##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the fiscal year ended December 31, 2005                                                 
|  
|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


IDM PHARMA 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.)
|9 Parker, Suite 100, Irvine, CA 92618                             
|(Address of Principal executive offices)                          

Registrants telephone number, including area code:


(949) 470-4751


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)


o þ


o þ


o þ


S-K 10-K 10-K. þ


12b-2 o o þ


12b-2 o þ











|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes 297,356 shares of Common Stock held by directors
    and officers and stockholders whose ownership exceeds 10% of the
    Common Stock outstanding on June 30, 2005. 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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TABLE OF CONTENTS



|                                                                             |                                                                                                                      |  |  |  |  |  |  | 
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                      
|                                                                             | Item 1. Business                                                                                                    
|                                                                             | Item 1A. Risk Factors                                                                                               
|                                                                             | Item 1B. Unresolved Staff Comments                                                                                  
|                                                                             | 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, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                                             | Item 6. Selected Financial Data                                                                                     
|                                                                             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                       
|                                                                             | Item 7A. Quantitative and Qualitative Disclosures About Market Risks                                                
|                                                                             | Item 8. Consolidated Financial Statements and Supplementary Data                                                    
|                                                                             | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|                                                                             | Item 9A. Controls and Procedures                                                                                    
|PART III                                                                    
|                                                                             | Item 10. Directors and Executive Officers of the Registrant                                                         
|                                                                             | Item 11. Executive Compensation                                                                                     
|                                                                             | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters             
|                                                                             | Item 13. Certain Relationships and Related Transactions                                                             
|                                                                             | Item 14. Principal Accountant Fees and Services                                                                     
|PART IV                                                                     
|                                                                             | Item 15. Exhibits and Financial Statement Schedules                                                                 
|SIGNATURES                                                                  
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                  
|REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
|REPORT OF ERNST & YOUNG AUDIT, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|CONSOLIDATED BALANCE SHEETS                                                 
|CONSOLIDATED STATEMENTS OF OPERATIONS                                       
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                       
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  
|EXHIBIT 10.44                                                               
|EXHIBIT 10.49                                                               
|EXHIBIT 10.50                                                               
|EXHIBIT 10.51                                                               
|EXHIBIT 10.52                                                               
|EXHIBIT 10.53                                                               
|EXHIBIT 10.54                                                               
|EXHIBIT 10.55                                                               
|EXHIBIT 10.56                                                               
|EXHIBIT 10.57                                                               
|EXHIBIT 10.58                                                               
|EXHIBIT 10.59                                                               
|EXHIBIT 10.60                                                               
|EXHIBIT 10.61                                                               
|EXHIBIT 10.62                                                               
|EXHIBIT 10.63                                                               
|EXHIBIT 21.1                                                                
|EXHIBIT 23.1                                                                
|EXHIBIT 23.2                                                                
|EXHIBIT 31.1                                                                
|EXHIBIT 31.2                                                                
|EXHIBIT 32.1                                                                



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PART I







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

Forward Looking Statements




tm ® ® ® ® ® ®




Overview






| |                     
| | --------------------
| | Business Combination

S-1




1



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| |                                        
| | ---------------------------------------
| | Sale of Our Infectious Disease Business





| |              
| | -------------
| | Product lines





| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | to destroy cancer cells remaining after conventional
    therapies, and
|
| |  | to prevent tumor recurrence.                                           

in vivo ex vivo


in vivo


ex vivo








2



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| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | for our products that are designed to destroy residual cancer
    cells, we have rights to both non-cellular immunotherapies that
    stimulate the immune system non-specifically such as Junovan,
    and cellular immunotherapies that use activated macrophages,
    such as Bexidem,
|
| |  | for our Dendritophage products that are designed to prevent
    tumor recurrence, we have rights to specific immunotherapies
    using dendritic cell vaccines, a type of therapeutic cancer
    vaccine, and                                                                            
|
| |  | for our synthetic vaccines, we have rights to specific
    combinations of peptides and analogs of peptides called epitopes                                                                                                                                                              



