deficit:Convertible preferred stock, $0.001 par value;
    5,000 shares authorized, no shares issued and outstanding
    at December 31, 2007 and 2006, respectively






Common stock, $0.001 par value, 70,000 shares
    authorized; 39,032 and 34,264 shares issued and outstanding
    at December 31, 2007 and 2006, respectively


39



34Additional paid-in capital


623,115



528,116Accumulated other comprehensive income


3,647



140Accumulated deficit


(657,689
)


(568,087
)Total stockholders deficit


(30,888
)


(39,797
)Total liabilities and stockholders deficit

$
262,445


$
257,583    63




---



##### Table of Contents



INTERMUNE,
    INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2007


2006


2005(In thousands, except per share amounts)Revenue, netActimmune

$
53,420


$
90,317


$
107,633Other products










2,863Collaboration revenue


13,272



467



Total revenue, net


66,692



90,784



110,496Costs and expenses:Cost of goods sold


14,109



24,608



35,022Research and development


105,939



103,849



82,736Acquired research and development and milestone expense/(credits)


13,725







(10,000
)General and administrative


29,577



40,372



58,854Restructuring charges


10,246







5,549Provision for government settlement






36,944



Total costs and expenses


173,596



205,773



172,161Loss from operations


(106,904
)


(114,989
)


(61,665
)Other income (expense):Interest income


10,699



9,512



3,965Interest expense


(2,881
)


(1,542
)


(1,261
)Other income


2,215



1,057



1,313Loss from continuing operations before income taxes


(96,871
)


(105,962
)


(57,648
)Income tax benefit


(2,275
)






Loss from continuing operations


(94,596
)


(105,962
)


(57,648
)Discontinued operations:Gain (loss) from discontinued operations


4,994



(1,244
)


(32,925
)Gain on sale of discontinued operations (net of transaction
    costs)










85,338Income (loss) from discontinued operations


4,994



(1,244
)


52,413Net loss

$
(89,602
)

$
(107,206
)

$
(5,235
)Basic and diluted loss per shareContinuing operations

$
(2.67
)

$
(3.18
)

$
(1.79
)Discontinued operations

$
0.15


$
(0.04
)

$
1.63Net loss per share

$
(2.52
)

$
(3.22
)

$
(0.16
)Shares used in computing basic and diluted net loss per share


35,493



33,277



32,220    64




---



##### 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, 2004


32,583


$
33


$
492,663


$
(5,845
)

$
1,586


$
(455,646
)

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


















173







173Change in unrealized gain on foreign currency cash flow hedge


















(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
)Change in unrealized gain on foreign currency cash flow hedge


















(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
)Net unrealized gain on
    available-for-sale
    securities, net of taxes of $2,275


















3,719







3,719Change in unrealized gain on foreign currency cash flow hedge


















(212
)






(212
)Net loss






















(89,602
)


(89,602
)Comprehensive loss


























(86,095
)Exercise of stock options


534



1



7,633















7,634Stock issued under employee stock purchase plan


111







1,257















1,257Issuance of common stock in a public offering at $19.50 per
    share, net of issuance costs of $5,092


4,025



4



73,391















73,395Issuance of restricted stock to employees


98







2,694















2,694Stock compensation related to the modification of stock options










482















482Stock compensation related to employee stock benefit plans










9,542















9,542Balances at December 31, 2007


39,032


$
39


$
623,115


$



$
3,647


$
(657,689
)

$
(30,888
)    65




---



##### Table of Contents



INTERMUNE,
    INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  For the Year Ended December 31,2007


2006


2005(In thousands)Cash flows used for operating activities:Net loss

$
(89,602
)

$
(107,206
)

$
(5,235
)Adjustments to reconcile net loss to net cash used in operating
    activities:Gain on sale of discontinued operations










(85,338
)Stock-based compensation expense


12,718



16,522



2,960Acquired research and development and milestone (credits)
    payments










(10,000
)Amortization


1,336



1,331



4,555Depreciation


3,511



2,516



2,860Deferred taxes


(2,275
)






Deferred rent


(37
)


161



130Impairment of intangible asset










600Change in unrealized gain on foreign currency cash flow hedge


(212
)


(607
)


(1,005
)Changes in operating assets and liabilities:Accounts receivable


8,682



4,424



(1,335
)Inventories


6,412



4,249



14,053Prepaid expenses


579



(1,319
)


(291
)Other assets


55



927



(760
)Accounts payable and accrued compensation


(2,079
)


(24,090
)


3,649Other accrued liabilities


(8,459
)


(5,816
)


4,386Liability under government settlement


(2,474
)


33,116



Deferred collaboration revenue


6,727



59,534



Net cash used in operating activities


(65,118
)


(16,258
)


(70,771
)Cash flows from investing activities:Purchase of property and equipment


(2,419
)


(4,452
)


(2,144
)Proceeds from the divestiture of Infergen










120,000Purchase of manufacturing technology rights










(16,832
)Purchases of
    available-for-sale
    securities


(182,517
)


(130,434
)


(77,353
)Maturities of
    available-for-sale
    securities


107,328



41,396



103,516Sales of
    available-for-sale
    securities


40,000



12,065



72,903Other










163Net cash provided by (used in) investing activities


(37,608
)


(81,425
)


