##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


FOR ANNUAL AND TRANSITION REPORTS


PURSUANT TO SECTION 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 1934    
|   |  | For the fiscal year ended December 31, 2004                                                 
|  
|or
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|   |  | For the transition period
    from           to                                             

Commission File No. 0-19591


Epimmune Inc.


(Exact name of registrant as specified in its charter)


|                                                                                                |  |                                         
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                        |  | 33-0245076                              
|(State or other jurisdiction of
    incorporation or organization)                              |  | (I.R.S. Employer
    Identification No.)
|5820 Nancy Ridge Drive,
    San Diego, California 92121(Address of Principal executive offices)

Registrants telephone number, including area code:


(858) 860-2500


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $.01 par value


(Title of class)


þ o


þ


o þ











|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes 293,693 shares of Common Stock held by directors
    and officers and stockholders whose ownership exceeds 10% of the
    Common Stock outstanding on June 30, 2004. Exclusion of
    shares held by any person should not be construed to indicate
    that such person possesses the power, direct or indirect, to
    direct or cause the direction of the management or policies of
    the Registrant, or that such person is controlled by or under
    common control with the Registrant.









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##### 



PART I




|        |         
|------- | --------
|Item 1. | Business

Forward Looking Statements






Overview












1



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##### 











Market Opportunities




| |    
| | ---
| | HIV







2



---



##### 







| |                           
| | --------------------------
| | Lung and Colorectal Cancer



h


The Immune Response








3



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##### 











| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the inability of drug developers to identify the antigens
    appropriate to induce the desired immune response; and                                                                  
|
| |  | the inability to present or display these relevant antigens in a
    manner that induces T cell responses sufficiently potent and
    broad enough to actually destroy diseased cells.



Our Approach








| |   |                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enhanced Potency: For some diseases, such as cancer,
    whole antigens or even naturally occurring epitopes may not be
    sufficient to generate an effective immune response. In
    contrast, we are selectively altering the composition of
    specific epitopes in vaccines to enhance the desired immune
    response.
|
| |  | Sustained Efficacy: We select multiple epitopes from
    conserved regions of multiple viral or tumor-associated
    antigens, increasing the likelihood that the vaccine will
    continue to elicit an effective immune response as the virus or
    tumor changes.                                                         
|
| |  | Improved Safety: The use of selected, well defined
    epitopes is designed to elicit a specifically targeted immune
    response with fewer undesired side effects than can be caused by
    whole antigen vaccines.                                                                                                         
|
| |  | Better Quality Control: Our approach allows us to develop
    well-characterized, fully synthetic vaccines with a high degree
    of consistency, simplifying manufacturing and product
    characterization.                                                                                                                 
|
| |  | Broader Disease and Population Coverage: We are designing
    vaccines using multiple epitopes so that our vaccines can
    address different strains of a disease or be used to treat the
    worlds diverse population, regardless of varying genetic
    profiles.                                                        

4



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##### 



Our Vaccine Product Candidates




|                      |                      |                              |                                       |                   |             
|--------------------- | -------------------- | ---------------------------- | ------------------------------------- | ----------------- | ------------
|                      |                      |                              |                                       | Commercialization
|Indication            |                      | Product Development Stage(1) |                                       | Rights           
|                      |                      |                              |                                       |                  
|Infectious Diseases   |                      |                              |                                       |                  
|Therapeutic Vaccines  |                      |                              |                                       |                  
|                      | HIV                  |                              | Phase I/II Clinical Trial             |                   | Epimmune    
|                      | Hepatitis B          |                              | Phase I Clinical Trial                |                   | Innogenetics
|                      | Hepatitis C          |                              | Preclinical                           |                   | Innogenetics
|                      | Papilloma virus      |                              | Preclinical                           |                   | Innogenetics
|Prophylactic Vaccines |                      |                              |                                       |                  
|                      | HIV                  |                              | Preclinical/Phase I Clinical Trial(2) |                   | Epimmune    
|                      | Malaria              |                              | Preclinical                           |                   | Epimmune    
|                      | Hepatitis C          |                              | Preclinical                           |                   | Innogenetics
|Cancer                |                      |                              |                                       |                  
|Therapeutic Vaccines  |                      |                              |                                       |                  
|                      | Colorectal           |                              | Phase I/II Clinical Trial completed   |                   | Epimmune    
|                      | Non-Small Cell Lung  |                              | Phase II Clinical Trial ongoing       |                   | Epimmune    
|                      | Breast               |                              | Preclinical                           |                   | Epimmune    
|                      | Prostate             |                              | Epitope/Antigen Identification        |                   | Epimmune    
|Ex Vivo Immunotherapy |                      |                              |                                       |                  
|                      | Various Solid Tumors |                              | Preclinical                           |                   | Anosys      
|                      | Various Solid Tumors |                              | Preclinical                           |                   | IDM         






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | By using the term Epitope/ Antigen Identification, we mean that
    we are discovering, evaluating and selecting epitopes for
    inclusion in candidate vaccines that would be advanced to
    preclinical development. By using the term Preclinical, we mean
    that we have identified and selected specific epitope
    compositions for inclusion in a vaccine and are conducting
    preclinical testing aimed at optimizing the construction,
    formulation and manufacture of the vaccine and toxicology
    studies with the objective of filing an investigational new drug
    application or IND with regulatory authorities.
|   
|(2) | Phase I clinical trial being conducted by the National
    Institutes of Health, or NIH and HIV Vaccine Trials Network, or
    HVTN.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



| |                            
| | ---------------------------
| | Therapeutic Vaccine for HIV





5



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| |                                                                      
| | ---------------------------------------------------------------------
| | Therapeutic Vaccine for Non-Small Cell Lung and Colorectal
    Cancer









6



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##### 







| |               
| | --------------
| | Other Vaccines





Our Technology




| |                                    
| | -----------------------------------
| | Epitope Identification System (EIS)





| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We use computer algorithms to analyze the sequence of all known
    antigens associated with the target disease for the presence of
    peptides that contain specified types of epitopes from conserved
    regions of the antigens.      
|
| |  | We synthesize peptides that meet these requirements and perform
    in vitroassays to assess binding to human MHC
    molecules referred to as human leukocyte antigens, or HLA.                                                           
|
| |  | We evaluate peptides to assess their ability to bind broadly to
    a spectrum of MHC molecules referred to as HLA. We identify
    epitopes from these peptides that enable broad population
    coverage for the vaccine being developed.
|
| |  | We then test peptides for immunogenicity, both in vivoin
    transgenic mice, which express HLA, and in vitroagainst infected or transfected cells.                                                                                        





| |                       
| | ----------------------
| | Multi-Epitope Vaccines





7



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| |       
| | ------
| | PADRE®





| |   |                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | PADRE® can be easily synthesized and its linkage to
    an antigen readily characterized, whereas the carrier proteins
    traditionally used to enhance immune response can complicate
    manufacturing;                                                                                                                       
|
| |  | The antibody responses generated by PADRE® are primarily
    specific to the vaccine antigen, rather than to PADRE®,
    whereas carrier proteins generate high antibody responses
    specific primarily to the carrier protein itself rather than to
    the vaccine antigen, which can render the vaccine
    ineffective; and
|
| |  | Because it simplifies vaccine manufacture and induces antibodies
    primarily specific to the vaccine antigens with which it is
    used, PADRE® could simplify the development of combination
    vaccines, whereas the use of carrier proteins is generally
    limited to vaccines containing single protein antigens.       



Collaborations and Licenses






| |                                                   
| | --------------------------------------------------
| | Collaboration and Technology In-License Agreements

Bavarian Nordic A/ S.


8



---



##### 





Innogenetics N.V.


Valentis, Inc.




| |                          
| | -------------------------
| | License Option Agreements

Merck & Co.


Beckman Coulter, Inc.


9



---



##### 





| |                                                                 
| | ----------------------------------------------------------------
| | License Agreements for Technology Outside our Areas of
    Focus

Amgen.


Immuno-Designed Molecules, S.A. tm ex vivo


Anosys Inc. ex vivo


Pharmexa A/ S. tm




| |                            
| | ---------------------------
| | Government Research Funding









10



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##### 









Patents, Proprietary Rights and Licenses










11



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##### 







Competition


h h






Government Regulation




12



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##### 









| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | preclinical laboratory and animal tests,                                                                                                                   
|
| |  | the submission to the FDA of an application for an IND, which
    must become effective before human clinical trials may commence
    in the United States,
|
| |  | adequate and well-controlled human clinical trials to establish
    the safety and efficacy of the drug,                                                   
|
| |  | the submission of a new drug application, or NDA, or a biologic
    license application, or BLA, to the FDA, and                                           
|
| |  | the FDA approval of the NDA or BLA prior to any commercial sale
    or shipment of the drug.                                                               











| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | determine the effectiveness of the drug for specific targeted
    indications,
|
| |  | determine dosage tolerance and optimal dosage and
    regimen, and            
|
| |  | identify possible adverse side effects and safety risks.                      



13



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##### 















Manufacturing




Employees




14



---



##### 





Available Information


www.epimmune.com


15



---



##### 



RISK FACTORS


We wish to caution readers that the following important
factors, among others, in some cases have affected our results
and in the future could cause our actual results and needs to
vary materially from forward-looking statements made from time
to time by us on the basis of managements then-current
expectations. The business in which we are engaged is in rapidly
changing and competitive markets and involves a high degree of
risk, and accuracy with respect to forward-looking projections
is difficult.


Our substantial additional financing requirements and limited
access to financing may adversely affect our ability to develop
products and fund our operations.






| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether our proposed transaction with IDM is successfully
    completed;                                                                                                                 
|
| |  | whether we are able to secure additional financing on favorable
    terms, or at all;                                                                                                    
|
| |  | the costs associated with our ongoing Phase I/ II clinical
    trial for our vaccine targeting HIV, which began in September
    2002, including the status of our contract with the NIH;
|
| |  | the costs associated with our Phase II clinical trial for
    our vaccine targeting NSCLC, which began in December 2004;                                                                 
|
| |  | progress with other preclinical testing and clinical trials in
    the future;                                                                                                           
|
| |  | our ability to establish and maintain collaboration and license
    agreements and any government contracts and grants;                                                                  
|
| |  | the actual revenue we receive under our collaboration and
    license agreements;                                                                                                        
|
| |  | the actual costs we incur under our research collaboration with
    Bavarian Nordic;                                                                                                     
|
| |  | the time and costs involved in obtaining regulatory approvals;                                                                                                                           
|
| |  | the costs involved in filing, prosecuting, enforcing and
    defending patent claims and any other proprietary rights;                                                                   
|
| |  | competing technological and market developments;                                                                                                                                         
|
| |  | changes in our existing research relationships;                                                                                                                                          
|
| |  | continued scientific progress in our drug discovery
    programs; and                                                                                                                    
|
| |  | the magnitude of our drug discovery and development programs.                                                                                                                            



16



---



##### 





We may not meet all of The Nasdaq National Markets
continued listing requirements and we may be delisted, which
could reduce the liquidity of our common stock and adversely
affect our ability to raise additional necessary capital.




The process of developing therapeutic products requires
significant research and development, preclinical testing and
clinical trials, all of which are extremely expensive and
time-consuming and may not result in a commercial product.






| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the results of preclinical studies may be inconclusive, or they
    may not be indicative of results that will be obtained in human
    clinical trials;                                                                                
|
| |  | after reviewing test results, we or our collaborators may
    abandon projects that we might previously have believed to be
    promising;                                                                                              
|
| |  | we, our collaborators or regulators may suspend or terminate
    clinical trials if the participating subjects or patients are
    being exposed to unacceptable health risks;                                                          
|
| |  | we may have to delay clinical trials as a result of scheduling
    conflicts with participating clinicians and clinical
    institutions, or difficulties in identifying and enrolling
    patients who meet trial eligibility criteria;
|
| |  | safety and efficacy results attained in early human clinical
    trials may not be indicative of results that are obtained in
    later clinical trials; and                                                                            
|
| |  | the effects our vaccine candidates have may not be the desired
    effects or may include undesirable side effects or other
    characteristics that preclude regulatory approval or limit their
    commercial use if ever approved.   

17



---



##### 





Some of our programs are funded by the U.S. government
and the government may not allocate funds for these programs in
future fiscal years.




Our history of operating losses and our expectations of
continuing losses may hurt our ability to reach profitability or
continue operations.




We are at an early stage of development, and we may
experience delays and other problems in entering clinical
trials.




Unexpected side effects or other characteristics of our
technology may delay or otherwise hurt the development of our
vaccine candidates.




18



---



##### 



There are no therapeutic vaccines that have been approved for
use by the FDA and our vaccines may not work, which would
prevent us from ever becoming profitable.




Adverse publicity regarding the safety or side effects of the
technology approach or products of others could reduce our
revenues and cause our stock price to fall.




Our research and development programs may not yield effective
product candidates, which could prevent us from developing our
products.




We may not identify the correct epitopes and, therefore, not
develop a safe or effective vaccine.




Our business is based on a novel technology, which has not
been used in any commercial drugs, and may not work.




Our failure to obtain issued patents and, consequently, to
protect our proprietary technology, could hurt our competitive
position.




19



---



##### 







| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the pending patent applications we have filed or to which we
    have exclusive rights may not result in issued patents or may
    take longer than we expect to result in issued patents;                                     
|
| |  | the allowed claims of any patents that issue may not provide
    meaningful protection;                                                                                                                                        
|
| |  | we may be unable to develop additional proprietary technologies
    that are patentable;                                                                                                                                       
|
| |  | the patents licensed or issued to us may not provide a
    competitive advantage;                                                                                                                                              
|
| |  | other companies may challenge patents licensed or issued to us;                                                                                                                                                                
|
| |  | disputes may arise regarding inventions and corresponding
    ownership rights in inventions and know-how resulting from the
    joint creation or use of intellectual property by us, our
    licensors, or collaborators; and
|
| |  | other companies may design around our patented technologies.                                                                                                                                                                   

Our competitors may develop products that are more effective
and that render our potential products obsolete.




If we are unable to compete effectively in the highly
competitive biotechnology industry, our business will fail.






| |   |                                     
| | - | ------------------------------------
| |  | pharmaceutical companies;           
|
| |  | chemical companies;                 
|
| |  | specialized biotechnology companies;
|
| |  | academic institutions; and          
|
| |  | research organizations.             



PhRMA PhRMA


20



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##### 





Litigation regarding intellectual property rights owned or
used by us may be costly and time-consuming.










| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | assert against others or defend ourselves against claims of
    infringement;                    
|
| |  | enforce patents in our portfolio owned by us or licensed from
    another party;                 
|
| |  | protect our trade secrets or know-how; or                                                        
|
| |  | determine the enforceability, scope and validity of the
    proprietary rights of ours or others.

If we cannot obtain and maintain strategic collaborations on
acceptable terms in the future, we may not be able to develop
products in markets where it would be too costly or complex to
do so on our own.