Industry and Scientific Background








3



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|                                 |  |                                 |           |  |               |  |         | 
|-------------------------------- |  | ------------------------------- | --------- |  | ------------- |  | ------- | 
|                                 |  | Estimated Number in the U.S. in |          
|                                 |  | 2006                            |          
|                                 |  |                                 |          
|                                 |  | New Cancer Cases                |           |  | Cancer Deaths | 
|                                 |  |                                 |           |  |               | 
|Type of Cancer                   |  |                                 |           |  |               |  |         | 
|Prostate                         |  |                                 | 234,460   |  |               |  | 27,350  | 
|Breast                           |  |                                 | 214,640   |  |               |  | 41,430  | 
|Lung and Bronchus                |  |                                 | 174,470   |  |               |  | 162,460 | 
|Colon/ Rectum                    |  |                                 | 148,610   |  |               |  | 55,170  | 
|Lymphoma                         |  |                                 | 66,670    |  |               |  | 20,330  | 
|Melanoma  skin                  |  |                                 | 62,190    |  |               |  | 7,910   | 
|Urinary Bladder                  |  |                                 | 61,420    |  |               |  | 13,060  | 
|Kidney and Renal Pelvis          |  |                                 | 38,890    |  |               |  | 12,840  | 
|Leukemia                         |  |                                 | 35,070    |  |               |  | 22,280  | 
|Pancreas                         |  |                                 | 33,730    |  |               |  | 32,300  | 
|Liver and intrahepatic bile duct |  |                                 | 18,510    |  |               |  | 16,200  | 
|Bones and Joints                 |  |                                 | 2,760     |  |               |  | 1,260   | 
|Other                            |  |                                 | 308,370   |  |               |  | 152,240 | 
|                                 |  |                                 |           |  |               | 
|TOTAL                            |  |                                 | 1,399,790 |  |               |  | 564,830 | 



|        |  |                         
|------- |  | ------------------------
|Source: |  | American Cancer Society.







The Immune System and Our Therapeutic Approaches






| |                                              
| | ---------------------------------------------
| | Our Products to Destroy Residual Cancer Cells



4



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| |                                         
| | ----------------------------------------
| | Our Products to Prevent Tumor Recurrence





| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | one or several antigens against which an immune reaction will be
    triggered,                                      
|
| |  | a delivery vehicle which will deliver the antigen to the
    appropriate immune system cells at the correct time, and
|
| |  | an immune system stimulant which will enhance the elicited
    immune reaction.                                      





| |         
| | --------
| | Antigens



5



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®




| |                  
| | -----------------
| | Delivery vehicles



® ®






| |                         
| | ------------------------
| | Immune system stimulants







6



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Advantages of our Approaches






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multiple and Complementary Product Categories. We use
    different innovative approaches to fight cancer. We use both
    ex vivoand in vivoactivation of immune cells to
    stimulate and enhance the bodys natural defenses. We are
    developing products to destroy residual cancer cells, such as
    our macrophage activators and our MAK-based products, and
    products to prevent tumor recurrence, such as our
    synthetic-peptides-based or Dendritophage- based cancer
    treatments.
|
| |  | Unique Macrophage-Based Approach. To our knowledge, we
    are the only company that is developing products based on
    activation of macrophages both inside and outside the body.
    These include our MAK cell products and Junovan.                                                                                                                                                                                                                                                                 
|
| |  | Benefits of Ex-Vivo Engineering of Dendritophages. Our
    Dendritophages are produced outside the body and therefore in
    isolation from the potential negative effects of cancer on
    dendritic cell function. As a result, we believe that our
    Dendritophages are able to trigger a broad immune response and
    that they should continue to function after injection into a
    cancer patient.                                                                                             
|
| |  | Potential Product Synergies. Our immune system
    stimulants, such as Junovan, have independent therapeutic
    activity as well as the potential to enhance the activity of
    some of our Cell Drugs. If successful, these products could be
    used in combination, increasing their potential value for the
    treatment of patients.                                                                                                                                                             
|
| |  | Low Toxicity and Well-Tolerated. Unlike chemotherapy and
    other conventional cancer treatments, our multiple approaches to
    immunotherapy have been shown in clinical trials to have low
    toxicity and to be well-tolerated.                                                                                                                                                                                                                                                                     
|
| |  | Designed to Treat a Wide Variety of Cancers. By combining
    our MAK cells with certain antibodies and our Dendritophages
    with a variety of antigens, or by changing the mix of synthetic
    peptides, we are able to develop new product opportunities for
    the treatment of a variety of cancers. We are currently
    evaluating the efficacy of our products for treatment of
    different types of cancer, including non-small cell lung,
    colorectal, bladder and melanoma.            
|
| |  | Use of Epitopes in Vaccine Development. By selectively
    modifying epitopes included in our synthetic vaccines, we
    believe we can enhance the desired immune response, and by using
    multiple epitopes from multiple tumor-associated antigens,
    increase the likelihood the vaccine will continue to elicit an
    effective immune response if the tumor changes.                                                                                                                           