200,253Cash flows from financing activities:Proceeds from issuance of common stock in a public offering, net
    of issuance costs


73,395







Proceeds from issuance of common stock under employee stock
    benefit plans, net


8,891



19,734



2,084Net cash provided by financing activities


82,286



19,734



2,084Net increase (decrease) in cash and cash equivalents


(20,440
)


(77,949
)


131,566Cash and cash equivalents at beginning of period


109,386



187,335



55,769Cash and cash equivalents at end of period

$
88,946


$
109,386


$
187,335Supplemental disclosure of cash flow information:Interest paid

$
1,733


$
445


$
425Reclassification of deferred compensation upon adoption of
    SFAS 123(R)

$



$
2,092


$
    66




---



##### Table of Contents



InterMune,
    Inc.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    ORGANIZATION  Overview
    2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Principles
    of Consolidation
    Use of
    Estimates
      Cash,
    Cash Equivalents and
    Available-For-Sale
    Securities
  available-for-sale. available-for-sale
  Fair
    Value of Other Financial Instruments
   67




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Inventory
    Valuation
        Concentration
    of Risks
    Foreign
    Currency and Derivative Instruments
     68




---



##### 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
     69




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      ®
  Research
    and Development Expenses
  scale-up scale-up
      Advertising
    Costs
  We expense advertising costs as
    incurred.
 70




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Income
    Taxes
  Accounting
    for Income Taxes,
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  Comprehensive
    Income (Loss)
  Reporting Comprehensive
    Income, available-for-sale available-for-sale
  Net
    Loss Per Share
      Year Ended December 31,2007


2006


2005Options


4,671



5,390



6,449Shares issuable upon conversion of convertible notes


7,859



7,859



7,859  71




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Net loss

$
(89,602
)

$
(107,206
)

$
(5,235
)Basic and diluted net loss per share:Weighted-average shares of common stock outstanding


35,743



33,702



32,577Less: weighted-average shares subject to repurchase


(250
)


(425
)


(357
)Weighted-average shares used in computing basic and diluted net
    loss per share


35,493



33,277



32,220Basic and diluted net loss per share

$
(2.52
)

$
(3.22
)

$
(0.16
)   Stock-Based
    Compensation
         72




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Recent
    Accounting Pronouncements
  No. 07-1, Accounting for Collaborative Arrangements Related to the
    Development and Commercialization of Intellectual Property EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent, EITF 07-1
  No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or
    Services Received for Use in Future Research and Development
    Activities EITF 07-3, EITF 07-3
 73




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  The Fair Value Option for Financial Assets and Financial
    Liabilities instrument-by-instrument
  Fair Value Measurements,
  3.
    DISCONTINUED
    OPERATIONS  Product
    Acquisition Agreement
      Manufacturing
    Technology Rights
   74




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Purchase
    Option
    Results
    of Discontinued Operations
    Year Ended December 31,2007


2006


2005Infergen revenue, net

$
(6
)

$
(1,024
)

$
36,399Contract (milestone) revenue


5,000







Costs and expenses:Cost of goods sold






81



17,296Amortization and impairment of acquired product rights










2,360Research and development






(531
)


13,652Selling, general and administrative






230



36,016Total costs and expenses






(220
)


69,324Gain (loss) from discontinued operations

$
4,994


$
(1,244
)

$
(32,925
)   ,
 75




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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.
    ASSET
    IMPAIRMENT AND RESTRUCTURING CHARGES      2007Finished goods inventory

$
1,776Acquired product rights, net


667Total

$
2,443      76




---



##### Table of Contents



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








Restructuring








RestructuringLiabilities at








Liabilities at








Liabilities atDecember 31,


Cash


Accrual


December 31,





Cash


December 31,2005


Payments


Reversals


2006


Charges


Payments


2007Workforce reduction

$
4,733


$
(4,653
)

$
(80
)

$



$
2,984


$
(2,780
)

$
204Supply agreement termination


















6,779



(6,779
)


Totals

$
4,733


$
(4,653
)

$
(80
)

$



$
9,763


$
(9,559
)

$
204   5.
    AMPHOTEC
    AND ORITAVANCIN  ®
       77




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  lock-up
  6.
    ACQUIRED
    PRODUCT RIGHTS  Marnac,
    Inc./KDL GmbH (Pirfenidone)
    Amgen
    Inc. (Interferon Gamma)
    Genentech,
    Inc. License Agreement (Actimmune)
   78




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Connetics
    Corporation (Actimmune)
    7.
    SPONSORED
    RESEARCH, LICENSE AND COLLABORATION AGREEMENTS  Roche
    (Protease Inhibitors)
     79




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  50-50 and/or
  Novartis
    Corporation (Small Molecule Therapeutics)
    Array
    BioPharma Inc. (Small Molecule Therapeutics)
      Maxygen
    Holdings Ltd. (Next-Generation Interferon Gamma)
   80




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Boehringer
    Ingelheim International GmbH (Imukin)
  and/or country-by-country
  8.
    AVAILABLE-FOR-SALE
    INVESTMENTS  available-for-sale
  Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueDecember 31, 2007Obligations of government-sponsored enterprises

$
135,813


$
181


$



$
135,994Corporate debt securities


34,526



110



(3
)


34,633Commercial paper


12,815







(53
)