If our collaboration or license arrangements are
unsuccessful, our revenues and product development may be
limited.






| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | collaborators and licensees may not pursue further development
    and commercialization of potential products resulting from our
    collaborations or may elect not to renew research and
    development programs;                                                          
|
| |  | collaborators and licensees may delay clinical trials,
    under-fund a clinical trial program, stop a clinical trial or
    abandon a product candidate, repeat or conduct new clinical
    trials or require new formulation of a product candidate for
    clinical testing;
|
| |  | expected revenue might not be generated because milestones may
    not be achieved and product candidates may not be developed;                                                                                                                                                

21



---



##### 





| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | collaborators and licensees could independently develop, or
    develop with third parties, products that could compete with our
    future products;                                                                                                                       
|
| |  | the terms of our contracts with our current or future
    collaborators and licensees may not be favorable to us in the
    future;                                                                                                                                         
|
| |  | a collaborator or licensee with marketing and distribution
    rights to one or more of our products may not commit enough
    resources to the marketing and distribution of our products,
    limiting our potential revenues from the commercialization of a
    product;
|
| |  | disputes may arise delaying or terminating the research,
    development or commercialization of our product candidates, or
    result in significant and costly litigation or
    arbitration; and                                                                         
|
| |  | collaborations and licensee arrangements may be terminated and
    we will experience increased operating expenses and capital
    requirements if we elect to pursue further development of the
    product candidate.                                                     

We may not be able to obtain licenses to technology that is
necessary for us to develop products.




We may not be able to commercialize our products under
development if they infringe claims in existing patents or
patents that have not yet issued, and this would materially harm
our ability to operate.




If we, or our collaborators cannot cost-effectively
manufacture vaccines in commercial quantities and for clinical
trials in compliance with regulatory requirements, we, or our
collaborators may not be able to successfully commercialize the
products.






22



---



##### 





If we do not successfully develop and commercialize our
products, we may never generate significant revenues or become
profitable.




The lengthy approval process and uncertainty of government
regulatory requirements may impair our ability to develop,
manufacture and sell any vaccines.






| |   |                                                           
| | - | ----------------------------------------------------------
| |  | fines and penalties;                                      
|
| |  | injunctions;                                              
|
| |  | seizure of products;                                      
|
| |  | total or partial suspension of product marketing;         
|
| |  | failure of the government to grant a new drug application;
|
| |  | withdrawal of marketing approvals; and                    
|
| |  | criminal prosecution.                                     





23



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##### 



The approval process outside the United States is also
uncertain and may limit our ability to develop, manufacture and
sell our products internationally.




Even if we obtain regulatory approval, we may be required to
perform additional clinical trials or change the labeling of our
products if we, or others identify side effects after our
products are on the market, which could harm sales of the
affected products.






| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | regulatory approval may be withdrawn;                                                                                                                                                
|
| |  | reformulation of our products, additional clinical trials,
    changes in labeling of our products or changes to or
    re-approvals of our manufacturing facilities may be required;
|
| |  | sales of the affected products may drop significantly;                                                                                                                               
|
| |  | our reputation in the marketplace may suffer; and                                                                                                                                    
|
| |  | lawsuits, including costly and lengthy class action suits, may
    be brought against us.                                                                                            



If we are unable to protect our trade secrets, we may be
unable to protect from competitors our interests in proprietary
know-how that is not patentable or for which we have elected not
to seek patent protection.




If we lose our key scientific and management personnel or are
unable to attract and retain qualified personnel, it could delay
or hurt our epitope identification and vaccine development
efforts.




24



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##### 





We out-license technology outside of our core area of focus,
and these licensees may not develop any products using our
technology, which may limit our revenue.




Some of our programs are funded by the U.S. government
and, therefore, the government may have rights to certain of our
technology and could require us to grant licenses of our
technology to third parties.




Adverse determinations concerning product pricing,
reimbursement and related matters could prevent us from
successfully commercializing products and impair our ability to
generate revenues.




Product liability risks may expose us to significant
liability that could cause us to incur significant costs or
cease developing our products.




Our use of hazardous materials could expose us to significant
costs.




25



---



##### 



The subordination of our common stock to our preferred stock
could hurt common stockholders and, upon conversion, our
preferred stock will further dilute our holders of common
stock.




The volatility of the price of our common stock may hurt our
stockholders.






| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | whether we are able to secure additional financing on favorable
    terms, or at all;                                   
|
| |  | announcements of technological innovations or new commercial
    vaccines or other therapeutic products by us or others;
|
| |  | governmental regulation that affects the biotechnology and
    pharmaceutical industries;                               
|
| |  | developments in patent or other proprietary rights;                                                                     
|
| |  | receipt of funding under collaboration and license agreements
    and government grants;                                
|
| |  | developments in, or termination of, our relationships with our
    collaborators and licensees;                         
|
| |  | public concern as to the clinical results and/or the safety of
    drugs developed by us or others; and                 
|
| |  | announcements related to the sale of our stock.                                                                         



Concentration of ownership among our existing officers,
directors and principal stockholders may prevent other
stockholders from influencing significant corporate decisions
and depress our stock price.




26



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##### 





|        |           
|------- | ----------
|Item 2. | Properties





|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings





|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



PART II




|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters



|     |                                  |      |   |      |     |  |   |      | 
|---- | -------------------------------- | ---- | - | ---- | --- |  | - | ---- | 
|     |                                  | High |   |      | Low | 
|     |                                  |      |   |      |     | 
|2005 |                                  |      |   |      |     |  |   |     
|     | First Quarter (through March 29) |      | $ | 1.73 |     |  | $ | 1.04 | 
|2004 |                                  |      |   |      |     |  |   |     
|     | First Quarter                    |      | $ | 2.99 |     |  | $ | 1.76 | 
|     | Second Quarter                   |      | $ | 2.47 |     |  | $ | 1.60 | 
|     | Third Quarter                    |      | $ | 1.94 |     |  | $ | 1.10 | 
|     | Fourth Quarter                   |      | $ | 1.99 |     |  | $ | 1.15 | 
|2003 |                                  |      |   |      |     |  |   |     
|     | First Quarter                    |      | $ | 1.25 |     |  | $ | 0.75 | 
|     | Second Quarter                   |      | $ | 2.07 |     |  | $ | 0.76 | 
|     | Third Quarter                    |      | $ | 4.29 |     |  | $ | 1.01 | 
|     | Fourth Quarter                   |      | $ | 3.21 |     |  | $ | 1.50 | 









27



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##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                       |  |                                              |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|-------------------------------------- |  | -------------------------------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                       |  | Years Ended December 31,                     |      
|                                       |  |                                              |      
|                                       |  | 2004                                         |       |   | 2003 |   |       | 2002 |  |   | 2001  |   |  | 2000 |      
|                                       |  |                                              |       |   |      |   |       |      |  |   |       |   |  |      |      
|                                       |  | (In millions, except for net loss per share) |      
|Operating revenues                     |  | $                                            | 9.6   |   |      | $ | 7.2   |      |  | $ | 7.1   |   |  | $    | 8.2   |   |  | $ | 1.6   |  
|Net loss                               |  |                                              | (3.9  | ) |      |   | (7.1  | )    |  |   | (6.5  | ) |  |      | (2.6  | ) |  |   | (4.7  | )
|Net loss per share  basic and diluted |  |                                              | (0.25 | ) |      |   | (0.58 | )    |  |   | (0.57 | ) |  |      | (0.31 | ) |  |   | (0.68 | )

|                      |  |                    |      |  |      |   |      |      |  |   |      |  |  |      |      |  |  |   |      | 
|--------------------- |  | ------------------ | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | ---- | ---- |  |  | - | ---- | 
|                      |  | As of December 31, |     
|                      |  |                    |     
|Balance Sheet Data:   |  | 2004               |      |  | 2003 |   |      | 2002 |  |   | 2001 |  |  | 2000 |     
|                      |  |                    |      |  |      |   |      |      |  |   |      |  |  |      |     
|                      |  | (In millions)      |     
|Working capital       |  | $                  | 6.4  |  |      | $ | 4.8  |      |  | $ | 7.7  |  |  | $    | 15.4 |  |  | $ | 8.2  | 
|Total assets          |  |                    | 14.8 |  |      |   | 12.7 |      |  |   | 15.5 |  |  |      | 23.9 |  |  |   | 14.5 | 
|Long-term obligations |  |                    |     |  |      |   |     |      |  |   |     |  |  |      | 0.04 |  |  |   | 0.4  | 
|Stockholders equity  |  |                    | 11.1 |  |      |   | 9.7  |      |  |   | 12.6 |  |  |      | 19.4 |  |  |   | 12.1 | 



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ
materially from those discussed here. Factors that could cause
or contribute to such differences include, without limitation,
those discussed below and in the section entitled Risk
Factors.






28



---



##### 













Subsequent Events




29



---



##### 



















30



---



##### 





Significant Accounting Policies






| |                    
| | -------------------
| | Revenue Recognition





| |        
| | -------
| | Patents





| |                  
| | -----------------
| | Investment Policy



31



---



##### 





Results of Operations








32



---



##### 



















33



---



##### 











Liquidity and Capital Resources








34



---



##### 











| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether our proposed transaction with IDM is successfully
    completed;                                                                                                                 
|
| |  | whether we are able to secure additional financing on favorable
    terms, or at all;                                                                                                    
|
| |  | the costs associated with our ongoing Phase I/ II clinical
    trial for our vaccine targeting HIV, which began in September
    2002, including the status of our contract with the NIH;
|
| |  | the costs associated with our Phase II clinical trial for
    our vaccine targeting lung cancer, which began in December 2004;                                                           
|
| |  | progress with other preclinical testing and clinical trials in
    the future;                                                                                                           
|
| |  | our ability to establish and maintain collaboration and license
    agreements and any government contracts and grants;                                                                  
|
| |  | the actual revenue we receive under our collaboration and
    license agreements;                                                                                                        
|
| |  | the actual costs we incur under our research collaboration with
    Bavarian Nordic;                                                                                                     
|
| |  | the time and costs involved in obtaining regulatory approvals;                                                                                                                           
|
| |  | the costs involved in filing, prosecuting, enforcing and
    defending patent claims and any other proprietary rights;                                                                   
|
| |  | competing technological and market developments;                                                                                                                                         
|
| |  | changes in our existing research relationships;                                                                                                                                          

35



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##### 





| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | continued scientific progress in our drug discovery
    programs; and
|
| |  | the magnitude of our drug discovery and development programs.        



Contractual Obligations




|                                         |  |                        |       |           |        |   |       |     |  |       |       |  |           |         |       |  |  |   |     | 
|---------------------------------------- |  | ---------------------- | ----- | --------- | ------ | - | ----- | --- |  | ----- | ----- |  | --------- | ------- | ----- |  |  | - | --- | 
|                                         |  | Payments Due by Period |      
|                                         |  |                        |      
|                                         |  |                        |       | Less than |        |   | Years |     |  | Years |       |  | More than |        
|                                         |  | Total                  |       |           | 1 Year |   |       | 2-3 |  |       | 4-5   |  |           | 5 Years |      
|                                         |  |                        |       |           |        |   |       |     |  |       |       |  |           |         |      
|                                         |  | (Unaudited)            |      
|                                         |  | (in thousands)         |      
|Operating lease obligations(1)           |  |                        | 2,685 |           |        |   | 602   |     |  |       | 1,259 |  |           |         | 824   |  |  |   |    | 
|Licensing and purchase obligations(2)(3) |  |                        | 1,921 |           |        |   | 419   |     |  |       | 412   |  |           |         | 390   |  |  |   | 700 | 
|Deferred compensation                    |  |                        | 184   |           |        |   | 63    |     |  |       | 121   |  |           |         |      |  |  |   |    | 
|                                         |  |                        |       |           |        |   |       |     |  |       |       |  |           |         |      
|Total                                    |  | $                      | 4,790 |           |        | $ | 1,084 |     |  | $     | 1,792 |  |           | $       | 1,214 |  |  | $ | 700 | 
|                                         |  |                        |       |           |        |   |       |     |  |       |       |  |           |         |      






|    |                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Facilities lease, which expires in March 2009.                                                                                                                                                                                                                                                                                                                                    
|   
|(2) | Licensing and purchase obligations includes an estimate of
    $1,560,000 for future payment obligations under existing license
    agreements which may become due and payable in the periods
    specified based on projected achievement of triggering events,
    although there can be no assurance such events will be achieved
    in the projected time frames, if at all.
|   
|(3) | Projections do not include obligations under any of our
    agreements related to the conduct of clinical trials as these
    agreements may generally be terminated with 30-days notice.                                                                                                                                                                                         

Recently Issued Accounting Standards


ccounting for Stock-Based
Compensation, Accounting for Stock Issued to
Employees,




|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risks



36



---



##### 







|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary
    Data





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure



Item 9(A). Controls and Procedures










PART III




|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



|                              |  |     |    |  |          |                                                                            
|----------------------------- |  | --- | -- |  | -------- | ---------------------------------------------------------------------------
|Name                          |  | Age |    |  | Position
|                              |  |     |    |  |         
|Directors:                    |  |     |    |  |          |                                                                            
|Howard E. (Ted) Greene, Jr. |  |     | 62 |  |          | Chairman of the Board of Directors                                         
|William T. Comer, Ph.D.       |  |     | 69 |  |          | Director                                                                   
|Georges Hibon                 |  |     | 67 |  |          | Director                                                                   
|Michael G. Grey               |  |     | 52 |  |          | Director                                                                   
|Emile Loria, M.D.             |  |     | 55 |  |          | Director, President and Chief Executive Officer                            
|John P. McKearn, Ph.D.        |  |     | 51 |  |          | Director                                                                   
|Executive Officers:           |  |     |    |  |          |                                                                            
|Emile Loria, M.D.             |  |     | 55 |  |          | Director, President and Chief Executive Officer                            
|Robert J. De Vaere            |  |     | 47 |  |          | Vice President, Finance and Administration, and Chief Financial
    Officer
|Mark J. Newman, Ph.D.         |  |     | 50 |  |          | Vice President, Research and Development                                   



| |          
| | ---------
| | Directors

Mr. Greene,


37



---



##### 





Dr. Comer


Mr. Hibon


Mr. Grey


Dr. Loria


Dr. McKearn


38



---



##### 







| |                   
| | ------------------
| | Executive Officers

Mr. De Vaere


Dr. Newman


Independence of the Board of Directors






Board Committees and Meetings






|                        |  |       |   |   |              |                |   |            |  |  |   |  
|----------------------- |  | ----- | - | - | ------------ | -------------- | - | ---------- |  |  | - | -
|                        |  |       |   |   |              | Governance and |  
|Name                    |  | Audit |   |   | Compensation |                |   | Nominating | 
|                        |  |       |   |   |              |                |   |            | 
|Howard E. Greene, Jr.   |  |       | X | * |              |                | X | *          |  |  |   |  
|William T. Comer, Ph.D. |  |       | X |   |              |                | X |            |  |  |   |  
|Michael G. Grey         |  |       | X |   |              |                |   |            |  |  | X | *
|John P. McKearn, Ph.D.  |  |       |   |   |              |                | X |            |  |  | X |  






|  |                      
|- | ---------------------
|* | Committee Chairperson

39



---



##### 





Audit Committee.




Compensation Committee.


Nominating Committee.


Attendance at Board and Committee Meetings.