Products in Development




7



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|                                                                                    |  |                                                                                                             |  |                                              |  |                           |  |                                                                                                                      
|----------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- |  | ------------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|Product Candidate                                                                   |  | Description                                                                                                 |  | Primary Indication(s)                        |  | Status*                   |  | Marketing Rights                                                                                                     
|                                                                                    |  |                                                                                                             |  |                                              |  |                           |  |                                                                                                                      
|Product Candidates to Destroy Residual Cancer Cells                                 |  |                                                                                                             |  |                                              |  |                           |  |                                                                                                                      
|Junovan                                                                             |  | Liposomal muramyl- tripeptide phosphatidylethanol- amine                                                    |  | Osteosarcoma                                 |  | Phase III trial completed |  | IDM + Cambridge Labs (United Kingdom and Ireland), Medison
    Pharma (Israel) and Genesis Pharma (South East Europe)
|Bexidem                                                                             |  | MAK                                                                                                         |  | Bladder cancer                               |  | Phase II/III              |  | IDM                                                                                                                  
|Jenact                                                                              |  | Synthetic salt of lipopeptide derivative initially isolated from
    the membrane of gram negative bacteria |  | Lung or liver metastases in relevant cancers |  | Preclinical               |  | IDM                                                                                                                  
|Product Candidates to Stimulate an Immune Response and
    Prevent Tumor Recurrence |  |                                                                                                             |  |                                              |  |                           |  |                                                                                                                      
|Uvidem                                                                              |  | Dendritophage + melanoma tumor cell lysates                                                                 |  | Melanoma                                     |  | Phase II                  |  | Sanofi-Aventis                                                                                                       
|EP-2101                                                                             |  | Multiple tumor- specific CTL epitopes                                                                       |  | Non-Small Cell Lung cancer                   |  | Phase II                  |  | IDM                                                                                                                  
|Collidem                                                                            |  | Dendritophages + specific antigen peptides                                                                  |  | Colorectal cancer                            |  | Phase I/II                |  | IDM                                                                                                                  
|Liposomal KSA                                                                       |  | Liposomal formulation of KSA antigen                                                                        |  | Breast, colon, lung and prostate cancers     |  | Preclinical               |  | IDM                                                                                                                  






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Human clinical trials are usually conducted in three sequential
    phases that may overlap. In Phase I, the drug is typically
    introduced into healthy human subjects to determine the initial
    safety profile, identify side effects and evaluate dosage
    tolerance, distribution and metabolism. In Phase II, the
    drug is studied in a limited patient population with the target
    disease to determine preliminary efficacy and optimal dosages
    and to expand the safety profile. In certain cases, regulatory
    authorities may permit Phase I and Phase II to be
    combined into a single Phase I/ II trial by accepting a
    Phase II protocol in which the first few patients are more
    specifically tested for safety and tolerance. This is
    particularly true in instances where it may be inappropriate to
    conduct Phase I studies in normal volunteers, such as is
    the case with our cellular products. In Phase III,
    large-scale comparative trials are conducted in patients with
    the target disease to provide sufficient data for the proof of
    efficacy and safety required by regulatory agencies. Regulatory
    authorities may permit Phase II and Phase III to be
    combined into a single Phase II/ III trial by accepting a
    protocol that typically includes a planned interim analysis
    after an initial group of patients (Phase II) is treated to

8



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | help guide a decision about continuation or modification for the
    Phase III portion. The total number of patients necessary
    for the Phase III study to be significant is determined as
    a function of these results. Preclinical studies involve
    laboratory evaluation of product characteristics and ex vivoand/or animal studies to assess the potential efficacy and
    safety of the product, as well as development of manufacturing
    processes for clinical production.