12,762Targanta common stock






5,687







5,687Auction rate securities and money market funds


39,150











39,150Total

$
222,304


$
5,978


$
(56
)

$
228,226   81




---



##### Table of Contents



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


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueReported as:Cash equivalents

$
81,861


$
20


$
(1
)

$
81,880Available-for-sale
    securities


140,443



5,958



(55
)


146,346Total

$
222,304


$
5,978


$
(56
)

$
228,226   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 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   available-for-sale available-for-sale
  available-for-sale
  December 31, 2007AmortizedCost


Fair ValueMature in less than one year

$
212,847


$
212,999Mature in one to three years


9,457



9,540Mature in over three years






Total

$
222,304


$
222,539  82




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    BALANCE
    SHEET DETAIL    2007


2006Computer and laboratory equipment

$
11,060


$
9,444Office furniture and fixtures


3,710



3,693Leasehold improvements


9,839



9,13924,609



22,276Less accumulated depreciation and amortization


(16,491
)


(13,066
)Total

$
8,118


$
9,210     2007


2006Accrued clinical trial costs

$
4,624


$
7,654Royalties payable


884



1,955Liability under government settlement  current


7,174



4,575Deferred collaboration revenue  current


3,272



2,802Medicaid rebates


256



534Provision for returns and rebates


378



1,174Accrued interest


142



142Accrued research and development


812



2,733Other accrued liabilities


618



1,981Total other accrued liabilities

$
18,160


$
23,550   10.
    COMPREHENSIVE
    INCOME (LOSS)  available-for-sale
  Year Ended December 31,2007


2006


2005Net loss

$
(89,602
)

$
(107,206
)

$
(5,235
)Change in unrealized gain/(loss) on
    available-for-sale
    securities, net of tax benefit of $2,275 in 2007


3,719



(7
)


173Change in realized and unrealized gain on foreign currency hedge


(212
)


(607
)


(1,005
)Comprehensive loss

$
(86,095
)

$
(107,820
)

$
(6,067
)  83




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Net unrealized gain (loss) on
    available-for-sale
    securities, net of tax of $2,275 in 2007

$
3,647


$
(72
)Gain on foreign currency hedge






212Accumulated other comprehensive income

$
3,647


$
140   11.
    CONVERTIBLE
    SENIOR NOTES    12.
    STOCKHOLDERS
    EQUITY  Employee
    Stock Purchase Plan
    Restricted
    Stock Awards
   84




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-AverageGrant Date FairRestricted Stock Awards

Shares


ValueNonvested at December 31, 2005


175,651


$
16.02Granted


424,450



19.43Vested


(161,959
)


18.08Forfeited


(92,774
)


17.77Nonvested at December 31, 2006


345,368


$
18.78Granted


128,077



25.50Vested


(233,258
)


18.54Forfeited


(30,478
)


19.27Nonvested at December 31, 2007


209,709


$
23.08   Stock
    Compensation Plans
       85




---



##### Table of Contents



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





WeightedAvailable


Number of


Average Exercisefor Grant


Options


Price per ShareBalance at December 31, 2004


3,070,375



4,945,452


$
22.81Stock options granted


(2,317,724
)


2,317,724


$
12.44Forfeited stock options


795,980



(795,980
)

$
21.88Restricted shares forfeited


152,275







Stock options exercised






(18,166
)

$
12.95Balance at December 31, 2005


1,700,906



6,449,030


$
19.22Stock options granted


(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







Stock options exercised






(1,225,763
)

$
15.18Balance at December 31, 2006


1,202,949



5,389,548


$
17.99Stock options granted


(515,700
)


515,700


$
25.37Restricted shares granted


(128,077
)






Forfeited stock options


699,972



(699,972
)

$
19.77Restricted shares forfeited


30,478







Stock options exercised






(534,008
)

$
14.30Balance at December 31, 2007


1,289,622



4,671,268


$
18.96    86




---



##### Table of Contents



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


Options ExercisableWeightedAverage


Weighted





WeightedRange of Exercise

Number of


Remaining


Average Exercise


Number of


AveragePrices

Shares


Contractual Life


Price


Shares


Exercise Price$ 4.50  $12.74


1,323,553



6.95


$
11.30



950,832


$
11.08$13.16  $18.70


1,187,388



7.87


$
15.62



667,695


$
15.63$19.01  $24.76


1,306,602



5.94


$
21.48



1,182,588


$
21.51$24.96  $49.26


853,725



5.64


$
31.61



500,200


$
35.344,671,268



6.66


$
18.96



3,301,315


$
19.41     Stockholder
    Rights Agreement
     87




---



##### Table of Contents



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


7,858,811Outstanding common stock options


4,671,268Common stock available for grant under stock option plans


1,289,622Common stock available for grant under the 2000 Employee Stock
    Purchase Plan


1,688,567Total


15,508,268   Valuation
    and Expense Information under SFAS 123(R)
      Year Ended December 31,2007


2006Research and development

$
6,012


$
8,127General and administrative


6,224



8,395Restructuring charges


482



Total stock-based compensation expense

$
12,718


$
16,522        88




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Year EndedDecember 312007


2006Expected stock price volatility


58
%


56
%Risk-free interest rate


4.8
%


5.0
%Expected term (in years)


4.9



6.0Expected dividend yield






       Year EndedDecember 312007


2006Expected stock price volatility


56
%


65
%Risk-free interest rate


4.5
%


4.1
%Expected term (in years)