Code of Ethics


www.epimmune.com


40



---



##### 





|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Director Compensation








Section 16(a) Beneficial Ownership Reporting
Compliance




41



---



##### 



Compensation of Executive Officers




Summary Compensation Table


|                             |                                    |                        |      |       |            |  |         |                     |  |         |           |         |              |     |   |   |        |  |         |         |  |  |       |       | 
|---------------------------- | ---------------------------------- | ---------------------- | ---- | ----- | ---------- |  | ------- | ------------------- |  | ------- | --------- | ------- | ------------ | --- | - | - | ------ |  | ------- | ------- |  |  | ----- | ----- | 
|                             |                                    |                        |      |       |            |  |         | Long-Term           |  |         |          
|                             |                                    |                        |      |       |            |  |         | Compensation Awards |  |         |          
|                             |                                    |                        |      |       |            |  |        
|                             |                                    | Annual Compensation(1) |      |       | Restricted |  |         | Securities          |  |         |          
|                             |                                    |                        |      |       | Stock      |  |         | Underlying          |  |         | All Other |        
|                             |                                    |                        |      | Bonus |            |  | Awards  |                     |  | Options |           |         | Compensation |    
|Name and Principal Position  |                                    | Year                   |      |       | Salary($)  |  |         | ($)(2)              |  |         | ($)       |         |              | (#) |   |   | ($)(3) | 
|                             |                                    |                        |      |       |            |  |         |                     |  |         |           |         |              |     |   |   |        | 
|Dr. Emile Loria(4)(5)(6)(9)  |                                    |                        | 2004 |       |            |  | 350,000 |                     |  |         | 50,000    |         |              |     | 0 |   |        |  | 500,000 |         |  |  | 2,408 |      
|                             | President, Chief Executive Officer |                        |      | 2003  |            |  |         | 350,000             |  |         |           | 25,000  |              |     |   | 0 |        |  |         | 500,000 |  |  |       | 1,387 | 
|                             |                                    |                        |      | 2002  |            |  |         | 300,000             |  |         |           | 100,098 |              |     |   | 0 |        |  |         | 0       |  |  |       | 1,058 | 
|Dr. Mark J. Newman(7)(9)     |                                    |                        | 2004 |       |            |  | 225,000 |                     |  |         | 50,000    |         |              |     | 0 |   |        |  | 160,000 |         |  |  | 828   |      
|                             | Vice President, Research and       |                        |      | 2003  |            |  |         | 195,833             |  |         |           | 25,000  |              |     |   | 0 |        |  |         | 50,000  |  |  |       | 724   | 
|                             | Development & Asst. Secretary      |                        |      | 2002  |            |  |         | 185,000             |  |         |           | 98      |              |     |   | 0 |        |  |         | 0       |  |  |       | 597   | 
|Mr. Robert J. De Vaere(8)(9) |                                    |                        | 2004 |       |            |  | 215,000 |                     |  |         | 50,000    |         |              |     | 0 |   |        |  | 160,000 |         |  |  | 789   |      
|                             | Vice President, Finance and        |                        |      | 2003  |            |  |         | 195,000             |  |         |           | 25,000  |              |     |   | 0 |        |  |         | 50,000  |  |  |       | 724   | 
|                             | Administration, Chief Financial    |                        |      | 2002  |            |  |         | 185,000             |  |         |           | 98      |              |     |   | 0 |        |  |         | 0       |  |  |       | 398   | 
|                             | Officer and Secretary              |                        |      |       |            |  |         |                     |  |         |           |         |              |     |   |   |        |  |         |         |  |  |       |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As permitted by rules promulgated by the SEC, no amounts are
    shown with respect to certain perquisites, where
    such amounts do not exceed the lesser of 10% of bonus plus
    salary or $50,000, in the column Other Annual
    Compensation. Accordingly, because no amounts would be
    included in this column, we have excluded this column from the
    above table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | All officers of the Company were granted a stock bonus award
    during 2002 of 100 shares of our common stock in exchange
    for the termination of their participation in the 2002
    Management Bonus Plan. The fair market value of our common stock
    on December 16, 2002, the issuance date, was $0.98 per
    share, or $98 for each award.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | All other compensation consists of life insurance premiums paid
    by us unless otherwise noted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | Dr. Loria joined as our President and Chief Executive
    Officer in June 2001 at an annual salary of $300,000.
    Dr. Loria received a signing bonus of $125,000 and was
    eligible to earn a performance bonus equal to two percent of any
    proceeds received by us from any public or private equity
    financing or other transaction pursuant to which we received
    funding (other than research funding) that was completed by us
    between January 16, 2001 and January 16, 2002. During
    the period from January 16, 2001 and January 16, 2002,
    we completed transactions in which we received total funding of
    $16,379,581 making Dr. Loria eligible for bonus payments of
    $327,592 under the provisions of this agreement. Dr. Loria
    was paid a bonus of $227,592 in 2001 and the remaining accrued
    balance of $100,000 was paid in January 2002.                                                                                                            
|   
|(5) | Dr. Loria joined as our President and Chief Executive
    Officer in June 2001. In connection with his employment offer
    letter and joining our Board of Directors in January 2001, and
    as an inducement to accept the offer, we sold Dr. Loria
    1,056,301 shares of our common stock at a purchase price of
    $2.50 per share, the closing price of our common stock on
    the Nasdaq National Market on the date of purchase. The shares
    were subject to vesting in equal daily installments during the
    four-year period following the date of purchase, and we had a
    right to purchase any unvested shares at the purchase price paid
    by Dr. Loria in the event of termination of
    Dr. Lorias service to Epimmune. Dr. Loria issued
    us a promissory note for $2,641,000, the aggregate purchase
    price of the shares, which is secured by a pledge of the shares.
    In September 2003, Dr. Loria surrendered an aggregate of
    963,740 shares of our common

42



---



##### 



|    |                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | stock at the fair market value of $3.17 per share, in
    exchange for the prepayment of the outstanding principal and
    interest under the promissory note.                                                                                                                                                                                                                
|   
|(6) | Of the 500,000 options granted to Dr. Loria in 2004,
    187,500 were contingent upon the achievement of certain
    performance milestones by specific dates. These performance
    milestones were not met and the option grants associated with
    them subsequently terminated.                                                                                          
|   
|(7) | Of the 160,000 options granted to Dr. Newman in 2004,
    60,000 were contingent upon the achievement of certain
    performance milestones by specific dates. These performance
    milestones were not met and the option grants associated with
    them subsequently terminated.                                                                                          
|   
|(8) | Of the 160,000 options granted to Mr. De Vaere in 2004,
    60,000 were contingent upon the achievement of certain
    performance milestones by specific dates. These performance
    milestones were not met and the option grants associated with
    them subsequently terminated.                                                                                        
|   
|(9) | The performance milestones associated with the contingent option
    grants included: completion of a licensing transaction with a
    third party to assist in the development of any cancer or HIV
    vaccine candidate; completion of an equity financing of at least
    $10 million; and enrollment (injection) of the first
    patient in any Phase II clinical trial.



|                                                     |  |                    |         |  |                        |  |                         | 
|---------------------------------------------------- |  | ------------------ | ------- |  | ---------------------- |  | ----------------------- | 
|Executive Officer                                    |  | 2005 Salary ($)(1) |         |  | Amount of Bonus ($)(1) | 
|                                                     |  |                    |         |  |                        | 
|Emile Loria,                                         |  |                    | 375,000 |  |                        |  | 375,000 [12 months of   | 
|President and Chief Executive Officer                |  |                    |         |  |                        |  | then current salary]    | 
|Mark Newman,                                         |  |                    | 235,000 |  |                        |  | 117,500 [six months     | 
|Vice President, Research and Development             |  |                    |         |  |                        |  | of then current salary] | 
|Robert De Vaere,                                     |  |                    | 235,000 |  |                        |  | 117,500 [six months of  | 
|Vice President, Finance, and Chief Financial Officer |  |                    |         |  |                        |  | then current salary]    | 






|    |                                                                          
|--- | -------------------------------------------------------------------------
|(1) | Effective only upon the closing of the proposed combination with
    IDM.

Stock Option Grants and Exercises






43



---



##### 







Options Granted in Last Fiscal Year


|                             |  |                   |         |  |                      |  |       |             |  |                        |            |  |                |       |          |  |        |  |         |  |  |  |         | 
|---------------------------- |  | ----------------- | ------- |  | -------------------- |  | ----- | ----------- |  | ---------------------- | ---------- |  | -------------- | ----- | -------- |  | ------ |  | ------- |  |  |  | ------- | 
|                             |  | Individual Grants |         |  |                     
|                             |  |                   |         |  | Potential Realizable | 
|                             |  | Number            |         |  | % Total              |  |       |             |  | Value at Assumed       |           
|                             |  | of                |         |  | Options              |  |       |             |  | Annual Rates of Stock  |           
|                             |  | Securities        |         |  | Granted to           |  |       |             |  | Price Appreciation for |           
|                             |  | Underlying        |         |  | Employees            |  |       | Exercise or |  |                        |            |  | Option Term(2) |      
|                             |  | Options           |         |  | In Fiscal            |  |       | Base Price  |  |                        | Expiration |  |                |       |         
|Name                         |  | Granted           |         |  | Year(1)              |  |       | ($/Sh)      |  |                        | Date       |  |                | 5%($) |          |  | 10%($) | 
|                             |  |                   |         |  |                      |  |       |             |  |                        |            |  |                |       |          |  |        | 
|Dr. Emile Loria(3)(6)        |  |                   | 250,000 |  |                      |  | 21.80 | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 240,552 |  |  |  | 609,606 | 
|                             |  |                   | 62,500  |  |                      |  | 5.45  | %           |  |                        | 1.92000    |  |                |       | 06/15/14 |  |        |  | 75,467  |  |  |  | 191,249 | 
|                             |  |                   | 62,500  |  |                      |  | 5.45  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 60,138  |  |  |  | 152,502 | 
|                             |  |                   | 62,500  |  |                      |  | 5.45  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 60,138  |  |  |  | 152,502 | 
|                             |  |                   | 62,500  |  |                      |  | 5.45  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 60,138  |  |  |  | 152,502 | 
|Dr. Mark J. Newman(4)(6)     |  |                   | 80,000  |  |                      |  | 6.97  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 76,977  |  |  |  | 195,074 | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.92000    |  |                |       | 06/15/14 |  |        |  | 24,150  |  |  |  | 61,200  | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 19,244  |  |  |  | 48,769  | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 19,244  |  |  |  | 48,769  | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 19,244  |  |  |  | 48,769  | 
|Mr. Robert J. De Vaere(5)(6) |  |                   | 80,000  |  |                      |  | 6.97  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 76,977  |  |  |  | 195,074 | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.92000    |  |                |       | 06/15/14 |  |        |  | 24,150  |  |  |  | 61,200  | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 19,244  |  |  |  | 48,769  | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 19,244  |  |  |  | 48,769  | 
|                             |  |                   | 20,000  |  |                      |  | 1.74  | %           |  |                        | 1.53000    |  |                |       | 12/26/13 |  |        |  | 19,244  |  |  |  | 48,769  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on 1,147,000 options granted in 2004 under the 2000 Plan,
    including grants to executive officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | The potential realizable value is calculated based on the terms
    of the option at its time of grant (10 years in the case of
    all options). It is calculated by assuming that the stock price
    on the date of grant appreciates at the indicated annual rate,
    compounded annually for the entire term of the option and that
    the option is exercised and sold on the last day of its term for
    the appreciated stock price. These amounts represent certain
    assumed rates of appreciation, in accordance with rules of the
    SEC, and do not reflect the Companys estimate or
    projection of future stock price performance. Actual gains, if
    any, are dependent on the actual future performance of the
    Companys Common Stock, and no gain to the optionee is
    possible unless the stock price increases over the option term,
    which will benefit all stockholders.
|   
|(3) | Of the 500,000 options granted to Dr. Loria in 2004,
    187,500 were contingent upon the achievement of certain
    performance milestones by specific dates. These performance
    milestones were not met and the option grants associated with
    them subsequently terminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | Of the 160,000 options granted to Dr. Newman in 2004,
    60,000 were contingent upon the achievement of certain
    performance milestones by specific dates. These performance
    milestones were not met and the option grants associated with
    them subsequently terminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

44



---



##### 





|    |                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Of the 160,000 options granted to Mr. De Vaere in 2004,
    60,000 were contingent upon the achievement of certain
    performance milestones by specific dates. These performance
    milestones were not met and the option grants associated with
    them subsequently terminated.                                                                                        
|   
|(6) | The performance milestones associated with the contingent option
    grants included: completion of a licensing transaction with a
    third party to assist in the development of any cancer or HIV
    vaccine candidate; completion of an equity financing of at least
    $10 million; and enrollment (injection) of the first
    patient in any Phase II clinical trial.

Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values




|                       |  |             |   |  |          |                         |   |               |                      |  |                  |  |  |   |                 | 
|---------------------- |  | ----------- | - |  | -------- | ----------------------- | - | ------------- | -------------------- |  | ---------------- |  |  | - | --------------- | 
|                       |  |             |   |  |          | Number of Securities    |   |               | Value of Unexercised | 
|                       |  |             |   |  |          | Underlying Unexercised  |   |               | In-the-Money Options | 
|                       |  |             |   |  |          | Options at December 31, |   |               | at December 31,      | 
|                       |  |             |   |  |          | 2004                    |   |               | 2004                 | 
|                       |  | Shares      |   |  |          |                         |   |               |                      |  |                 
|                       |  | Acquired    |   |  | Value    |                         |   | Exercisable/  |                      |  | Exercisable/     | 
|Name                   |  | on Exercise |   |  | Realized |                         |   | Unexercisable |                      |  | Unexercisable    | 
|                       |  |             |   |  |          |                         |   |               |                      |  |                  | 
|Dr. Emile Loria        |  |             |  |  |          |                         |  |               |                      |  | 454,301/ 483,199 |  |  | $ | 47,651/ $61,099 | 
|Dr. Mark J. Newman     |  |             |  |  |          |                         |  |               |                      |  | 241,996/ 125,470 |  |  | $ | 79,092/ $14,401 | 
|Mr. Robert J. De Vaere |  |             |  |  |          |                         |  |               |                      |  | 245,387/ 124,613 |  |  | $ | 6,581/ $15,019  | 

Employment, Change of Control and Separation Agreements


Current Agreements.