Our Products in Clinical Trials




| |                                              
| | ---------------------------------------------
| | Our Products to Destroy Residual Cancer Cells

Junovan for Treatment of Osteosarcoma. 5-year






|                                                                                                                      |       |  |                                  |  |       |     |  |  |       |  |  |  |       | 
|--------------------------------------------------------------------------------------------------------------------- | ----- |  | -------------------------------- |  | ----- | --- |  |  | ----- |  |  |  | ----- | 
|Stratified Log-Rank Analysis of Disease Free Survival (DFS) and Overall Survival (OS) for Eligible Patients with Non- |      
|Metastatic Disease that was Amenable to Surgical Removal                                                              |      
|                                                                                                                      |      
|Testing for Effect of Junovan                                                                                         |       |  | Testing for Effect of Ifosfamide | 
|                                                                                                                      |       |  |                                  | 
|DFS                                                                                                                   |       |  | OS                               |  |       | DFS |  |  | OS    | 
|                                                                                                                      |       |  |                                  |  |       |     |  |  |       | 
|                                                                                                                      | 0.030 |  |                                  |  | 0.039 |     |  |  | 0.934 |  |  |  | 0.992 | 

9



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Bexidem for Treatment of Superficial Bladder Cancer.






10



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follow-up






| |                                     
| | ------------------------------------
| | Products to Prevent Tumor Recurrence

Uvidem for Treatment of Melanoma.






11



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EP-2101 for Non-Small Cell Lung Cancer.








Collidem for Treatment of Colorectal Cancer.


12



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ex vivo,








| |                                    
| | -----------------------------------
| | Products in Preclinical Development



| |       
| | ------
| | Jenact





| |                      
| | ---------------------
| | Liposomal KSA Vaccine



13



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Our Basic Research Programs






| |                                             
| | --------------------------------------------
| | Improving existing products and technologies

In-vivo


ex vivo ex vivo




| |                                                                               
| | ------------------------------------------------------------------------------
| | Leveraging our technology to validate new targets and
    develop new products

ex vivo




| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Conducting basic research in immunology in collaboration
    with academic researchers

ex vivo ex vivo


Product Manufacturing








14



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ex vivo






Marketing and Sales




Collaboration Agreements and Licenses




15



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| |                                  
| | ---------------------------------
| | Collaboration with Sanofi-Aventis

10-year




in vitro in vivo.












16



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| |                           
| | --------------------------
| | Collaboration with Medarex







17



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| |                                
| | -------------------------------
| | License Agreement with Novartis





| |                             
| | ----------------------------
| | Collaboration with Biotecnol

E-coli, E-coli




18



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| |                                 
| | --------------------------------
| | License Agreement with Eli Lilly





| |                              
| | -----------------------------
| | Other Agreements and Licenses



back-up


19



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Government Research Funding










Acquisition of Certain Assets from Jenner Biotherapies




Intellectual Property




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



20



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10-year










| |           
| | ----------
| | Trademarks





| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | I.D.M., The Immunogenics Company: France, the European
    Union, Canada, Switzerland, Australia, Israel and Hungary;
|
| |  | Vaccell: United States, Canada, France, the European
    Union, Japan, Switzerland, Australia, Israel and Hungary;   
|
| |  | MAK: United States, Japan, European Union, Canada and
    Australia;                                                 
|
| |  | Dendritophage: United States, Canada, France, and the
    European Union.                                            

21



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Government Regulation










| |                              
| | -----------------------------
| | Regulation of Clinical Trials



22



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30-day




| |                                 
| | --------------------------------
| | Regulation of Marketing Approval







| |                                    
| | -----------------------------------
| | Fast Track and Accelerated Approval





23



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| |             
| | ------------
| | Orphan Drugs







direct-to


Environmental and Health and Safety Laws and Regulations




24



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Competition












Financial Information About Geographic Areas




| |                  
| | -----------------
| | Long-lived Assets





| |                                         
| | ----------------------------------------
| | Risks Associated with Foreign Operations



25



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Employees




Convention Collective
de lIndustrie Pharmaceutique




Available Information


10-K, 10-Q, 8-K,


26



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Item 1A.     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 lead product candidate, Junovan, may never obtain
regulatory approval.








Even if we receive regulatory approval for Junovan, we may
not be able to market it successfully.