1.0



1.8Expected dividend yield






      89




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Pro
    Forma Information under SFAS 123 for Periods Prior to
    January 1, 2006
    Year EndedDecember 31,2005Net loss, as reported

$
(5,235
)Add: Stock-based employee compensation expense, included in
    reported net loss


2,960Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards


(17,003
)Pro forma net loss

$
(19,278
)Net loss per share:Basic and diluted  as reported

$
(0.16
)Basic and diluted  pro forma

$
(0.60
)     Year EndedDecember 31,2005Expected stock price volatility


72
%Risk-free interest rate


4.0
%Expected term (in years)


6.5Expected dividend yield


       Year EndedDecember 31,2005Expected stock price volatility


75
%Risk-free interest rate


3.0
%Expected term (in years)


2.0Expected dividend yield


    90




---



##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13.
    INCOME
    TAXES    2007


2006


2005Deferred:Federal

$
1,934


$



$
State


341







Totals

$
2,275


$



$
       2007


2006


2005Federal tax benefit at statutory rate

$
(31,238
)

$
(36,450
)

$
(1,780
)Increase (reduction) in tax resulting from:State taxes, net of federal benefits


(700
)


(10,890
)


6,240Change in valuation allowance


12,821



57,602



7,723Research and development credits


(10,728
)


(2,038
)


(2,576
)Change in deferreds


26,037



(20,180
)


(10,942
)Stock options


(2,668
)


(636
)


882Government settlement






12,561



Other


4,201



31



453Totals

$
(2,275
)

$



$
       2007


2006Deferred tax assets:Net operating loss carryforwards

$
162,000


$
171,000Research and development credits


13,000



22,000Capitalized research and development costs


15,000



12,000Deferred revenue


23,000



24,000Other, net


53,000



23,000Total deferred tax assets


266,000



252,000Valuation allowance


(263,725
)


(252,000
)Net deferred tax assets

$
2,275


$
Deferred tax liability:Unrealized gain on investments, including Targanta common stock


(2,275
)


Net deferred tax

$



$
  91




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##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  GrossUnrecognizedTax BenefitsBalance at January 1, 2007

$
10,415Increases related to current year tax positions


2,954Balance at December 31, 2007

$
13,369       14.
    COMMITMENTS
    AND CONTINGENCIES  Leases
   92




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##### Table of Contents



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

Operating Leases2008

$
4,7662009


4,8622010


5,0072011


1,633Thereafter


$
16,268     Purchase
    Commitments
    Contingent
    Payments
   93




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##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Department
    of Justice Settlement
        Year

Principal


Interest


Total2008


6,596



1,810



8,4062009


5,826



1,174



7,0002010


8,118



882



9,0002011


9,524



476



10,000Total

$
30,064


$
4,342


$
34,406   15.
    DISCLOSURES
    ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
    INFORMATION   94




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##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Actimmune

$
53,420


$
90,317


$
107,633Other products










2,863Collaboration revenue


13,272



467



Totals

$
66,692


$
90,784


$
110,496     2007


2006


2005United States

$
53,321


$
90,185


$
110,017Rest of world


13,371



599



479Totals

$
66,692


$
90,784


$
110,496       Customer

2007


2006


2005CuraScript, Inc (formerly Priority Healthcare)


48
%


57
%


59
%Caremark


23
%


22
%


21
%Merck Medco


12
%


11
%


7
%   16.
    RELATED
    PARTY TRANSACTIONS    17.
    EMPLOYEE
    SAVINGS PLAN   95




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##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    18.
    GUARANTEES
    AND INDEMNIFICATIONS  Guarantors Accounting and Disclosure Requirements
    for Guarantees, including Indirect Guarantees of Indebtedness of
    Others
   96




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##### Table of Contents



InterMune,
    Inc.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  19.
    QUARTERLY
    FINANCIAL DATA (Unaudited)  First Quarter


Second Quarter


Third Quarter


Fourth Quarter


Total Year(In thousands, except per share amounts)2007Revenue, net Actimmune

$
19,525


$
14,533


$
10,553


$
8,809


$
53,420Collaboration revenue


818



10,818



818



818



13,272Total revenue, net

$
20,343


$
25,351


$
11,371


$
9,627


$
66,692Cost of goods sold

$
5,284


$
3,276


$
3,491


$
2,058


$
14,109Restructuring charges


1,333



8,596



317







10,246Loss from operations


(25,209
)


(21,567
)


(29,755
)


(30,373
)


(106,904
)Loss from continuing operations


(20,661
)


(19,808
)


(28,167
)


(25,960
)


(94,596
)Income (loss) from discontinued operations


(144
)


16



5,043



79



4,994Net income (loss)


(20,805
)


(19,792
)


(23,124
)


(25,881
)


(89,602
)Basic and diluted loss per share:Continuing operations

$
(0.61
)

$
(0.58
)

$
(0.81
)

$
(0.67
)

$
(2.67
)Discontinued operations










0.15







0.15Net loss per share

$
(0.61
)

$
(0.58
)

$
(0.66
)

$
(0.67
)

$
(2.52
)2006Revenue, net Actimmune

$
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 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
)  97




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##### 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
    Changes in Internal Control over Financial
    Reporting.
  Limitations on the Effectiveness of
    Controls.
 98