45



---



##### 









New Agreements Effective upon Closing of Transactions
under Share Exchange Agreement.




| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the restricted stock vests in one or more installments, subject
    to continuous employment with us through the applicable
    installment date;                                                                                                                                                           
|
| |  | the restricted stock is subject to accelerated vesting upon the
    closing of a transaction providing a specified level of
    financing to us, or the closing of a transaction providing a
    specified level of funding to our infectious disease business,
    or both, depending on the executive; and
|
| |  | shares subject to the restricted stock grant that become vested
    will be issued to the executive on the earlier of (i) the
    executives termination, or (ii) 36 months from
    the date of the agreement.                                                                                            







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dr. Newman will be eligible for up to two retention bonuses
    at six and 12 months after the date of his agreement equal,
    in total, to 50% of his annual salary if he has been employed by
    us through the applicable bonus date; upon closing of a
    transaction providing a specified level of funding for our
    infectious disease business, any such retention bonuses not
    previously earned will be paid immediately;
|
| |  | Mr. De Vaere will be eligible for up to three retention
    bonuses at six, nine, and 12 months after the date of his
    agreement, equal, in total, to 100% of his annual salary if he
    has been employed by us through the applicable bonus date.                                                                                                                                                                                    



46



---



##### 







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | severance payments, consisting of the executives base
    salary in effect at the time of termination, paid for a period
    of 12 months in the case of termination without cause, and,
    in the case of termination by the executive with good reason or
    upon the expiration of the agreement, such severance shall be
    paid from the date of termination until the earlier of
    12 months or until the date the executive begins full time
    employment with another entity;
|
| |  | reimbursement for a portion of COBRA health insurance premiums
    for a period of up to 12 months;                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | full acceleration, as of the date of termination, of vesting and
    exercisability of any outstanding options granted before the
    effective date of the agreement, and                                                                                                                                                                                                                                                                                                                   
|
| |  | full acceleration of vesting and exercisability of any unvested
    restricted stock granted pursuant the agreement.                                                                                                                                                                                                                                                                                                                                                                         



Compensation Committee Interlocks and Insider
Participation






|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

Equity Compensation Plan Information




|                                                           |  |                      |           |                  |                   |                      |                    |                      |  |  |         | 
|---------------------------------------------------------- |  | -------------------- | --------- | ---------------- | ----------------- | -------------------- | ------------------ | -------------------- |  |  | ------- | 
|                                                           |  | (a)                  |           |                  | (b)               |                      |                    | (c)                  | 
|                                                           |  |                      |           |                  |                   | Number of Securities |                   
|                                                           |  |                      |           |                  |                   | Remaining Available  |                   
|                                                           |  |                      |           | Weighted-average |                   |                      | for Issuance Under |                     
|                                                           |  | Number of Securities |           |                  | Exercise Price of |                      |                    | Equity Compensation  | 
|                                                           |  | to be Issued Upon    |           |                  | Outstanding       |                      |                    | Plans (Excluding     | 
|                                                           |  | Exercise of Options, |           |                  | Options, Warrants |                      |                    | Securities Reflected | 
|Name of Plan                                               |  | Warrants and Rights  |           |                  | and Rights        |                      |                    | in Column (a))       | 
|                                                           |  |                      |           |                  |                   |                      |                    |                      | 
|Equity compensation plans approved by security holders     |  |                      | 2,521,147 |                  |                   | $                    | 2.06               |                      |  |  | 399,393 | 
|Equity compensation plans not approved by security holders |  |                      |          |                  |                   | $                    | 0.00               |                      |  |  |        | 
|                                                           |  |                      |           |                  |                   |                      |                    |                      | 
|Total                                                      |  |                      | 2,521,147 |                  |                   | $                    | 2.06               |                      |  |  | 399,393 | 
|                                                           |  |                      |           |                  |                   |                      |                    |                      | 





47



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##### 





|                                                                                                                                   |  |                         |           |  |            |  |      |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- |  | ---------- |  | ---- | -
|                                                                                                                                   |  | Beneficial Ownership(1) |          
|                                                                                                                                   |  |                         |          
|                                                                                                                                   |  | Number of               |           |  | Percent of | 
|Beneficial Owner                                                                                                                   |  | Shares                  |           |  | Shares     | 
|                                                                                                                                   |  |                         |           |  |            | 
|G.D. Searle LLC(2)
    235 East
    42ndStreet
    New York, NY 10017                                                              |  |                         | 2,105,032 |  |            |  | 11.8 | %
|Genencor International, Inc.
    200 Meridian Centre Blvd.
    Rochester, NY 14618                                                 |  |                         | 1,342,324 |  |            |  | 8.4  | %
|International Biotechnology Trust plc
    71 Kingsway
    London, WC2B 6ST, England                                                |  |                         | 1,279,659 |  |            |  | 8.0  | %
|Mr. Peter Allard(3)
    Seaview, Chancery Lane
    Christ Church, Barbados, West Indies                                            |  |                         | 1,204,716 |  |            |  | 7.5  | %
|The Animi Master Fund Ltd.(4)
    c/o Archeus Capital Management Ltd.
    360 Madison Avenue,
    10thFloor
    New York, NY 10014 |  |                         | 1,016,949 |  |            |  | 6.2  | %
|Dr. Emile Loria(5)                                                                                                                 |  |                         | 688,133   |  |            |  | 4.1  | %
|Dr. Mark J. Newman(5)                                                                                                              |  |                         | 289,649   |  |            |  | 1.8  | %
|Mr. Robert J. De Vaere(5)                                                                                                          |  |                         | 286,926   |  |            |  | 1.8  | %
|Mr. Howard E. (Ted) Greene, Jr.(5)(6)(7)                                                                                         |  |                         | 246,431   |  |            |  | 1.5  | %
|Dr. William T. Comer(5)                                                                                                            |  |                         | 48,948    |  |            |  | *    |  
|Mr. Michael Grey(5)                                                                                                                |  |                         | 43,750    |  |            |  | *    |  
|Mr. Georges Hibon(5)                                                                                                               |  |                         | 31,667    |  |            |  | *    |  
|Dr. John P. McKearn(5)                                                                                                             |  |                         | 30,000    |  |            |  | *    |  
|All executive officers and directors as a group (8 persons)(8)                                                                     |  |                         | 1,665,504 |  |            |  | 9.6  | %






| |   |                       
| | - | ----------------------
| | * | Less than one percent.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This table is based upon information supplied by officers,
    directors and principal stockholders and on any Schedules 13D or
    13G filed with the Securities and Exchange Commission, or the
    SEC. Unless otherwise indicated in the footnotes to this table
    and subject to community property laws where applicable, each
    stockholder named in this table has sole voting and investment
    power with respect to the shares indicated as beneficially
    owned. Applicable percentage ownership is based on
    16,014,569 shares of Common Stock outstanding on
    February 1, 2005, as adjusted by the rules promulgated by
    the SEC.
|   
|(2) | Includes 1,787,572 shares of Common Stock issuable upon
    conversion of shares of Series S Preferred Stock and
    Series S-1 Preferred Stock held by Pfizer, Inc., through
    G.D. Searle, provided that Pfizer is not entitled to vote such
    shares to the extent that the total number of shares of voting
    capital stock held by Pfizer and its affiliates would exceed
    19.9%. Pfizer owns 100% of the outstanding shares of the
    Series S Preferred Stock and Series S-1 Preferred
    Stock. The Series S Preferred Stock and Series S-1
    Preferred Stock are convertible into Common Stock at any time.                              
|   
|(3) | Includes 141,943 shares of common stock underlying
    currently exercisable warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | Includes 338,983 shares of common stock underlying
    currently exercisable warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

48



---



##### 





|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Includes shares, which certain executive officers and directors
    of the Company have the right to acquire within 60 days
    after February 1, 2005 pursuant to outstanding options, as
    follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Dr. William T. Comer, 48,034 shares; 
     Mr. Robert J. De Vaere, 279,221 shares; 
     Mr. Howard E. (Ted) Greene, Jr.,
    46,606 shares; 
     Mr. Michael G. Grey, 43,750 shares; 
     Mr. Georges Hibon, 31,667 shares; 
     Dr. Emile Loria, 595,472 shares; 
     Dr. John P. McKearn, 30,000 shares; 
     Dr. Mark J. Newman, 273,710 shares; 
     All executive officers and directors as a group,
    1,371,058 shares.



|    |                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes 174,942 shares held in trust for the benefit of
    Mr. Greene and his wife and 2,285 shares held in trust
    for the benefit of Mr. Greenes children.
    Mr. Greene is a trustee of both trusts. Mr. Greene
    acting as trustee has voting and investment power with respect
    to such shares and may be deemed to be the beneficial owner of
    such shares.
|   
|(7) | Includes 22,598 shares of common stock underlying currently
    exercisable warrants.                                                                                                                                                                                                                                                                                          
|   
|(8) | Includes shares described in notes (5) through
    (7) above.                                                                                                                                                                                                                                                                                                                  



|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions











49



---



##### 





|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



|                      |  |      |         |  |      |   |         | 
|--------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                      |  | 2004 |         |  | 2003 |  
|                      |  |      |         |  |      |  
|Audit Fees(1)         |  | $    | 143,000 |  |      | $ | 124,000 | 
|Audit Related Fees(2) |  |      | 110,000 |  |      |   | 10,000  | 
|Tax Related Fees(3)   |  |      | 34,000  |  |      |   | 27,000  | 
|All Other Fees        |  |      |        |  |      |   |        | 
|                      |  |      |         |  |      |  
|                      |  | $    | 287,000 |  |      | $ | 161,000 | 
|                      |  |      |         |  |      |  






|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees relate to the audit of our consolidated financial
    statements and reviews of our consolidated financial statements
    included in our Form 10-Qs for 2004, accounting
    consultations, and review of documents filed with the SEC.
|   
|(2) | Audit related fees relate primarily to due diligence associated
    with a proposed business combination.                                                                                                                                          
|   
|(3) | Tax related fees are for services related to tax compliance, tax
    advice and tax planning.                                                                                                                                                      



| |                                                                              
| | -----------------------------------------------------------------------------
| | All fees described above were approved in advance by our Audit
    Committee.

Pre-Approval Policies and Procedures.




PART IV




|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules



|       |                              
|------ | -----------------------------
|(a)(1) | Index to Financial Statements



|                                                                                                                      |  |      |            | 
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | 
|                                                                                                                      |  | Page |           
|                                                                                                                      |  |      |           
|Report of Ernst & Young LLP, Independent Registered
    Public Accounting Firm                                        |  |      | F-2        | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                                          |  |      | F-3        | 
|Consolidated Statements of Operations for each of the three
    years in the period ended December 31, 2004           |  |      | F-4        | 
|Consolidated Statements of Stockholders Equity for each of
    the three years in the period ended December 31, 2004 |  |      | F-5        | 
|Consolidated Statements of Cash Flows for each of the three
    years in the period ended December 31, 2004           |  |      | F-6        | 
|Notes to Consolidated Financial Statements                                                                            |  |      | F-7 - F-23 | 

50



---



##### 





|    |                                       
|--- | --------------------------------------
|(2) | Index to Financial Statement Schedules





|    |                    
|--- | -------------------
|(3) | Listing of Exhibits

|        |    |     |  |                      |  |                                                                                                                                                                                                                                                                   
|------- | -- | --- |  | -------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |                     
|Number  |    |     |  | Document Description
|        |    |     |  |                     
|        | 3  | .1  |  |                      |  | Amended and Restated Certificate of Incorporation filed with the
    Secretary of State of Delaware on December 2, 1991.(1)                                                                                                                                       
|       
|        | 3  | .2  |  |                      |  | Certificate of Designation of Series A Junior Participating
    Preferred Stock filed with the Secretary of State of Delaware on
    April 2, 1993.(2)                                                                                                            
|       
|        | 3  | .3  |  |                      |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    July 5, 1995.(3)                                                                                                           
|       
|        | 3  | .4  |  |                      |  | Certificate of Increase of Series A Junior Participating
    Preferred Stock filed with the Secretary of State of Delaware on
    July 5, 1995                                                                                                                    
|       
|        | 3  | .5  |  |                      |  | Certificate of Increase of Series A Junior Participating
    Preferred Stock filed with the Secretary of State of Delaware on
    July 2, 1998.(4)                                                                                                                
|       
|        | 3  | .6  |  |                      |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    July 2, 1998.(4)                                                                                                           
|       
|        | 3  | .7  |  |                      |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    November 12, 1998.(5)                                                                                                      
|       
|        | 3  | .8  |  |                      |  | Certificate of Designations of the Series S and
    Series S-1 Preferred Stock filed with the Secretary of
    State of Delaware on June 29, 1999.(7)                                                                                                             
|       
|        | 3  | .9  |  |                      |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    July 1, 1999.(8)                                                                                                           
|       
|        | 3  | .10 |  |                      |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    September 23, 1999.(9)                                                                                                     
|       
|        | 3  | .11 |  |                      |  | Certificate of Decrease of Series A Junior Participating
    Preferred Stock filed with the Secretary of State of Delaware on
    September 23, 1999.(9)                                                                                                          
|       
|        | 3  | .12 |  |                      |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    June17, 2004.(28)                                                                                                          
|       
|        | 3  | .13 |  |                      |  | Amended and Restated Bylaws of the Registrant.(18)                                                                                                                                                                                                                
|       
|        | 4  | .1  |  |                      |  | Reference is made to Exhibits 3.1 through 3.13                                                                                                                                                                                                                    
|       
|        | 4  | .2  |  |                      |  | Specimen certificate of the Common stock.(1)                                                                                                                                                                                                                      
|       
|        | 10 | .1  |  |                      |  | Form of Indemnification Agreement entered into between Epimmune
    and its directors and officers.(1)(*)                                                                                                                                                         
|       
|        | 10 | .2  |  |                      |  | Registrants 1989 Stock Plan, as amended through
    June 12, 1998 (the 1989 Plan).(4)                                                                                                                                                                          
|       
|        | 10 | .3  |  |                      |  | Forms of Incentive Stock Option Agreement under the 1989 Plan.(1)                                                                                                                                                                                                 
|       
|        | 10 | .4  |  |                      |  | Form of Nonstatutory Stock Option Agreement under the 1989
    Plan.(1)                                                                                                                                                                                           
|       
|        | 10 | .5  |  |                      |  | Research Agreement, between Epimmune and The Scripps Research
    Institute, formerly Scripps Clinic and Research Foundation
    (Scripps), dated as of September 1, 1990, as
    amended August 5, 1991 (with certain confidential portions
    deleted).(1)(A)
|       
|        | 10 | .6  |  |                      |  | License Agreement, between Epimmune and Scripps, dated as of
    September 23, 1991 (with certain confidential portions
    deleted).(1)(A)                                                                                                                       
|       
|        | 10 | .7  |  |                      |  | Amendment to License Agreement between Epimmune and Scripps
    dated as of June 17, 1992 (with certain confidential
    portions deleted).(1)(B)                                                                                                                 
|       
|        | 10 | .8  |  |                      |  | Registrants 1994 Non-Employee Directors Stock Option
    Plan, as amended through June 12, 1998.(4)(*)                                                                                                                                                          