27



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10-year




The process of developing immunotherapeutic 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 and we would either have to bear the operating
    expenses and capital requirements of continued development of
    our therapeutic cancer vaccines or abandon the projects outright;
|
| |  | we, our collaborators or government 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;                                                                                                                                                                        
|
| |  | the effects of our immunotherapeutic product candidates 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;                                                                          
|
| |  | enrollment in clinical trials for our product candidates may be
    slower than anticipated, resulting in significant
    delays; and                                                                                                                                                                                           
|
| |  | the effects of our product candidates on patients may not have
    the desired effects or may include undesirable side effects or
    other characteristics that may delay or preclude regulatory
    approval or limit their commercial use, if approved.                                                                      



28



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Our principal source of revenues and cash receipts is a
collaboration agreement under which our partner has limited
obligations.


10-year


Our revenues and operating results are likely to
fluctuate.






| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | any payments from Sanofi-Aventis and any other current or future
    collaborative partners;
|
| |  | any government and European Union grants and contracts; and                                 
|
| |  | investment income.                                                                          



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




29



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Our substantial additional capital requirements and
potentially limited access to financing may harm our ability to
develop products and fund our operations.






| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether we are able to secure additional financing on favorable
    terms, or at all;                                                                                                                                                                                    
|
| |  | the costs associated with, and the success of, obtaining
    marketing approval and, as applicable, pricing approval, for
    Junovan for the treatment of osteosarcoma in the United States,
    Europe and other jurisdictions and the timing of any such
    approval;
|
| |  | the success or failure of the product launch and
    commercialization of Junovan;                                                                                                                                                                                       
|
| |  | the costs associated with the launch and the commercialization
    of Junovan in the United States, Europe and other jurisdictions
    upon obtaining marketing approval;                                                                                                
|
| |  | the costs associated with our clinical trials for our product
    candidates, including our Cell Drugs and lung cancer vaccine
    candidates;                                                                                                                           
|
| |  | progress with other preclinical testing and clinical trials in
    the future;                                                                                                                                                                                           
|
| |  | costs associated with integrating our company following the
    Combination, especially given the multi-national nature of our
    company;                                                                                                                              
|
| |  | 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 collaboration agreements;                                                                                                                                                                                                            
|
| |  | the time and costs involved in obtaining regulatory approvals
    for our products;                                                                                                                                                                                      
|
| |  | the costs involved in filing, prosecuting, enforcing and
    defending patent claims and any other proprietary rights;                                                                                                                                                   
|
| |  | competing technological and market developments; and                                                                                                                                                                                                                     
|
| |  | the magnitude of our immunotherapeutic product discovery and
    development programs.                                                                                                                                                                                   



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




30



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Unexpected or undesirable side effects or other
characteristics of our products and technology may delay or
otherwise hurt the development of our drug candidates, or may
expose us to significant liability that could cause us to incur
significant costs.






Adverse publicity regarding the safety or side effects of the
technology approach or products of others could negatively
impact us and cause the price of our common stock to decline.




Our treatment approach may not prove effective.




31



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| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the targeted antigens are not sufficiently different from those
    normal cells to cause an immune reaction;                                                          
|
| |  | the tumor cells do not express the targeted antigen at all or in
    sufficient quantities to be recognized by immune system cells,
    such as T cells or macrophages;
|
| |  | the immune response provoked by the immunotherapeutic agent is
    not strong enough to destroy the cancer; or                                                         
|
| |  | cancer cells may, through various biochemical mechanisms, escape
    an immune response.                                                                               



If we cannot enter into 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, underfund
    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;                                                                                                                                               
|
| |  | 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 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                                                                           

32



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| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | collaborations and licensee arrangements may be terminated, in
    which case 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 license technology necessary to develop
products.




Our supplies of certain materials necessary to our business
may be limited and key raw materials may be scarce.








33



---



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








| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | non-compliance by these third parties with regulatory and
    quality control standards;
|
| |  | breach by these third parties of their agreements with
    us; and                      
|
| |  | termination or nonrenewal of these agreements for reasons beyond
    our control.       







We are subject to extensive and uncertain government
regulation and we may not be able to obtain necessary regulatory
approvals.