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  The Board of Directors and Stockholders of InterMune, Inc.
                  99




---



##### Table of Contents



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    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE   100




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##### Table of Contents



ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  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.
  Schedule II
  InterMune,
    Inc.
  Valuation
    and Qualifying Accounts and Reserves
    Years ended December 31, 2007, 2006 and 2005
  Balance at


Charged toBeginning of


Revenue or





Balance atDescription

Year


Expense


Utilizations


End of YearAllowance for cash discounts:Year ended December 31, 2007

$
164


$
1,116


$
(1,236
)

$
44Year ended December 31, 2006


337



1,887



(2,060
)


164Year ended December 31, 2005


526



3,108



(3,297
)


337Allowance for doubtful accounts:Year ended December 31, 2007

$



$



$



$
Year ended December 31, 2006


108







(108
)


Year ended December 31, 2005


94



43



(29
)


108   Exhibits
  Number

Description of Document1
.1

Underwriting Agreement, dated September 20, 2007, among
    Registrant, Goldman, Sachs & Co., Deutsche Bank
    Securities Inc. and CIBC World Markets Corp.(24)3
.1

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

Certificate of Ownership and Merger, dated April 26,
    2001.(8)3
.3

Bylaws of Registrant.(1)3
.4

Certificate of Amendment of Certificate of Incorporation of
    Registrant.(12)3
.5

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation of Registrant.(15)3
.6

Registrants Certificate of Designation of Series A
    Junior Participating Preferred Stock.(7)4
.1

Specimen Common Stock Certificate.(1)4
.6

Indenture, dated as of February 17, 2004, between
    Registrant and The Bank of New York.(14) 101




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##### Table of Contents



Number

Description of Document4
.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.(14)10
.1+

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

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

Amended and Restated 2000 Equity Incentive Plan and related
    documents.(26)10
.4+

Amended and Restated 2000 Employee Stock Purchase Plan and
    related documents.(26)10
.5+

Amended and Restated 2000 Non-Employee Directors Stock
    Option Plan and related documents.(26)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.(7)10
.8

Preliminary Stipulation of Settlement Agreement, dated
    May 6, 2005.(17)10
.9+

Form of Change of Control Provisions for Officers.(2)10
.10

Assignment and Option Agreement, dated June 23, 2000,
    between Registrant and Connetics Corporation.(3)10
.11

Consent to Assignment Agreement, dated June 23, 2000,
    between Registrant, Connetics Corporation and Genentech, Inc.(3)10
.12

Notice re: Return of Rights to Gamma Interferon for Treatment of
    Infectious Diseases in Japan, dated July 25, 2000, between
    Registrant and Genentech, Inc.(3)10
.13

Form of Common Stock Purchase Agreement, dated August 11,
    2000, between the Company and Investors.(4)10
.14

Lease Agreement, dated December 18, 2000, between
    Registrant and GAL-BRISBANE, L.P.(5)10
.15

First Amendment to Brisbane Technology Park Lease, effective as
    of December 18, 2000, between Registrant and GAL-BRISBANE,
    L.P.(5)10
.16*

Development and Marketing Agreement, dated March 23, 2001,
    between Registrant and Boehringer Ingelheim International
    GmbH.(6)10
.17

Amendment No. 5, dated January 25, 2001, to License
    Agreement, dated May 5, 1998, between Registrant and
    Genentech, Inc.(6)10
.18

Letter Amendment, dated August 1, 2001, to Development and
    Marketing Agreement, dated March 23, 2001, between
    Registrant and Boehringer Ingelheim International GmbH.(8)10
.19+

Employment Offer Letter, dated April 5, 2002, between
    Registrant and Marianne Armstrong, Ph.D.(9)10
.20+

Bonus Plan Memorandum, dated April 18, 2002, from
    Registrant to Marianne Armstrong, Ph.D.(9)10
.21

Letter Amendment, dated May 28, 2002, to Development and
    Marketing Agreement, dated March 23, 2001, between
    Registrant and Boehringer Ingelheim International GmbH.(9)10
.22

Letter Amendment, dated July 1, 2002, to Development and
    Marketing Agreement, dated March 23, 2001, between
    Registrant and Boehringer Ingelheim International GmbH.(9)10
.23*

Amendment No. 4, dated January 28, 2003, to
    Development and Marketing Agreement, dated March 23, 2001,
    between Registrant and Boehringer Ingelheim International
    GmbH.(10)10
.24+

Employment Offer Letter, dated April 30, 2002, between
    Registrant and Lawrence M. Blatt, Ph.D.(11)10
.25+

Bonus Plan Memorandum, dated May 22, 2002, from Registrant
    to Lawrence M. Blatt, Ph.D.(11)10
.26+

Employment Offer Letter, dated September 24, 2003, between
    Registrant and Daniel G. Welch.(12)10
.27+

Stock Bonus Award Agreement, dated November 5, 2003,
    between Registrant and William R. Ringo, Jr.(13)10
.28

Amended and Restated Standstill Agreement, dated
    October 29, 2004, among Registrant, Warburg
    Pincus & Co. and certain affiliates of Warburg
    Pincus & Co.(16)10
.29

Registration Rights Agreement, dated October 29, 2004,
    among Registrant, Warburg Pincus & Co. and certain
    affiliates of Warburg Pincus & Co.(16) 102