51



---



##### 



|        |    |     |  |  |                      |                                                                                                                                                               
|------- | -- | --- |  |  | -------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |  |                     
|Number  |    |     |  |  | Document Description
|        |    |     |  |  |                     
|       
|        | 10 | .9  |  |  |                      | Second Amendment to License Agreement between Epimmune and
    Scripps dated as of June 17, 1992 (with certain
    confidential portions deleted.(1)(B)       
|       
|        | 10 | .10 |  |  |                      | Directors Deferred Compensation Plan, effective as of
    March 17, 1995, as amended September 20, 1996 and
    July 13, 1999.(21)(*)                        
|       
|        | 10 | .11 |  |  |                      | Lease Agreement between Epimmune Inc. and Nexus Equity LLC VIII,
    dated as of November 1, 1998, as amended February 1,
    1999 and December 20, 2004.(6)  
|       
|        | 10 | .12 |  |  |                      | Preferred Stock Exchange Agreement, dated July 1, 1999, by
    and between the Company and G.D. Searle & Co.(7)                                               
|       
|        | 10 | .13 |  |  |                      | Investor Rights Agreement, dated as of July 1, 1999, by and
    between the Company and G.D. Searle & Co.(7)                                                  
|       
|        | 10 | .14 |  |  |                      | Form of Common Stock Purchase agreement dated February 15,
    2000.(10)                                                                                      
|       
|        | 10 | .15 |  |  |                      | Letter Agreement between Epimmune and Robert De Vaere dated
    May 4, 2000.(11)(*)                                                                           
|       
|        | 10 | .16 |  |  |                      | Letter Agreement between Epimmune and Mark Newman dated
    May 4, 2000.(11)(*)                                                                               
|       
|        | 10 | .17 |  |  |                      | Form of Common Stock Purchase Agreement dated October 16,
    2000.(12)                                                                                       
|       
|        | 10 | .18 |  |  |                      | Non-Exclusive License Agreement between Epimmune and Valentis,
    Inc., dated November 27, 2000 (with certain confidential
    portions deleted).(12)(C)     
|       
|        | 10 | .19 |  |  |                      | Letter Agreement between Epimmune and Dr. Emile Loria
    regarding employment terms dated January 16, 2001.(13)(*)                                           
|       
|        | 10 | .20 |  |  |                      | Form of Restricted Stock Purchase Agreement between Epimmune and
    Dr. Emile Loria dated January 16, 2001.(13)(*)                                           
|       
|        | 10 | .21 |  |  |                      | Amendment to Severance Benefits Agreement between Epimmune and
    Dr. Mark Newman dated March 8, 2001.(13)(*)                                                
|       
|        | 10 | .22 |  |  |                      | Amendment to Severance Benefits Agreement between Epimmune and
    Robert De Vaere dated March 8, 2001.(13)(*)                                                
|       
|        | 10 | .23 |  |  |                      | Non-exclusive License Agreement between Epimmune and Pharmexa A/
    S dated June 25, 2001 (with certain confidential portions
    deleted).(15)(D)           
|       
|        | 10 | .24 |  |  |                      | License Agreement between Epimmune and Genencor International
    Inc. dated July 9, 2001 (with certain confidential portions
    deleted).(15)(D)            
|       
|        | 10 | .25 |  |  |                      | Collaboration Agreement between Epimmune and Genencor
    International Inc. dated July 9, 2001 (with certain
    confidential portions deleted).(16)(E)      
|       
|        | 10 | .26 |  |  |                      | Securities Purchase Agreement between Epimmune and Genencor
    International Inc. dated July 9, 2001 (with certain
    confidential portions deleted).(16)(E)
|       
|        | 10 | .27 |  |  |                      | Non-exclusive License Agreement between Epimmune and Biosite
    Incorporated dated August 17, 2001 (with certain
    confidential portions deleted).(16)(E)  
|       
|        | 10 | .28 |  |  |                      | Non-exclusive License Agreement between Epimmune and Anosys Inc.
    dated August 31, 2001 (with certain confidential portions
    deleted).(16)(E)           
|       
|        | 10 | .29 |  |  |                      | Non-exclusive License Agreement between Epimmune and Bavarian
    Nordic A/ S dated November 28, 2001 (with certain
    confidential portions deleted).(18)(F)
|       
|        | 10 | .30 |  |  |                      | Form of Share Purchase Agreement dated December 18,
    2001.(17)                                                                                             
|       
|        | 10 | .31 |  |  |                      | 2000 Stock Plan as amended.(18)(*)                                                                                                                            
|       
|        | 10 | .32 |  |  |                      | 2001 Employee Stock Purchase Plan.(14)(*)                                                                                                                     
|       
|        | 10 | .33 |  |  |                      | Separation Agreement dated October 14, 2002 between
    Epimmune and Dr. Sette.(19)(*)                                                                        
|       
|        | 10 | .34 |  |  |                      | Material Transfer Agreement dated October 14, 2002 between
    Epimmune and Dr. Sette.(19)                                                                    
|       
|        | 10 | .35 |  |  |                      | First Amendment to the Collaboration Agreement dated
    October 16, 2002 between Epimmune and Genencor
    International, Inc.(20)(G)                        
|       
|        | 10 | .36 |  |  |                      | First Amendment to the License Agreement dated October 16,
    2002 between Epimmune and Genencor International, Inc.(21)                                     

52



---



##### 



|        |    |     |  |  |                      |                                                                                                                                                                                            
|------- | -- | --- |  |  | -------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |  |                     
|Number  |    |     |  |  | Document Description
|        |    |     |  |  |                     
|       
|        | 10 | .37 |  |  |                      | First Amendment to the Non-Exclusive License Agreement dated
    October 18, 2002 between Epimmune and Valentis, Inc.(21)(G)                                                               
|       
|        | 10 | .38 |  |  |                      | Non-Exclusive License Agreement dated October 28, 2002
    between Epimmune and Valentis, Inc.(21)(G)                                                                                      
|       
|        | 10 | .39 |  |  |                      | Amendment to Letter Agreement between Epimmune and
    Dr. Emile Loria dated June 20, 2003.(22)(*)                                                                                         
|       
|        | 10 | .40 |  |  |                      | Non-Exclusive License Agreement between Epimmune and
    Immuno-Designed Molecules dated July 7, 2003.(22)(H)                                                                              
|       
|        | 10 | .41 |  |  |                      | Form of Unit Purchase Agreement dated September 18,
    2003.(23)                                                                                                                          
|       
|        | 10 | .42 |  |  |                      | Form of Warrant to Purchase Common Stock dated
    September 18, 2003.(23)                                                                                                                 
|       
|        | 10 | .43 |  |  |                      | Termination of Amendment to Letter Agreement between Epimmune
    and Dr. Emile Loria dated September 8, 2003.(24)(*)                                                                      
|       
|        | 10 | .44 |  |  |                      | Accelerated Benefits Agreement between Epimmune and
    Dr. Emile Loria dated February 27, 2004.(25)(*)                                                                                    
|       
|        | 10 | .45 |  |  |                      | Unit Purchase Agreement dated April 7, 2004.(26)                                                                                                                                           
|       
|        | 10 | .46 |  |  |                      | Unit Purchase Agreement dated April 8, 2004.(26)                                                                                                                                           
|       
|        | 10 | .47 |  |  |                      | Forms of Warrants to Purchase Common Stock dated April 7,
    2004.(26)                                                                                                                    
|       
|        | 10 | .48 |  |  |                      | Second Amendment to the Collaboration Agreement dated
    October 7, 2003 between Epimmune and Genencor
    International, Inc.(27)                                                        
|       
|        | 10 | .49 |  |  |                      | Second Amendment to the License Agreement dated March 14,
    2004 between Epimmune and Genencor International, Inc.(27)(I)                                                                
|       
|        | 10 | .50 |  |  |                      | Third Amendment to the Collaboration Agreement dated
    March 16, 2004 between Epimmune and Genencor International,
    Inc.(27)(I)                                                       
|       
|        | 10 | .51 |  |  |                      | Third Amendment to the License Agreement dated March 29,
    2004 between Epimmune and Genencor International, Inc.(27)(I)                                                                 
|       
|        | 10 | .52 |  |  |                      | Share Exchange Agreement dated March 15, 2005 between
    Epimmune and certain shareholders of Immuno-Designed Molecules,
    S.A.(29)                                                     
|       
|        | 10 | .53 |  |  |                      | Amendment No. 1 dated March 15, 2005 between Epimmune
    and the shareholders representative on behalf of certain
    shareholders of Immuno-Designed Molecules, S.A.(29)                 
|       
|        | 10 | .54 |  |  |                      | Preferred Exchange Agreement dated March 15, 2005 between
    Epimmune and G.D. Searle LLC.(29)                                                                                            
|       
|        | 10 | .55 |  |  |                      | Employment Agreement dated March 15, 2005 between Epimmune
    and Emile Loria, M.D. (29)(*)                                                                                               
|       
|        | 10 | .56 |  |  |                      | Employment Agreement dated March 15, 2005 between Epimmune
    and Mark Newman, Ph.D. (29)(*)                                                                                              
|       
|        | 10 | .57 |  |  |                      | Employment Agreement dated March 15, 2005 between Epimmune
    and Robert De Vaere.(29)(*)                                                                                                 
|       
|        | 14 | .1  |  |  |                      | Code of Business Conduct and Ethics dated December 9,
    2003.(25)                                                                                                                        
|       
|        | 21 | .1  |  |  |                      | Subsidiaries of Epimmune.(J)                                                                                                                                                               
|       
|        | 23 | .1  |  |  |                      | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm                                                                                                            
|       
|        | 25 | .1  |  |  |                      | Power of Attorney. Reference is made to the signature page of
    this report                                                                                                              
|       
|        | 31 | .1  |  |  |                      | Certification of Principal Executive Officer pursuant to
    Section 302 of the Public Company Accounting Reform and
    Investor Protection Act of 2002 (18 U.S.C.
    § 1350, as adopted)
|       
|        | 31 | .2  |  |  |                      | Certification of Principal Financial Officer pursuant to
    Section 302 of the Public Company Accounting Reform and
    Investor Protection Act of 2002 (18 U.S.C.
    § 1350, as adopted)
|       
|        | 32 | .1  |  |  |                      | Certification pursuant to Section 906 of the Public Company
    Accounting Reform and Investor Protection Act of 2002
    (18 U.S.C. § 1350, as adopted)                                   






|  |                                              
|- | ---------------------------------------------
|* | Executive Compensation Plans and Arrangements

53



---



##### 





| |     |                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the Companys Form S-1
    Registration Statement and Amendments thereto (File
    No. 33-43356).                                  
|
| | (2) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed on March 22, 1993.                                                             
|
| | (3) | Incorporated by reference to the Companys Annual Report on
    Form 10-K, for the fiscal year ended December 31,
    1994, filed on March 31, 1995.            
|
| | (4) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended June 30,
    1998, filed on August 14, 1998.       
|
| | (5) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended
    September 30, 1998, filed on November 16, 1998.
|
| | (6) | Incorporated by reference to the Companys Annual Report on
    Form 10-K, for the fiscal year ended December 31,
    1998, filed on April 15, 1999.            
|
| | (7) | Incorporated by reference to the Companys Form 8-K,
    filed on July 16, 1999.                                                                                
|
| | (8) | Incorporated by reference to the Companys Definitive Proxy
    Statement filed on Form DEF 14A on July 28, 1999.                                               
|
| | (9) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended
    September 30, 1999, filed on November 15, 1999.



|     |                                                                                                                                                                 
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys Annual Report on
    Form 10-K, for the fiscal year ended December 31,
    1999, filed on March 17, 2000.            
|    
|(11) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended June 30,
    2000, filed on August 14, 2000.       
|    
|(12) | Incorporated by reference to the Companys Annual Report on
    Form 10-K, for the fiscal year ended December 31,
    2000, filed on March 29, 2001.            
|    
|(13) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended March 31,
    2001, filed on May 11, 2001.         
|    
|(14) | Incorporated by reference to the Companys Form S-8
    filed on June 27, 2001 (File No. 333-63950).                                                            
|    
|(15) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended June 30,
    2001, filed on August 13, 2001.       
|    
|(16) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended
    September 30, 2001, filed on November 14, 2001.
|    
|(17) | Incorporated by reference to the Companys Form S-3,
    filed on January 10, 2002.                                                                             
|    
|(18) | Incorporated by reference to the Companys Annual Report on
    Form 10-K, for the fiscal year ended December 31,
    2001, filed on March 29, 2002.            
|    
|(19) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended
    September 30, 2002, filed on October 16, 2002. 
|    
|(20) | Incorporated by reference to the Companys Registration
    Statement on Form S-1, filed on October 24, 2002.                                                   
|    
|(21) | Incorporated by reference to Amendment No. 1 to the
    Companys Registration Statement on Form S-1/ A, filed
    on November 6, 2002.                         
|    
|(22) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended June 30,
    2003, filed on August 14, 2003.       
|    
|(23) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed on September 19, 2003.                                                         
|    
|(24) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended
    September 30, 2003, filed on November 10, 2003.
|    
|(25) | Incorporated by reference to the Companys Annual Report on
    Form 10-K, for the fiscal year ended December 31,
    2003, filed on March 30, 2004.            
|    
|(26) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed on April 13, 2004.                                                             

54



---



##### 





|     |                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(27) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for the quarterly period ended March 31,
    2004, filed on May 10, 2004.
|    
|(28) | Incorporated by reference to the Companys Registration
    Statement on Form S-8, filed with the SEC on July 2,
    2004.                             
|    
|(29) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed on March 18, 2005.                                                    



|    |  |                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on November 21, 1991. 
|   
|(B) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on May 15, 1996.      
|   
|(C) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on July 5, 2001.      
|   
|(D) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on September 4, 2001. 
|   
|(E) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on January 29, 2002.  
|   
|(F) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on May 14, 2002.      
|   
|(G) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on November 5, 2002.  
|   
|(H) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on October 22, 2003.  
|   
|(I) |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on September 13, 2004.
|   
|(J) |  | Previously filed.                                                                                                                                                      

55



---



##### 



SIGNATURES






| |              
| | -------------
| | Epimmune Inc.



| |    |                
| | -- | ---------------
| | By | /s/ Emile Loria

| |                                                
| | -----------------------------------------------
| |                                                
| | Emile Loria, M.D.                              
| | President, Chief Executive Officer and Director



|                                                       |  |                                                                                                                                       |  |                |  | 
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                              |  | Title                                                                                                                                 |  | Date          
|                                                       |  |                                                                                                                                       |  |               
|                                                      
|/s/ Emile LoriaEmile
    Loria, M.D.                   |  | President(Principal Executive Officer),
    Chief Executive Officer and Director                                                      |  | March 30, 2005
|                                                      
|/s/ Robert J. De VaereRobert
    J. De Vaere           |  | Vice President, Finance and
    Administration
    Chief Financial Officer, Secretary(Principal Financial and
    Accounting Officer) |  | March 30, 2005
|                                                      
|/s/ Howard E.
    Greene, Jr.Howard
    E. Greene, Jr. |  | Chairman of the Board and Director                                                                                                    |  | March 30, 2005
|                                                      
|/s/ William T. ComerWilliam
    T. Comer, Ph.D.        |  | Director                                                                                                                              |  | March 30, 2005
|                                                      
|/s/ Michael G. GreyMichael
    G. Grey                 |  | Director                                                                                                                              |  | March 30, 2005
|                                                      
|/s/ Georges HibonGeorges
    Hibon                     |  | Director                                                                                                                              |  | March 30, 2005
|                                                      
|John
    P. McKearn, Ph.D.                             |  | Director                                                                                                                              |  | March 30, 2005

56



---



##### 



EPIMMUNE INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                          |  |      |     | 
|--------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                          |  | Page |    
|                                                                                                          |  |      |    
|Report of Ernst & Young LLP, Independent Registered
    Public Accounting Firm                            |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                              |  |      | F-3 | 
|Consolidated Statements of Operations for the Years Ended
    December 31, 2004, 2003 and 2002            |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity for the
    Years Ended December 31, 2004, 2003, and 2002 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2004, 2003 and 2002            |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                |  |      | F-7 | 

F-1



---



##### 



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED
PUBLIC


ACCOUNTING FIRM














| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP





F-2



---



##### 



EPIMMUNE INC.


CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |              |  
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | ------------ | ---- | - | ---------- | ------------ | -
|                                     |                                                                                                                                                                                                                                                     | December 31, |           
|                                     |                                                                                                                                                                                                                                                     |              |           
|                                     |                                                                                                                                                                                                                                                     | 2004         |            |              | 2003 |  
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  
|ASSETS                              
|Current assets:                      |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |             
|                                     | Cash and cash equivalents                                                                                                                                                                                                                           |              | $          | 7,006,000    |      |   | $          | 6,416,000    |  
|                                     | Accounts Receivable                                                                                                                                                                                                                                 |              |            | 2,667,000    |      |   |            | 1,012,000    |  
|                                     | Prepaids and other current assets                                                                                                                                                                                                                   |              |            | 221,000      |      |   |            | 186,000      |  
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  
|Total current assets                 |                                                                                                                                                                                                                                                     |              | 9,894,000  |              |      |   | 7,614,000  |             
|Restricted cash                      |                                                                                                                                                                                                                                                     |              | 354,000    |              |      |   | 472,000    |             
|Property and equipment, net          |                                                                                                                                                                                                                                                     |              | 1,032,000  |              |      |   | 1,145,000  |             
|Patents, net                         |                                                                                                                                                                                                                                                     |              | 3,527,000  |              |      |   | 3,462,000  |             
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  
|                                     |                                                                                                                                                                                                                                                     | $            | 14,807,000 |              |      | $ | 12,693,000 |             
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |             
|                                     | Accounts payable, trade                                                                                                                                                                                                                             |              | $          | 1,013,000    |      |   | $          | 290,000      |  
|                                     | Accrued liabilities                                                                                                                                                                                                                                 |              |            | 1,700,000    |      |   |            | 1,156,000    |  
|                                     | Deferred contract revenues                                                                                                                                                                                                                          |              |            | 607,000      |      |   |            | 1,151,000    |  
|                                     | Accrued payroll and related expenses                                                                                                                                                                                                                |              |            | 161,000      |      |   |            | 173,000      |  
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  
|Total current liabilities            |                                                                                                                                                                                                                                                     |              | 3,481,000  |              |      |   | 2,770,000  |             
|Deferred rent                        |                                                                                                                                                                                                                                                     |              | 210,000    |              |      |   | 212,000    |             
|Stockholders equity:                |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |             
|                                     | Preferred stock, $.01 par value, 10,000,000 shares
    authorized, 1,409,288 shares issued and outstanding at
    December 31, 2004 and December 31, 2003. Liquidation
    preference of $10,000,000 at December 31, 2004 and
    December 31, 2003 |              |            | 14,000       |      |   |            | 14,000       |  
|                                     | Common stock, $.01 par value, 40,000,000 shares and
    25,000,000 shares authorized, 16,011,655 shares and
    13,490,618 shares issued and outstanding, respectively, at
    December 31, 2004 and December 31, 2003                              |              |            | 160,000      |      |   |            | 135,000      |  
|                                     | Additional paid-in capital                                                                                                                                                                                                                          |              |            | 172,933,000  |      |   |            | 167,537,000  |  
|                                     | Deferred compensation                                                                                                                                                                                                                               |              |            | (184,000     | )    |   |            | (50,000      | )
|                                     | Accumulated deficit                                                                                                                                                                                                                                 |              |            | (161,807,000 | )    |   |            | (157,925,000 | )
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  
|Total stockholders equity           |                                                                                                                                                                                                                                                     |              | 11,116,000 |              |      |   | 9,711,000  |             
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  
|                                     |                                                                                                                                                                                                                                                     | $            | 14,807,000 |              |      | $ | 12,693,000 |             
|                                     |                                                                                                                                                                                                                                                     |              |            |              |      |  



F-3



---



##### 



EPIMMUNE INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                    |                                                               |                          |   |            |      |  |   |            |   |  |   |            |  
|------------------- | ------------------------------------------------------------- | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                    |                                                               | Years Ended December 31, |  
|                    |                                                               |                          |  
|                    |                                                               | 2004                     |   |            | 2003 |  |   | 2002       |  
|                    |                                                               |                          |   |            |      |  |   |            |  
|Revenues:           |                                                               |                          |   |            |      |  |   |            |   |  |   |           
|                    | Research grants and contract revenue                          |                          | $ | 7,909,000  |      |  | $ | 2,521,000  |   |  | $ | 1,899,000  |  
|                    | License fees and milestones                                   |                          |   | 712,000    |      |  |   | 1,118,000  |   |  |   | 487,000    |  
|                    | Related party revenue                                         |                          |   | 1,026,000  |      |  |   | 3,519,000  |   |  |   | 4,684,000  |  
|                    |                                                               |                          |   |            |      |  |   |            |  
|                    | Total revenues                                                |                          |   | 9,647,000  |      |  |   | 7,158,000  |   |  |   | 7,070,000  |  
|Costs and expenses: |                                                               |                          |   |            |      |  |   |            |   |  |   |           
|                    | Research and development                                      |                          |   | 10,895,000 |      |  |   | 10,495,000 |   |  |   | 11,257,000 |  
|                    | General and administrative                                    |                          |   | 2,716,000  |      |  |   | 3,567,000  |   |  |   | 2,887,000  |  
|                    | Restructuring costs                                           |                          |   |           |      |  |   | 336,000    |   |  |   |           |  
|                    |                                                               |                          |   |            |      |  |   |            |  
|                    | Total costs and expenses                                      |                          |   | 13,611,000 |      |  |   | 14,398,000 |   |  |   | 14,144,000 |  
|                    |                                                               |                          |   |            |      |  |   |            |  
|                    | Loss from operations                                          |                          |   | (3,964,000 | )    |  |   | (7,240,000 | ) |  |   | (7,074,000 | )
|                    | Interest income, net                                          |                          |   | 89,000     |      |  |   | 191,000    |   |  |   | 587,000    |  
|                    | Other (expense) income, net                                   |                          |   | (7,000     | )    |  |   | (7,000     | ) |  |   | (13,000    | )
|                    |                                                               |                          |   |            |      |  |   |            |  
|                    | Net loss                                                      |                          | $ | (3,882,000 | )    |  | $ | (7,056,000 | ) |  | $ | (6,500,000 | )
|                    |                                                               |                          |   |            |      |  |   |            |  
|                    | Net loss per share-basic and diluted                          |                          | $ | (0.25      | )    |  | $ | (0.58      | ) |  | $ | (0.57      | )
|                    |                                                               |                          |   |            |      |  |   |            |  
|                    | Shares used in computing net loss per share-basic and diluted |                          |   | 15,304,928 |      |  |   | 12,238,745 |   |  |   | 11,446,387 |  
|                    |                                                               |                          |   |            |      |  |   |            |  



F-4



---



##### 



EPIMMUNE INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


For the three years ended December 31, 2004


|                             |                                                                                         |                 |           |   |              |   |        |            |  |  |            |           |   |          |         |         |          |   |             |              |   |   |            |           |   |   |          |          |  
|---------------------------- | --------------------------------------------------------------------------------------- | --------------- | --------- | - | ------------ | - | ------ | ---------- |  |  | ---------- | --------- | - | -------- | ------- | ------- | -------- | - | ----------- | ------------ | - | - | ---------- | --------- | - | - | -------- | -------- | -
|                             |                                                                                         |                 |           |   |              |   |        | Note       |  |  |           
|                             |                                                                                         | Preferred Stock |           |   | Common Stock |   |        | Additional |  |  | Receivable |           |   |         
|                             |                                                                                         |                 |           |   |              |   |        | Paid-in    |  |  | from       |           |   | Deferred |        
|                             |                                                                                         | Shares          |           |   | Amount       |   |        | Shares     |  |  | Amount     |           |   | Capital  |         |         | Employee |   |             | Compensation |  
|                             |                                                                                         |                 |           |   |              |   |        |            |  |  |            |           |   |          |         |         |          |   |             |              |  
|Balance at December 31, 2001 |                                                                                         |                 | 1,409,288 |   |              |   | 14,000 |            |  |  | 12,094,757 |           |   |          | 121,000 |         |          |   | 166,772,000 |              |   |   | (2,641,000 | )         |   |   | (569,000 | )       
|                             | Issuance costs related to private placement                                             |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | (14,000      | ) |   |            |          |   |   |          |         |  
|                             | Exercise of stock options                                                               |                 |           |  |              |   |        |           |  |  |            | 14,764    |   |          |         |        |          |   |             | 4,000        |   |   |            |          |   |   |          |         |  
|                             | Issuance of common stock in connection with employee stock
    purchase plan            |                 |           |  |              |   |        |           |  |  |            | 43,341    |   |          |         | 1,000   |          |   |             | 59,000       |   |   |            |          |   |   |          |         |  
|                             | Issuance of common stock in connection with stock bonus award                           |                 |           |  |              |   |        |           |  |  |            | 600       |   |          |         |        |          |   |             | 1,000        |   |   |            |          |   |   |          |         |  
|                             | Interest on note receivable from employee                                               |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            | (291,000  | ) |   |          |         |  
|                             | Deferred compensation in connection with the issuance of stock
    options to employees |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | (395,000     | ) |   |            |          |   |   |          | 267,000  |  
|                             | Amortization of deferred compensation                                                   |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |          |   |   |          | 99,000   |  
|                             | Deferred compensation related to consultant stock options                               |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | 27,000       |   |   |            |          |   |   |          |         |  
|                             | Unrealized loss on available-for-sale securities                                        |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |          |   |   |          |         |  
|                             | Net loss                                                                                |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |           |   |   |          |          |  
|                             |                                                                                         |                 |           |   |              |   |        |            |  |  |            |           |   |          |         |         |          |   |             |              |  
|Balance at December 31, 2002 |                                                                                         |                 | 1,409,288 |   |              | $ | 14,000 |            |  |  | 12,153,462 |           |   | $        | 122,000 |         |          | $ | 166,454,000 |              |   | $ | (2,932,000 | )         |   | $ | (203,000 | )       
|                             | Issuance of common stock in connection with employee stock
    purchase plan            |                 |           |  |              |   |        |           |  |  |            | 69,300    |   |          |         | 1,000   |          |   |             | 55,000       |   |   |            |          |   |   |          |         |  
|                             | Exercise of stock options                                                               |                 |           |  |              |   |        |           |  |  |            | 62,635    |   |          |         |        |          |   |             | 61,000       |   |   |            |          |   |   |          |         |  
|                             | Issuance of common stock and warrants in connection with private
    placement (net)    |                 |           |  |              |   |        |           |  |  |            | 2,168,961 |   |          |         | 22,000  |          |   |             | 3,588,000    |   |   |            |          |   |   |          |         |  
|                             | Amortization of deferred compensation related to note on
    restricted stock           |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |          |   |   |          | 66,000   |  
|                             | Interest on note receivable from employee                                               |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            | (123,000  | ) |   |          |         |  
|                             | Retirement of common stock in connection with restricted stock
    buyback              |                 |           |  |              |   |        |           |  |  |            | (963,740  | ) |          |         | (10,000 | )        |   |             | (2,400,000   | ) |   |            | 3,055,000 |   |   |          |         |  
|                             | Reversal of deferred compensation related to restricted stock
    buyback               |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | (75,000      | ) |   |            |          |   |   |          | 75,000   |  
|                             | Deferred compensation related to restricted stock vesting                               |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |          |   |   |          | 12,000   |  
|                             | Net reclass of vested shares from liability to equity                                   |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | (186,000     | ) |   |            |          |   |   |          |         |  
|                             | Deferred compensation related to consultant stock options                               |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | 34,000       |   |   |            |          |   |   |          |         |  
|                             | Stock based compensation related to work force reduction                                |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | 6,000        |   |   |            |          |   |   |          |         |  
|                             | Net loss                                                                                |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |           |   |   |          |          |  
|                             |                                                                                         |                 |           |   |              |   |        |            |  |  |            |           |   |          |         |         |          |   |             |              |  
|Balance at December 31, 2003 |                                                                                         |                 | 1,409,288 |   |              | $ | 14,000 |            |  |  | 13,490,618 |           |   | $        | 135,000 |         |          | $ | 167,537,000 |              |   | $ |           |           |   | $ | (50,000  | )       
|                             | Issuance of common stock in connection with employee stock
    purchase plan            |                 |           |  |              |   |        |           |  |  |            | 19,654    |   |          |         |        |          |   |             | 16,000       |   |   |            |          |   |   |          |         |  
|                             | Exercise of stock options                                                               |                 |           |  |              |   |        |           |  |  |            | 35,004    |   |          |         |        |          |   |             | 5,000        |   |   |            |          |   |   |          |         |  
|                             | Issuance of common stock and warrants in connection with private
    placement (net)    |                 |           |  |              |   |        |           |  |  |            | 2,466,379 |   |          |         | 25,000  |          |   |             | 4,951,000    |   |   |            |          |   |   |          |         |  
|                             | Deferred compensation in connection with the issuance of stock
    options to employees |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | 253,000      |   |   |            |          |   |   |          | (253,000 | )
|                             | Amortization of deferred compensation                                                   |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |          |   |   |          | 111,000  |  
|                             | Reversal of deferred compensation related to employee stock
    options terminated      |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | (8,000       | ) |   |            |          |   |   |          | 8,000    |  
|                             | Net reclass of vested shares from liability to equity                                   |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             | 179,000      |   |   |            |          |   |   |          |         |  
|                             | Net loss                                                                                |                 |           |  |              |   |        |           |  |  |            |          |   |          |         |        |          |   |             |             |   |   |            |           |   |   |          |          |  
|                             |                                                                                         |                 |           |   |              |   |        |            |  |  |            |           |   |          |         |         |          |   |             |              |  
|Balance at December 31, 2004 |                                                                                         |                 | 1,409,288 |   |              | $ | 14,000 |            |  |  | 16,011,655 |           |   | $        | 160,000 |         |          | $ | 172,933,000 |              |   | $ |            |           |   | $ | (184,000 | )       
|                             |                                                                                         |                 |           |   |              |   |        |            |  |  |            |           |   |          |         |         |          |   |             |              |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |            |   |   |            |            |  
|---------------------------- | --------------------------------------------------------------------------------------- | ----------- | ------------ | ----------- | ------------- | - | ------ | ------------- | - | ----- | ------------- | ---------- | - | - | ---------- | ---------- | -
|                             |                                                                                         |             |              | Accumulated |               |   |        |               |  
|                             |                                                                                         |             |              | Other       |               |   | Total  |               |   | Other |              
|                             |                                                                                         | Accumulated |              |             | Comprehensive |   |        | Stockholders |   |       | Comprehensive |           
|                             |                                                                                         | Deficit     |              |             | Income        |   |        | Equity        |   |       | Loss          |           
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           
|Balance at December 31, 2001 |                                                                                         |             | (144,369,000 | )           |               |   | 23,000 |               |   |       | 19,351,000    |            |   | $ | (2,625,000 | )         
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           
|                             | Issuance costs related to private placement                                             |             |              |            |               |   |        |              |   |       |               | (14,000    | ) |   |            |            |  
|                             | Exercise of stock options                                                               |             |              |            |               |   |        |              |   |       |               | 4,000      |   |   |            |            |  
|                             | Issuance of common stock in connection with employee stock
    purchase plan            |             |              |            |               |   |        |              |   |       |               | 60,000     |   |   |            |            |  
|                             | Issuance of common stock in connection with stock bonus award                           |             |              |            |               |   |        |              |   |       |               | 1,000      |   |   |            |            |  
|                             | Interest on note receivable from employee                                               |             |              |            |               |   |        |              |   |       |               | (291,000   | ) |   |            |            |  
|                             | Deferred compensation in connection with the issuance of stock
    options to employees |             |              |            |               |   |        |              |   |       |               | (128,000   | ) |   |            |            |  
|                             | Amortization of deferred compensation                                                   |             |              |            |               |   |        |              |   |       |               | 99,000     |   |   |            |            |  
|                             | Deferred compensation related to consultant stock options                               |             |              |            |               |   |        |              |   |       |               | 27,000     |   |   |            |            |  
|                             | Unrealized loss on available-for-sale securities                                        |             |              |            |               |   |        | (23,000       | ) |       |               | (23,000    | ) |   |            | (23,000    | )
|                             | Net loss                                                                                |             |              | (6,500,000  | )             |   |        |              |   |       |               | (6,500,000 | ) |   |            | (6,500,000 | )
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           
|Balance at December 31, 2002 |                                                                                         | $           | (150,869,000 | )           |               | $ |       |               |   | $     | 12,586,000    |            |   | $ | (6,523,000 | )         
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           
|                             | Issuance of common stock in connection with employee stock
    purchase plan            |             |              |            |               |   |        |              |   |       |               | 56,000     |   |   |            |            |  
|                             | Exercise of stock options                                                               |             |              |            |               |   |        |              |   |       |               | 61,000     |   |   |            |            |  
|                             | Issuance of common stock and warrants in connection with private
    placement (net)    |             |              |            |               |   |        |              |   |       |               | 3,610,000  |   |   |            |            |  
|                             | Amortization of deferred compensation related to note on
    restricted stock           |             |              |            |               |   |        |              |   |       |               | 66,000     |   |   |            |            |  
|                             | Interest on note receivable from employee                                               |             |              |            |               |   |        |              |   |       |               | (123,000   | ) |   |            |            |  
|                             | Retirement of common stock in connection with restricted stock
    buyback              |             |              |            |               |   |        |              |   |       |               | 645,000    |   |   |            |            |  
|                             | Reversal of deferred compensation related to restricted stock
    buyback               |             |              |            |               |   |        |              |   |       |               |           |   |   |            |            |  
|                             | Deferred compensation related to restricted stock vesting                               |             |              |            |               |   |        |              |   |       |               | 12,000     |   |   |            |            |  
|                             | Net reclass of vested shares from liability to equity                                   |             |              |            |               |   |        |              |   |       |               | (186,000   | ) |   |            |            |  
|                             | Deferred compensation related to consultant stock options                               |             |              |            |               |   |        |              |   |       |               | 34,000     |   |   |            |            |  
|                             | Stock based compensation related to work force reduction                                |             |              |            |               |   |        |              |   |       |               | 6,000      |   |   |            |            |  
|                             | Net loss                                                                                |             |              | (7,056,000  | )             |   |        |              |   |       |               | (7,056,000 | ) |   |            | (7,056,000 | )
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           
|Balance at December 31, 2003 |                                                                                         | $           | (157,925,000 | )           |               | $ |       |               |   | $     | 9,711,000     |            |   | $ | (7,056,000 | )         
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           
|                             | Issuance of common stock in connection with employee stock
    purchase plan            |             |              |            |               |   |        |              |   |       |               | 16,000     |   |   |            |            |  
|                             | Exercise of stock options                                                               |             |              |            |               |   |        |              |   |       |               | 5,000      |   |   |            |            |  
|                             | Issuance of common stock and warrants in connection with private
    placement (net)    |             |              |            |               |   |        |              |   |       |               | 4,976,000  |   |   |            |            |  
|                             | Deferred compensation in connection with the issuance of stock
    options to employees |             |              |            |               |   |        |              |   |       |               |           |   |   |            |            |  
|                             | Amortization of deferred compensation                                                   |             |              |            |               |   |        |              |   |       |               | 111,000    |   |   |            |            |  
|                             | Reversal of deferred compensation related to employee stock
    options terminated      |             |              |            |               |   |        |              |   |       |               |           |   |   |            |            |  
|                             | Net reclass of vested shares from liability to equity                                   |             |              |            |               |   |        |              |   |       |               | 179,000    |   |   |            |            |  
|                             | Net loss                                                                                |             |              | (3,882,000  | )             |   |        |              |   |       |               | (3,882,000 | ) |   |            | (3,882,000 | )
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           
|Balance at December 31, 2004 |                                                                                         | $           | (161,807,000 | )           |               | $ |       |               |   | $     | 11,116,000    |            |   | $ | (3,882,000 | )         
|                             |                                                                                         |             |              |             |               |   |        |               |   |       |               |           