34



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##### Table of Contents







| |   |                                                  
| | - | -------------------------------------------------
| |  | fines and penalties;                             
|
| |  | injunctions;                                     
|
| |  | seizure of products;                             
|
| |  | total or partial suspension of product marketing;
|
| |  | failure of a regulatory agency to grant a NDA;   
|
| |  | withdrawal of marketing approvals; and           
|
| |  | criminal prosecution.                            





Even if we obtain regulatory approval for our products, 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.                                                                                            

35



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




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






| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 our intellectual property and our
    respective licensors or collaborators; and
|
| |  | other companies may design around the technologies patented by
    us.                                                                                                                                                                    

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




36



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##### Table of Contents











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 owned by, or licensed to us from another party;                                   
|
| |  | protect our trade secrets or know-how; or                                                         
|
| |  | determine the enforceability, scope and validity of our
    proprietary rights or those of others.

37



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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.




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




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




Successful commercialization of our future products will
depend on our ability to gain acceptance by the medical
community.






| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | the extent to which our therapeutic product candidates are
    demonstrated to be safe and effective in clinical trials;
|
| |  | the existence of adverse side effects;                                                                                  
|
| |  | convenience and ease of administration;                                                                                 
|
| |  | the success of sales, marketing and public relations efforts;                                                           
|
| |  | the availability of alternative treatments;                                                                             
|
| |  | competitive pricing;                                                                                                    
|
| |  | the reimbursement policies of governments and other third
    parties;                                                  

38



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| |   |                                                          
| | - | ---------------------------------------------------------
| |  | effective implementation of a publications strategy; and 
|
| |  | garnering support from well-respected external advocates.



There are challenges involved in the integration of our
company following the Combination, and, as a result, we may not
realize the expected benefits of the Combination.


day-to




| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | consolidating research and development operations;                                                                         
|
| |  | retaining key personnel;                                                                                                   
|
| |  | preserving licensing, research and development, manufacturing,
    supply, collaboration and other important relationships;
|
| |  | motivating employees in light of organizational changes
    resulting from the Combination;                                
|
| |  | combining corporate cultures and coordinating multi-national
    operations; and                                           
|
| |  | minimizing the diversion of managements attention from
    ongoing business concerns.                                     



We may experience difficulties managing our growth, which
could adversely affect our results of operations.






| |   |                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | train, manage, motivate and retain a growing employee base,
    particularly given our operations in both California and France;                                                                    
|
| |  | accurately forecast demand for, and revenues from, our product
    candidates, particularly Junovan; and                                                                                            
|
| |  | expand existing operational, financial and management
    information systems to support our development and planned
    commercialization activities and the multiple locations of our
    offices.



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




39



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clean-up


Our financial results may be adversely affected by
fluctuations in foreign currency exchange rates.




The volatility of the price of our common stock may adversely
affect stockholders.






| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | the status of development of our product candidates;                                                                    
|
| |  | whether we are able to secure additional financing on favorable
    terms, or at all;                                   
|
| |  | announcements of technological innovations or new commercial
    immunotherapeutic products by us or others;            
|
| |  | governmental regulation that affects the biotechnology and
    pharmaceutical industries in general or us in particular;
|
| |  | developments in patent or other proprietary rights by us;                                                               
|
| |  | receipt of funding by us 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 common stock or other
    securities.                                          



40



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Our principal stockholders, executive officers and directors
own a significant percentage of shares of our common stock and,
as a result, the trading price for shares of our common stock
may be depressed. These shareholders may make decisions that may
be adverse to your interests.






Future sales of shares of our common stock may cause the
market price of your shares to decline.


lock-up lock-up







|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








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



3-year


5-year


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|        |                  
|------- | -----------------
|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, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|     |                                  |      |   |       |     |  |   |       | 
|---- | -------------------------------- | ---- | - | ----- | --- |  | - | ----- | 
|     |                                  | High |   |       | Low | 
|     |                                  |      |   |       |     | 
|2006 |                                  |      |   |       |     |  |   |      
|     | First Quarter (through March 29) |      | $ | 6.50  |     |  | $ | 2.60  | 
|2005 |                                  |      |   |       |     |  |   |      
|     | Fourth Quarter                   |      | $ | 5.87  |     |  | $ | 2.50  | 
|     | Third Quarter                    |      | $ | 6.99  |     |  | $ | 3.85  | 
|     | Second Quarter                   |      | $ | 8.26  |     |  | $ | 0.98  | 
|     | First Quarter                    |      | $ | 12.11 |     |  | $ | 7.28  | 
|2004 |                                  |      |   |       |     |  |   |      
|     | Fourth Quarter                   |      | $ | 13.93 |     |  | $ | 8.05  | 
|     | Third Quarter                    |      | $ | 13.58 |     |  | $ | 7.70  | 
|     | Second Quarter                   |      | $ | 17.29 |     |  | $ | 11.20 | 
|     | First Quarter                    |      | $ | 20.93 |     |  | $ | 12.32 | 