---



##### Table of Contents



Number

Description of Document10
.30

Amendment, dated October 29, 2004 to Rights Agreement,
    dated July 17, 2001, between Registrant and Mellon Investor
    Services LLC.(16)10
.31+

Employment Offer Letter Agreement, dated June 13, 2001,
    between Registrant and Williamson
    Bradford, M.D., Ph.D.(18)10
.32+

Employment Offer Letter Agreement, dated June 1, 2001,
    between Registrant and Steven Porter, M.D., Ph.D.(18)10
.33+

Employment Offer Letter Agreement, dated August 9, 2004,
    between Registrant and Robin Steele.(18)10
.34+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated August 18, 2004, between Registrant and
    Marianne Armstrong, Ph.D.(18)10
.35+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated August 18, 2004, between Registrant and
    Lawrence M. Blatt, Ph.D.(18)10
.36+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated July 27, 2004, between Registrant and
    Williamson Bradford, M.D., Ph.D.(18)10
.37+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated July 26, 2004, between Registrant and Steven
    Porter, M.D., Ph.D.(18)10
.38+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated July 27, 2004, between Registrant and Howard
    A. Simon, Esq.(18)10
.39*

Product Acquisition Agreement, dated November 28, 2005,
    between Registrant and Valeant Pharmaceuticals North America.(19)10
.40*

Asset Purchase Agreement dated December 23, 2005, between
    Registrant and Targanta Therapeutics Corporation.(20)10
.41+

Severance Agreement and General Release, dated January 6,
    2006, between Registrant and Roger L. Hawley.(20)10
.42*

Amendment No. 6, dated February 27, 2006, to License
    Agreement dated May 5, 1998, between Registrant and
    Genentech, Inc.(20)10
.43*

Exclusive License and Collaboration Agreement dated
    October 16, 2006 between Registrant and
    Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche
    Ltd.(21)10
.44

Deferred Prosecution Agreement between Registrant and the United
    States Attorneys Office for the Northern District of
    California(21)10
.45

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(21)10
.46

Corporate Integrity Agreement between Registrant and the Office
    of the Inspector General of the United States Department of
    Health and Human Services(21)10
.47+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Howard Simon.(22)10
.48+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Robin Steele.(22)10
.49+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and John Hodgman.(22)10
.50+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Bill Bradford.(22)10
.51+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Steve Porter.(22)10
.52+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Marianne Armstrong.(22)10
.53+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Lawrence Blatt.(22)10
.54+

Separation Agreement and Release of Claims dated July 3,
    2007 between Registrant and Thomas Kassberg.(23)10
.55+

Separation Agreement and Release of Claims dated July 3,
    2007 between Registrant and Cynthia Robinson.(23)10
.56*

Termination Agreement dated June 6, 2007 between Registrant
    and Boehringer Ingelheim Austria GmbH.(25)10
.57*

Supply Agreement dated June 29, 2007 between Registrant and
    Boehringer Ingelheim Austria GmbH.(25) 103




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##### Table of Contents



Number

Description of Document10
.58

Letter Amendment dated December 19, 2007 to Product
    Acquisition Agreement dated November 28, 2005 between
    Registrant and Valeant Pharmaceuticals North America.(26)10
.59**

Asset Purchase Agreement, dated November 19, 2007, among
    Registrant, Marnac, Inc., and Dr. Solomon B. Margolin.(26)10
.60**

Asset Purchase Agreement, dated November 21, 2007, among
    Registrant, KDL GmbH, and Dr. Shitotomo Yamauchi.(26)10
.61**

License Agreement, dated August 24, 2004, between
    Registrant and Chiron Corporation.(26)10
.62**

Drug Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.63**

Amendment No. 1, dated May 8, 2003, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.64**

Amendment No. 2, dated January 7, 2004, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.65**

Amendment No. 3, dated September 10, 2004, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.66**

Amendment No. 4, dated December 7, 2004, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.67**

Letter Agreement, dated March 10, 2005, between Registrant
    and Array BioPharma Inc.(26)10
.68**

Amendment No. 5, dated June 30, 2005, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.69**

Amendment No. 6, dated February 3, 2006, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.70**

Amendment No. 7, dated June 28, 2006, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)21
.1

List of Subsidiaries(26)23
.1

Consent of Independent Registered Public Accounting Firm(26)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)(26)31
.2

Certification required by
    Rule 13a-14(a)
    or
    Rule 15d-14(a)(26)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)(26)     *
    
    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)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2000.(3)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000.(4)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on August 23, 2000. 104




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##### Table of Contents



(5)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000.(6)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2001.(7)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on July 18, 2001.(8)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.(9)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2002.(10)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2003.(11)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2003.(12)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2003.(13)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003.(14)
    
    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.(15)
    
    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.(16)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on November 4, 2004.(17)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2005.(18)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004.(19)
    
    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.(20)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.(21)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2006.(22)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on May 25, 2007.(23)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on July 10, 2007.(24)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on September 21, 2007.(25)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007.(26)
    