F-5



---



##### 



EPIMMUNE INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                              |                                              |                                          |            |         |            |   |            |          |          |   |            |          |            |  
|--------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------- | ---------- | ------- | ---------- | - | ---------- | -------- | -------- | - | ---------- | -------- | ---------- | -
|                                                                                              |                                              | Years Ended December 31,                 |           
|                                                                                              |                                              |                                          |           
|                                                                                              |                                              | 2004                                     |            |         | 2003       |   |            | 2002     |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Operating activities                                                                          |                                              |                                          |            |         |            |   |            |          |          |   |            |         
|Net loss                                                                                      |                                              | $                                        | (3,882,000 | )       |            | $ | (7,056,000 | )        |          | $ | (6,500,000 | )       
|Adjustments to reconcile net loss to net cash (used in) provided
    by operating activities: |                                              |                                          |            |         |            |   |            |          |          |   |            |         
|                                                                                              | Depreciation and amortization                |                                          |            | 964,000 |            |   |            | 866,000  |          |   |            | 777,000  |           
|                                                                                              | Stock based compensation                     |                                          |            | 112,000 |            |   |            | 764,000  |          |   |            | (1,000   | )         
|                                                                                              | Deferred rent                                |                                          |            | (2,000  | )          |   |            | 15,000   |          |   |            | 31,000   |           
|                                                                                              | Write-off of abandoned patents               |                                          |            | 43,000  |            |   |            | 76,000   |          |   |            | 232,000  |           
|                                                                                              | Interest on note held by stockholder         |                                          |            |        |            |   |            | (123,000 | )        |   |            | (291,000 | )         
|                                                                                              | Loss on disposal of assets                   |                                          |            |        |            |   |            | 2,000    |          |   |            | 3,000    |           
|                                                                                              | Changes in operating assets and liabilities: |                                          |            |         |            |   |            |          |          |   |            |          |           
|                                                                                              |                                              | Accounts receivable                      |            |         | (1,655,000 | ) |            |          | (496,000 | ) |            |          | (140,000   | )
|                                                                                              |                                              | Prepaids and other current assets        |            |         | (35,000    | ) |            |          | 6,000    |   |            |          | 139,000    |  
|                                                                                              |                                              | Accounts payable, trade                  |            |         | 723,000    |   |            |          | (286,000 | ) |            |          | 125,000    |  
|                                                                                              |                                              | Accounts payable and accrued liabilities |            |         | 722,000    |   |            |          | 210,000  |   |            |          | (265,000   | )
|                                                                                              |                                              | Deferred revenue                         |            |         | (544,000   | ) |            |          | 37,000   |   |            |          | (1,194,000 | )
|                                                                                              |                                              | Restricted long-term cash                |            |         | 118,000    |   |            |          |         |   |            |          |           |  
|                                                                                              |                                              | Accrued payroll and related expense      |            |         | (12,000    | ) |            |          | (79,000  | ) |            |          | 30,000     |  
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Net cash used in operating activities                                                         |                                              |                                          | (3,448,000 | )       |            |   | (6,064,000 | )        |          |   | (7,054,000 | )       
|Investing activities                                                                          |                                              |                                          |            |         |            |   |            |          |          |   |            |         
|Purchases of property and equipment                                                           |                                              |                                          | (249,000   | )       |            |   | (131,000   | )        |          |   | (735,000   | )       
|Patents                                                                                       |                                              |                                          | (710,000   | )       |            |   | (817,000   | )        |          |   | (1,183,000 | )       
|Purchases of available-for-sale securities                                                    |                                              |                                          |           |         |            |   |           |          |          |   | (1,614,000 | )       
|Maturities of available-for-sale securities                                                   |                                              |                                          |           |         |            |   |           |          |          |   | 12,588,000 |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Net cash (used in) provided by investing activities                                           |                                              |                                          | (959,000   | )       |            |   | (948,000   | )        |          |   | 9,056,000  |         
|Financing activities                                                                          |                                              |                                          |            |         |            |   |            |          |          |   |            |         
|Net proceeds from issuance of common stock                                                    |                                              |                                          | 4,997,000  |         |            |   | 3,726,000  |          |          |   | 50,000     |         
|Principal payments on notes payable to bank                                                   |                                              |                                          |           |         |            |   | (43,000    | )        |          |   | (345,000   | )       
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Net cash provided by (used in) financing activities                                           |                                              |                                          | 4,997,000  |         |            |   | 3,683,000  |          |          |   | (295,000   | )       
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Increase (decrease) in cash and cash equivalents                                              |                                              |                                          | 590,000    |         |            |   | (3,329,000 | )        |          |   | 1,707,000  |         
|Cash and cash equivalents at beginning of year                                                |                                              |                                          | 6,416,000  |         |            |   | 9,745,000  |          |          |   | 8,038,000  |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Cash and cash equivalents at end of year                                                      |                                              | $                                        | 7,006,000  |         |            | $ | 6,416,000  |          |          | $ | 9,745,000  |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Supplemental disclosure of cash flow information                                              |                                              |                                          |            |         |            |   |            |          |          |   |            |         
|Interest paid                                                                                 |                                              | $                                        | 5,000      |         |            | $ | 5,000      |          |          | $ | 22,000     |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Reclassification of unvested common shares from equity to
    liabilities                     |                                              | $                                        |           |         |            | $ | 231,000    |          |          | $ |           |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Reclassification of vested common shares from liabilities to
    equity                       |                                              | $                                        | 178,000    |         |            | $ | 46,000     |          |          | $ |           |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Supplemental disclosure of non-cash investing and financing
    activities                    |                                              |                                          |            |         |            |   |            |          |          |   |            |         
|Unrealized (losses) gains on available-for-sale securities                                    |                                              | $                                        |           |         |            | $ |           |          |          | $ | 23,000     |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         
|Return of common stock in connection with restricted stock
    buyback                        |                                              | $                                        |           |         |            | $ | 2,410,000  |          |          | $ |            |         
|                                                                                              |                                              |                                          |            |         |            |   |            |          |         



F-6



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



| |                                   
| | ----------------------------------
| | Organization and Business Activity





| |                      
| | ---------------------
| | Basis of Presentation







| |                 
| | ----------------
| | Use of Estimates





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                       
| | ----------------------
| | Short-term Investments





| |                             
| | ----------------------------
| | Concentration of Credit Risk



F-7



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                             
|-- | ------------------------------------------------------------
|1. | Summary of Significant Accounting
    Policies  (Continued)







| |                       
| | ----------------------
| | Property and Equipment





| |             
| | ------------
| | Patent Costs





| |                                
| | -------------------------------
| | Impairment of Long-lived Assets





| |                                     
| | ------------------------------------
| | Research Grants and Contract Revenue





| |                              
| | -----------------------------
| | License Revenues and Expenses

Revenue Recognition.


F-8



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                             
|-- | ------------------------------------------------------------
|1. | Summary of Significant Accounting
    Policies  (Continued)





| |                   
| | ------------------
| | Net Loss Per Share

Earnings per
Share.




|                                                                                    |  |                          |            |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                    |  | Years Ended December 31, |           
|                                                                                    |  |                          |           
|                                                                                    |  | 2004                     |            |   | 2003 |   |            | 2002 | 
|                                                                                    |  |                          |            |   |      |   |            |      | 
|Net loss applicable to common stockholders                                          |  | $                        | (3,882,000 | ) |      | $ | (7,056,000 | )    |  | $ | (6,500,000 | )
|                                                                                    |  |                          |            |   |      |   |            |      | 
|Weighted average shares used in computing net loss per share,
    basic and diluted |  |                          | 15,304,928 |   |      |   | 12,238,745 |      |  |   | 11,446,387 |  
|                                                                                    |  |                          |            |   |      |   |            |      | 
|Net loss per common share, basic and diluted                                        |  | $                        | (0.25      | ) |      | $ | (0.58      | )    |  | $ | (0.57      | )
|                                                                                    |  |                          |            |   |      |   |            |      | 





| |                                        
| | ---------------------------------------
| | Accounting for Stock-based Compensation

Accounting for
Stock Issued to Employees Accounting for Stock-Based
Compensation






F-9



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                             
|-- | ------------------------------------------------------------
|1. | Summary of Significant Accounting
    Policies  (Continued)





|                     |                                                                                                                     |      |            |            |      |   |            |          |   |   |            |          |  
|-------------------- | ------------------------------------------------------------------------------------------------------------------- | ---- | ---------- | ---------- | ---- | - | ---------- | -------- | - | - | ---------- | -------- | -
|                     |                                                                                                                     | 2004 |            |            | 2003 |   |            | 2002     |  
|                     |                                                                                                                     |      |            |            |      |   |            |          |  
|Net loss as reported |                                                                                                                     | $    | (3,882,000 | )          |      | $ | (7,056,000 | )        |   | $ | (6,500,000 | )       
|                     | Add: stock-based employee compensation expense included in
    reported net loss                                    |      |            | 71,000     |      |   |            |         |   |   |            |         |  
|                     | Deduct: total stock-based employee compensation expense
    determined under fair value based method for all awards |      |            | (1,346,000 | )    |   |            | (751,000 | ) |   |            | (758,000 | )
|                     |                                                                                                                     |      |            |            |      |   |            |          |  
|Pro forma net loss   |                                                                                                                     | $    | (5,157,000 | )          |      | $ | (7,807,000 | )        |   | $ | (7,258,000 | )       
|                     |                                                                                                                     |      |            |            |      |   |            |          |  
|Net loss per share:  |                                                                                                                     |      |            |            |      |   |            |          |   |   |            |         
|                     | Basic and diluted  as reported                                                                                     |      | $          | (0.25      | )    |   | $          | (0.58    | ) |   | $          | (0.57    | )
|                     |                                                                                                                     |      |            |            |      |   |            |          |  
|                     | Basic and diluted  pro forma                                                                                       |      | $          | (0.34      | )    |   | $          | (0.64    | ) |   | $          | (0.63    | )
|                     |                                                                                                                     |      |            |            |      |   |            |          |  



| |                     
| | --------------------
| | Comprehensive Income





| |                      
| | ---------------------
| | Restructuring Charges





| |                      
| | ---------------------
| | Non-recurring Charges





| |                                     
| | ------------------------------------
| | Recently Issued Accounting Standards

Accounting for Stock-Based
Compensation, Accounting for
Stock Issued to Employees,