10-K.


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

10-K.


|                              |                                        |                                              |   |       |      |  |   |       |   |  |      |       |   |      |   |       |   |  |   |       |  
|----------------------------- | -------------------------------------- | -------------------------------------------- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - | ---- | - | ----- | - |  | - | ----- | -
|                              |                                        | Years Ended December 31,                     |  
|                              |                                        |                                              |  
|                              |                                        | 2005                                         |   |       | 2004 |  |   | 2003  |   |  | 2002 |       |   | 2001 |  
|                              |                                        |                                              |   |       |      |  |   |       |   |  |      |       |   |      |  
|                              |                                        | (In millions, except for net loss per share) |  
|Statement of Operations Data: |                                        |                                              |   |       |      |  |   |       |   |  |      |       |   |      |   |       |   |  |   |      
|                              | Operating revenues                     |                                              | $ | 8.5   |      |  | $ | 5.8   |   |  | $    | 6.1   |   |      | $ | 3.4   |   |  | $ | 0.0   |  
|                              | Net loss                               |                                              |   | (39.2 | )    |  |   | (31.7 | ) |  |      | (18.4 | ) |      |   | (12.2 | ) |  |   | (13.6 | )
|                              | Net loss per share  basic and diluted |                                              |   | (3.84 | )    |  |   | (4.35 | ) |  |      | (2.56 | ) |      |   | (1.91 | ) |  |   | (2.20 | )

|                    |                       |                    |   |      |      |  |   |      |  |  |      |      |  |      |   |      |  |  |   |      | 
|------------------- | --------------------- | ------------------ | - | ---- | ---- |  | - | ---- |  |  | ---- | ---- |  | ---- | - | ---- |  |  | - | ---- | 
|                    |                       | As of December 31, |  
|                    |                       |                    |  
|                    |                       | 2005               |   |      | 2004 |  |   | 2003 |  |  | 2002 |      |  | 2001 |  
|                    |                       |                    |   |      |      |  |   |      |  |  |      |      |  |      |  
|                    |                       | (In millions)      |  
|Balance Sheet Data: |                       |                    |   |      |      |  |   |      |  |  |      |      |  |      |   |      |  |  |   |     
|                    | Working capital       |                    | $ | 22.4 |      |  | $ | 37.2 |  |  | $    | 40.9 |  |      | $ | 48.2 |  |  | $ | 33.5 | 
|                    | Total assets          |                    |   | 42.9 |      |  |   | 55.3 |  |  |      | 65.8 |  |      |   | 67.9 |  |  |   | 49.5 | 
|                    | Long-term obligations |                    |   | 0.8  |      |  |   | 0.4  |  |  |      | 0.3  |  |      |   | 0.2  |  |  |   | 0.4  | 
|                    | Stockholders equity  |                    |   | 28.7 |      |  |   | 42.5 |  |  |      | 55.1 |  |      |   | 59.6 |  |  |   | 44.2 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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.


Overview








43



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Basis of Financial Statements Presentation


S-1








Critical Accounting Policies and Estimates






| |                             
| | ----------------------------
| | Foreign Currency Translation





45



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| |                    
| | -------------------
| | Revenue recognition

Revenue Recognition 00-21, Revenue Arrangements with Multiple Deliverables.












| |                                                              
| | -------------------------------------------------------------
| | Research and development expenses and related tax
    credit.