    Filed herewith.  Exhibits
    Financial Statement Schedules
   105




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##### Table of Contents



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

Title

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

Chairman of the Board of Directors

March 11, 2008/s/  Daniel
    G. WelchDaniel
    G. Welch

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

March 11, 2008/s/  John
    C. HodgmanJohn
    C. Hodgman

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

March 11, 2008/s/  Bruce
    W. TomlinsonBruce
    W. Tomlinson

Vice President, Controller and Principal Accounting Officer

March 11, 2008/s/  Louis
    DrapeauLouis
    Drapeau

Director

March 11, 2008/s/  Lars
    EkmanLars
    Ekman

Director

March 11, 2008 106




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##### Table of Contents



Signatures

Title

Date/s/  James
    I. HealyJames
    I. Healy

Director

March 11, 2008/s/  David
    S. KabakoffDavid
    S. Kabakoff

Director

March 11, 2008/s/  Jonathan
    S. LeffJonathan
    S. Leff

Director

March 11, 2008/s/  Michael
    L. SmithMichael
    L. Smith

Director

March 11, 2008  107




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##### Table of Contents



EXHIBIT INDEX
  Number

Description of Document1
.1

Underwriting Agreement, dated September 20, 2007, among
    Registrant, Goldman, Sachs & Co., Deutsche Bank
    Securities Inc. and CIBC World Markets Corp.(24)3
.1

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

Certificate of Ownership and Merger, dated April 26,
    2001.(8)3
.3

Bylaws of Registrant.(1)3
.4

Certificate of Amendment of Certificate of Incorporation of
    Registrant.(12)3
.5

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation of Registrant.(15)3
.6

Registrants Certificate of Designation of Series A
    Junior Participating Preferred Stock.(7)4
.1

Specimen Common Stock Certificate.(1)4
.6

Indenture, dated as of February 17, 2004, between
    Registrant and The Bank of New York.(14)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.(14)10
.1+

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

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

Amended and Restated 2000 Equity Incentive Plan and related
    documents.(26)10
.4+

Amended and Restated 2000 Employee Stock Purchase Plan and
    related documents.(26)10
.5+

Amended and Restated 2000 Non-Employee Directors Stock
    Option Plan and related documents.(26)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.(7)10
.8

Preliminary Stipulation of Settlement Agreement, dated
    May 6, 2005.(17)10
.9+

Form of Change of Control Provisions for Officers.(2)10
.10

Assignment and Option Agreement, dated June 23, 2000,
    between Registrant and Connetics Corporation.(3)10
.11

Consent to Assignment Agreement, dated June 23, 2000,
    between Registrant, Connetics Corporation and Genentech, Inc.(3)10
.12

Notice re: Return of Rights to Gamma Interferon for Treatment of
    Infectious Diseases in Japan, dated July 25, 2000, between
    Registrant and Genentech, Inc.(3)10
.13

Form of Common Stock Purchase Agreement, dated August 11,
    2000, between the Company and Investors.(4)10
.14

Lease Agreement, dated December 18, 2000, between
    Registrant and GAL-BRISBANE, L.P.(5)10
.15

First Amendment to Brisbane Technology Park Lease, effective as
    of December 18, 2000, between Registrant and GAL-BRISBANE,
    L.P.(5)10
.16*

Development and Marketing Agreement, dated March 23, 2001,
    between Registrant and Boehringer Ingelheim International
    GmbH.(6)10
.17

Amendment No. 5, dated January 25, 2001, to License
    Agreement, dated May 5, 1998, between Registrant and
    Genentech, Inc.(6)10
.18

Letter Amendment, dated August 1, 2001, to Development and
    Marketing Agreement, dated March 23, 2001, between
    Registrant and Boehringer Ingelheim International GmbH.(8)10
.19+

Employment Offer Letter, dated April 5, 2002, between
    Registrant and Marianne Armstrong, Ph.D.(9)10
.20+

Bonus Plan Memorandum, dated April 18, 2002, from
    Registrant to Marianne Armstrong, Ph.D.(9)10
.21

Letter Amendment, dated May 28, 2002, to Development and
    Marketing Agreement, dated March 23, 2001, between
    Registrant and Boehringer Ingelheim International GmbH.(9)10
.22

Letter Amendment, dated July 1, 2002, to Development and
    Marketing Agreement, dated March 23, 2001, between
    Registrant and Boehringer Ingelheim International GmbH.(9)10
.23*

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




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##### Table of Contents



Number

Description of Document10
.24+

Employment Offer Letter, dated April 30, 2002, between
    Registrant and Lawrence M. Blatt, Ph.D.(11)10
.25+

Bonus Plan Memorandum, dated May 22, 2002, from Registrant
    to Lawrence M. Blatt, Ph.D.(11)10
.26+

Employment Offer Letter, dated September 24, 2003, between
    Registrant and Daniel G. Welch.(12)10
.27+

Stock Bonus Award Agreement, dated November 5, 2003,
    between Registrant and William R. Ringo, Jr.(13)10
.28

Amended and Restated Standstill Agreement, dated
    October 29, 2004, among Registrant, Warburg
    Pincus & Co. and certain affiliates of Warburg
    Pincus & Co.(16)10
.29

Registration Rights Agreement, dated October 29, 2004,
    among Registrant, Warburg Pincus & Co. and certain
    affiliates of Warburg Pincus & Co.(16)10
.30

Amendment, dated October 29, 2004 to Rights Agreement,
    dated July 17, 2001, between Registrant and Mellon Investor
    Services LLC.(16)10
.31+