F-10



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                             
|-- | ------------------------------------------------------------
|1. | Summary of Significant Accounting
    Policies  (Continued)





|   |                       
|-- | ----------------------
|2. | Short-term Investments





|   |                          
|-- | -------------------------
|3. | Balance Sheet Information



|                               |  |              |         |  |      |   |         | 
|------------------------------ |  | ------------ | ------- |  | ---- | - | ------- | 
|                               |  | December 31, |        
|                               |  |              |        
|                               |  | 2004         |         |  | 2003 |  
|                               |  |              |         |  |      |  
|Prepaid expenses               |  | $            | 209,000 |  |      | $ | 181,000 | 
|Investment interest receivable |  |              | 12,000  |  |      |   | 5,000   | 
|                               |  |              |         |  |      |  
|                               |  | $            | 221,000 |  |      | $ | 186,000 | 
|                               |  |              |         |  |      |  



|                             |  |              |           |  |      |   |           | 
|---------------------------- |  | ------------ | --------- |  | ---- | - | --------- | 
|                             |  | December 31, |          
|                             |  |              |          
|                             |  | 2004         |           |  | 2003 |  
|                             |  |              |           |  |      |  
|Billed accounts receivable   |  | $            | 1,924,000 |  |      | $ | 456,000   | 
|Unbilled accounts receivable |  |              | 743,000   |  |      |   | 556,000   | 
|                             |  |              |           |  |      |  
|                             |  | $            | 2,667,000 |  |      | $ | 1,012,000 | 
|                             |  |              |           |  |      |  



|                                               |  |              |            |   |      |   |            |  
|---------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                               |  | December 31, |           
|                                               |  |              |           
|                                               |  | 2004         |            |   | 2003 |  
|                                               |  |              |            |   |      |  
|Equipment and furniture                        |  | $            | 2,205,000  |   |      | $ | 1,960,000  |  
|Leasehold improvements                         |  |              | 477,000    |   |      |   | 473,000    |  
|                                               |  |              |            |   |      |  
|                                               |  |              | 2,682,000  |   |      |   | 2,433,000  |  
|Less accumulated depreciation and amortization |  |              | (1,650,000 | ) |      |   | (1,288,000 | )
|                                               |  |              |            |   |      |  
|                                               |  | $            | 1,032,000  |   |      | $ | 1,145,000  |  
|                                               |  |              |            |   |      |  



F-11



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                        
|-- | ---------------------------------------
|3. | Balance Sheet Information  (Continued)



|                                |  |              |           |  |      |   |           | 
|------------------------------- |  | ------------ | --------- |  | ---- | - | --------- | 
|                                |  | December 31, |          
|                                |  |              |          
|                                |  | 2004         |           |  | 2003 |  
|                                |  |              |           |  |      |  
|Accrued liabilities             |  | $            | 1,405,000 |  |      | $ | 923,000   | 
|Directors deferred compensation |  |              | 295,000   |  |      |   | 233,000   | 
|                                |  |              |           |  |      |  
|                                |  | $            | 1,700,000 |  |      | $ | 1,156,000 | 
|                                |  |              |           |  |      |  



|   |                     
|-- | --------------------
|4. | Stockholders Equity



| |                
| | ---------------
| | Preferred Stock





| |             
| | ------------
| | Common Stock





F-12



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                   
|-- | ----------------------------------
|4. | Stockholders Equity  (Continued)





| |               
| | --------------
| | Stock Warrants









| |                             
| | ----------------------------
| | Employee Stock Purchase Plan





F-13



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                   
|-- | ----------------------------------
|4. | Stockholders Equity  (Continued)



| |                                      
| | -------------------------------------
| | Directors Deferred Compensation Plan





| |            
| | -----------
| | Stock Plans



| |                
| | ---------------
| | 1989 Stock Plan





| |                
| | ---------------
| | 1997 Stock Plan





| |                
| | ---------------
| | 2000 Stock Plan



F-14



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                   
|-- | ----------------------------------
|4. | Stockholders Equity  (Continued)







|                             |           |        |           |           |               |   |      |      | 
|---------------------------- | --------- | ------ | --------- | --------- | ------------- | - | ---- | ---- | 
|                             |           |        |           | Weighted  |              
|                             |           | Shares |           |           | Average Price |  
|                             |           |        |           |           |               |  
|Balance at December 31, 2001 |           |        | 1,539,614 |           |               | $ | 4.07 |     
|                             | Granted   |        |           | 194,520   |               |   | $    | 2.03 | 
|                             | Exercised |        |           | (15,364   | )             |   | $    | 0.28 | 
|                             | Cancelled |        |           | (33,874   | )             |   | $    | 4.74 | 
|                             |           |        |           |           |               |  
|Balance at December 31, 2002 |           |        | 1,684,896 |           |               | $ | 3.86 |     
|                             | Granted   |        |           | 851,000   |               |   | $    | 1.57 | 
|                             | Exercised |        |           | (62,635   | )             |   | $    | 0.97 | 
|                             | Cancelled |        |           | (475,809  | )             |   | $    | 5.47 | 
|                             |           |        |           |           |               |  
|Balance at December 31, 2003 |           |        | 1,997,452 |           |               | $ | 2.59 |     
|                             | Granted   |        |           | 1,147,000 |               |   | $    | 1.57 | 
|                             | Exercised |        |           | (35,004   | )             |   | $    | 0.16 | 
|                             | Cancelled |        |           | (588,301  | )             |   | $    | 3.01 | 
|                             |           |        |           |           |               |  
|Balance at December 31, 2004 |           |        | 2,521,147 |           |               | $ | 2.06 |     
|                             |           |        |           |           |               |  

F-15



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                   
|-- | ----------------------------------
|4. | Stockholders Equity  (Continued)



|                         |  |             |           |          |                |  |          |                |  |          |             |                |  |             |           |  |  |   |       | 
|------------------------ |  | ----------- | --------- | -------- | -------------- |  | -------- | -------------- |  | -------- | ----------- | -------------- |  | ----------- | --------- |  |  | - | ----- | 
|                         |  |             |           |          |                |  |          |                |  | Weighted |            
|                         |  |             |           | Weighted |                |  |          |                |  |          | Average     |               
|                         |  |             |           | Average  |                |  | Weighted |                |  |          |             | Exercise Price | 
|                         |  | Options     |           |          | Remaining Life |  |          | Average        |  |          | Options     |                |  | of Options  |          
|Range of Exercise Prices |  | Outstanding |           |          | in Years       |  |          | Exercise Price |  |          | Exercisable |                |  | Exercisable |          
|                         |  |             |           |          |                |  |          |                |  |          |             |                |  |             |          
|$ 0.16                   |  |             | 31,720    |          |                |  | 2.96     |                |  | $        | 0.16        |                |  |             | 31,720    |  |  | $ | 0.16  | 
|$ 0.48                   |  |             | 87,489    |          |                |  | 3.99     |                |  |          | 0.48        |                |  |             | 87,489    |  |  |   | 0.48  | 
|$ 1.26 - $ 3.37          |  |             | 2,211,502 |          |                |  | 8.39     |                |  |          | 1.79        |                |  |             | 1,196,440 |  |  |   | 1.99  | 
|$ 3.75 - $ 6.00          |  |             | 174,000   |          |                |  | 5.11     |                |  |          | 5.02        |                |  |             | 174,000   |  |  |   | 5.02  | 
|$10.50 - $16.25          |  |             | 10,500    |          |                |  | 3.80     |                |  |          | 12.01       |                |  |             | 10,500    |  |  |   | 12.01 | 
|$21.87 - $42.88          |  |             | 5,936     |          |                |  | 0.98     |                |  |          | 30.68       |                |  |             | 5,936     |  |  |   | 30.68 | 
|                         |  |             |           |          |                |  |          |                |  |          |             |                |  |             |          
|Total                    |  |             | 2,521,147 |          |                |  |          |                |  |          |             |                |  |             | 1,506,085 |  |  |   |       | 
|                         |  |             |           |          |                |  |          |                |  |          |             |                |  |             |          
|Weighted averages        |  |             |           |          |                |  | 7.91     |                |  | $        | 2.06        |                |  |             |           |  |  | $ | 2.39  | 







Accounting for Stock Compensation Arrangements with
Employer Loan features under APB 25




F-16



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                   
|-- | ----------------------------------
|4. | Stockholders Equity  (Continued)





| |                                    
| | -----------------------------------
| | Shares Reserved for Future Issuance



|                                                  |  |  |           | 
|------------------------------------------------- |  |  | --------- | 
|Options granted and outstanding                   |  |  | 2,521,147 | 
|Options authorized for future grants              |  |  | 399,393   | 
|Employee stock purchase plan for future purchases |  |  | 139,101   | 
|Stock warrants                                    |  |  | 2,275,426 | 
|Conversion of preferred stock                     |  |  | 1,787,572 | 
|                                                  |  |  |          
|                                                  |  |  | 7,122,639 | 
|                                                  |  |  |          



|   |            
|-- | -----------
|5. | Commitments





|                             |  |           |           | 
|---------------------------- |  | --------- | --------- | 
|                             |  | Operating |          
|Year                         |  | Leases    |          
|                             |  |           |          
|2005                         |  | $         | 602,000   | 
|2006                         |  |           | 620,000   | 
|2007                         |  |           | 639,000   | 
|2008                         |  |           | 658,000   | 
|2009                         |  |           | 166,000   | 
|                             |  |           |          
|Total minimum lease payments |  | $         | 2,685,000 | 
|                             |  |           |          



|   |                                                                     
|-- | --------------------------------------------------------------------
|6. | Revenues Under Collaborative Research and Development
    Agreements



| |                              
| | -----------------------------
| | National Institutes of Health



F-17



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                                   
|-- | ----------------------------------------------------------------------------------
|6. | Revenues Under Collaborative Research and Development
    Agreements  (Continued)













| |           
| | ----------
| | Amgen Inc.



F-18



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                                   
|-- | ----------------------------------------------------------------------------------
|6. | Revenues Under Collaborative Research and Development
    Agreements  (Continued)



| |                  
| | -----------------
| | Merck & Co., Inc.





| |                      
| | ---------------------
| | Beckman Coulter, Inc.





| |                                
| | -------------------------------
| | Immuno-Designed Molecules, S.A.

ex
vivo ex vivo tm ex vivo




| |                
| | ---------------
| | Aventis Pasteur



F-19



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                                   
|-- | ----------------------------------------------------------------------------------
|6. | Revenues Under Collaborative Research and Development
    Agreements  (Continued)



| |                     
| | --------------------
| | Bavarian Nordic A/ S





| |            
| | -----------
| | Anosys Inc.

ex vivo




| |                             
| | ----------------------------
| | Genencor International, Inc.



F-20



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                                   
|-- | ----------------------------------------------------------------------------------
|6. | Revenues Under Collaborative Research and Development
    Agreements  (Continued)



| |              
| | -------------
| | Pharmexa A/ S

tm




|   |             
|-- | ------------
|7. | Income Taxes



|                                            |                                  |      |             |            |      |   |             |            |  
|------------------------------------------- | -------------------------------- | ---- | ----------- | ---------- | ---- | - | ----------- | ---------- | -
|                                            |                                  | 2004 |             |            | 2003 |  
|                                            |                                  |      |             |            |      |  
|Deferred tax liabilities:                   |                                  |      |             |            |      |   |             |           
|                                            | Patents expensed for tax         |      | $           | (1,212,000 | )    |   | $           | (1,162,000 | )
|                                            |                                  |      |             |            |      |  
|Total deferred tax liabilities              |                                  |      | (1,212,000  | )          |      |   | (1,162,000  | )         
|Deferred tax assets:                        |                                  |      |             |            |      |   |             |           
|                                            | Capitalized research expenses    |      |             | 1,752,000  |      |   |             | 1,476,000  |  
|                                            | Net operating loss carryforwards |      |             | 55,083,000 |      |   |             | 55,167,000 |  
|                                            | Research and development credits |      |             | 9,654,000  |      |   |             | 9,698,000  |  
|                                            | Other, net                       |      |             | 415,000    |      |   |             | 489,000    |  
|                                            |                                  |      |             |            |      |  
|Total deferred tax assets                   |                                  |      | 66,904,000  |            |      |   | 66,830,000  |           
|Valuation allowance for deferred tax assets |                                  |      | (65,692,000 | )          |      |   | (65,668,000 | )         
|                                            |                                  |      |             |            |      |  
|Net deferred tax assets                     |                                  | $    |            |            |      | $ |            |           
|                                            |                                  |      |             |            |      |  



F-21



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |            
|-- | -----------
|8. | 401(k) Plan





|   |                                          
|-- | -----------------------------------------
|9. | Unaudited Quarterly Financial Information



|                             |                                         |             |   |       |             |  |   |             |   |  |             |       |   |  |   |       |  
|---------------------------- | --------------------------------------- | ----------- | - | ----- | ----------- |  | - | ----------- | - |  | ----------- | ----- | - |  | - | ----- | -
|                             |                                         | 1st Quarter |   |       | 2nd Quarter |  |   | 3rd Quarter |   |  | 4th Quarter |      
|                             |                                         |             |   |       |             |  |   |             |   |  |             |      
|Year Ended December 31, 2004 |                                         |             |   |       |             |  |   |             |   |  |             |       |   |  |   |      
|                             | Revenues                                |             | $ | 2.6   |             |  | $ | 1.9         |   |  | $           | 2.1   |   |  | $ | 3.0   |  
|                             | Loss from operations                    |             |   | (0.5  | )           |  |   | (0.9        | ) |  |             | (1.0  | ) |  |   | (1.6  | )
|                             | Net loss                                |             |   | (0.5  | )           |  |   | (0.9        | ) |  |             | (0.9  | ) |  |   | (1.6  | )
|                             | Basic and diluted net loss per share(a) |             |   | (0.04 | )           |  |   | (0.06       | ) |  |             | (0.06 | ) |  |   | (0.10 | )

|                             |                                      |             |   |       |             |  |   |             |   |  |             |       |   |  |   |       |  
|---------------------------- | ------------------------------------ | ----------- | - | ----- | ----------- |  | - | ----------- | - |  | ----------- | ----- | - |  | - | ----- | -
|                             |                                      | 1st Quarter |   |       | 2nd Quarter |  |   | 3rd Quarter |   |  | 4th Quarter |      
|                             |                                      |             |   |       |             |  |   |             |   |  |             |      
|Year Ended December 31, 2003 |                                      |             |   |       |             |  |   |             |   |  |             |       |   |  |   |      
|                             | Revenues                             |             | $ | 1.4   |             |  | $ | 1.8         |   |  | $           | 2.0   |   |  | $ | 1.9   |  
|                             | Loss from operations                 |             |   | (1.9  | )           |  |   | (2.1        | ) |  |             | (2.1  | ) |  |   | (1.2  | )
|                             | Net loss                             |             |   | (1.8  | )           |  |   | (2.0        | ) |  |             | (2.0  | ) |  |   | (1.2  | )
|                             | Basic and diluted net loss per share |             |   | (0.15 | )           |  |   | (0.17       | ) |  |             | (0.17 | ) |  |   | (0.09 | )






|    |                                                                                                  
|--- | -------------------------------------------------------------------------------------------------
|(a) | The sum of the four quarters will not agree to year total due to
    rounding within the quarter.



|    |                              
|--- | -----------------------------
|10. | Subsequent Events (Unaudited)





F-22



---



##### 



EPIMMUNE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                
|--- | -------------------------------
|10. | Subsequent Events  (Continued)









F-23