Employment Offer Letter Agreement, dated June 13, 2001,
    between Registrant and Williamson
    Bradford, M.D., Ph.D.(18)10
.32+

Employment Offer Letter Agreement, dated June 1, 2001,
    between Registrant and Steven Porter, M.D., Ph.D.(18)10
.33+

Employment Offer Letter Agreement, dated August 9, 2004,
    between Registrant and Robin Steele.(18)10
.34+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated August 18, 2004, between Registrant and
    Marianne Armstrong, Ph.D.(18)10
.35+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated August 18, 2004, between Registrant and
    Lawrence M. Blatt, Ph.D.(18)10
.36+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated July 27, 2004, between Registrant and
    Williamson Bradford, M.D., Ph.D.(18)10
.37+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated July 26, 2004, between Registrant and Steven
    Porter, M.D., Ph.D.(18)10
.38+

Amendment to Offer Letter re Severance Pay and Change in
    Control, dated July 27, 2004, between Registrant and Howard
    A. Simon, Esq.(18)10
.39*

Product Acquisition Agreement, dated November 28, 2005,
    between Registrant and Valeant Pharmaceuticals North America.(19)10
.40*

Asset Purchase Agreement dated December 23, 2005, between
    Registrant and Targanta Therapeutics Corporation.(20)10
.41+

Severance Agreement and General Release, dated January 6,
    2006, between Registrant and Roger L. Hawley.(20)10
.42*

Amendment No. 6, dated February 27, 2006, to License
    Agreement dated May 5, 1998, between Registrant and
    Genentech, Inc.(20)10
.43*

Exclusive License and Collaboration Agreement dated
    October 16, 2006 between Registrant and
    Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche
    Ltd.(21)10
.44

Deferred Prosecution Agreement between Registrant and the United
    States Attorneys Office for the Northern District of
    California(21)10
.45

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(21)10
.46

Corporate Integrity Agreement between Registrant and the Office
    of the Inspector General of the United States Department of
    Health and Human Services(21)10
.47+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Howard Simon.(22)10
.48+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Robin Steele.(22)10
.49+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and John Hodgman.(22)10
.50+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Bill Bradford.(22)10
.51+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Steve Porter.(22)10
.52+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Marianne Armstrong.(22)10
.53+

Retention Payment Agreement dated May 24, 2007 between
    Registrant and Lawrence Blatt.(22)




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##### Table of Contents



Number

Description of Document10
.54+

Separation Agreement and Release of Claims dated July 3,
    2007 between Registrant and Thomas Kassberg.(23)10
.55+

Separation Agreement and Release of Claims dated July 3,
    2007 between Registrant and Cynthia Robinson.(23)10
.56*

Termination Agreement dated June 6, 2007 between Registrant
    and Boehringer Ingelheim Austria GmbH.(25)10
.57*

Supply Agreement dated June 29, 2007 between Registrant and
    Boehringer Ingelheim Austria GmbH.(25)10
.58

Letter Amendment dated December 19, 2007 to Product
    Acquisition Agreement dated November 28, 2005 between
    Registrant and Valeant Pharmaceuticals North America.(26)10
.59**

Asset Purchase Agreement, dated November 19, 2007, among
    Registrant, Marnac, Inc., and Dr. Solomon B. Margolin.(26)10
.60**

Asset Purchase Agreement, dated November 21, 2007, among
    Registrant, KDL GmbH, and Dr. Shitotomo Yamauchi.(26)10
.61**

License Agreement, dated August 24, 2004, between
    Registrant and Chiron Corporation.(26)10
.62**

Drug Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.63**

Amendment No. 1, dated May 8, 2003, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.64**

Amendment No. 2, dated January 7, 2004, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.65**

Amendment No. 3, dated September 10, 2004, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.66**

Amendment No. 4, dated December 7, 2004, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.67**

Letter Agreement, dated March 10, 2005, between Registrant
    and Array BioPharma Inc.(26)10
.68**

Amendment No. 5, dated June 30, 2005, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.69**

Amendment No. 6, dated February 3, 2006, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)10
.70**

Amendment No. 7, dated June 28, 2006, to the Drug
    Discovery Collaboration Agreement, dated September 13,
    2002, between Registrant and Array BioPharma Inc.(26)21
.1

List of Subsidiaries(26)23
.1

Consent of Independent Registered Public Accounting Firm(26)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)(26)31
.2

Certification required by
    Rule 13a-14(a)
    or
    Rule 15d-14(a)(26)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)(26)     *
    
    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




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##### Table of Contents



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)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2000.(3)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000.(4)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on August 23, 2000.(5)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000.(6)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2001.(7)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on July 18, 2001.(8)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001.(9)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2002.(10)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2003.(11)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended June 30, 2003.(12)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended September 30, 2003.(13)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003.(14)
    
    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.(15)
    
    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.(16)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on November 4, 2004.(17)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    filed for the quarter ended March 31, 2005.(18)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004.(19)
    
    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.(20)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.(21)
    
    Filed as an exhibit to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2006.(22)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on May 25, 2007.(23)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on July 10, 2007.(24)
    
    Filed as an exhibit to the Registrants Current Report on
    Form 8-K
    on September 21, 2007.(25)
    
    Filed as an exhibit to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007.(26)
    
    Filed herewith.