46



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





| |                  
| | -----------------
| | Intangible assets





| |                                
| | -------------------------------
| | Impairment of long-lived assets

Accounting for the Impairment or Disposal of Long-Lived
Assets,




| |                                     
| | ------------------------------------
| | Goodwill and other intangible assets

Goodwill and Other
Intangible Assets,


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Business Combination and Name Change










|                                                 |  |   |        | 
|------------------------------------------------ |  | - | ------ | 
|Epimmune common stock                            |  | $ | 21,301 | 
|Epimmune preferred stock, as-converted to common |  |   | 2,589  | 
|Estimated fair value of options assumed          |  |   | 2,586  | 
|Estimated IDM S.A. direct transaction costs      |  |   | 3,298  | 
|                                                 |  |   |       
|Total purchase price                             |  | $ | 29,774 | 
|                                                 |  |   |       





|                                              |  |        |        |            |              |  |                  |              |  |  |         | 
|--------------------------------------------- |  | ------ | ------ | ---------- | ------------ |  | ---------------- | ------------ |  |  | ------- | 
|                                              |  |        |        | First Year |              |  | Estimated Useful |             
|                                              |  | Amount |        |            | Amortization |  |                  | Life (Years) | 
|                                              |  |        |        |            |              |  |                  |              | 
|Purchase price allocation:                    |  |        |        |            |              |  |                  |              |  |  |         | 
|Net tangible assets (net of liabilities)      |  | $      | 1,607  |            |              |  |                 |              |  |  |        | 
|Licensing and milestone agreements            |  |        | 1,600  |            |              |  | 320              |              |  |  | 5 years | 
|In-process research and development (IPR&D) |  |        | 13,300 |            |              |  |                 |              |  |  |        | 
|Goodwill                                      |  |        | 13,267 |            |              |  |                 |              |  |  |        | 
|                                              |  |        |        |            |              |  |                  |              | 
|Total purchase price                          |  | $      | 29,774 |            |              |  | 320              |              |  |  |         | 
|                                              |  |        |        |            |              |  |                  |              | 

48



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Accounting for Research and
Development Costs, Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method, an
Interpretation of FASB Statement No. 2




Goodwill and Other
Intangible Assets,


Sale of Infectious Disease Related Assets




® ®




49



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Results of Operations for the Years Ended December 31,
2005 and 2004


Revenues.










Research and Development Expenses and Impairment of
Patents and Licenses.








50



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Selling and Marketing Expenses.


General and Administrative Expenses and Other Operating
Expenses.


Acquired in Process Research and Development.


Interest Income, Net.


Income Tax Benefit.






Net Loss.


Results of Operations for the Years Ended December 31,
2004 and 2003


Revenues.






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Research and Development Expenses and Impairment of
Patents and Licenses.




Selling and Marketing Expenses.


General and Administrative Expenses and Other Operating
Expenses.


Interest Income, Net.


Income Tax Benefit.


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Net Loss.


Liquidity and Capital Resources














53



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|                                                                                      |  |                        |       |           |        |  |       |     |  |       |       |  |           |         |     |  |  |  |     | 
|------------------------------------------------------------------------------------- |  | ---------------------- | ----- | --------- | ------ |  | ----- | --- |  | ----- | ----- |  | --------- | ------- | --- |  |  |  | --- | 
|                                                                                      |  | Payments Due by Period |      
|                                                                                      |  |                        |      
|                                                                                      |  |                        |       | Less Than |        |  | Years |     |  | Years |       |  | More Than |        
|                                                                                      |  | Total                  |       |           | 1 Year |  |       | 2-3 |  |       | 4-5   |  |           | 5 Years |    
|                                                                                      |  |                        |       |           |        |  |       |     |  |       |       |  |           |         |    
|                                                                                      |  | (In thousands of $)    |      
|Contractual Obligations                                                               |  |                        |       |           |        |  |       |     |  |       |       |  |           |         |     |  |  |  |     | 
|Long-Term Debt                                                                        |  |                        | 277   |           |        |  |      |     |  |       | 92    |  |           |         | 185 |  |  |  |    | 
|Operating Lease Obligations                                                           |  |                        | 3,174 |           |        |  | 755   |     |  |       | 1,501 |  |           |         | 750 |  |  |  | 168 | 
|Fixed Mandatory Payments under Collaboration, Licensing and
    Consulting Agreements |  |                        | 5,084 |           |        |  | 3,261 |     |  |       | 1,805 |  |           |         | 18  |  |  |  |    | 
|                                                                                      |  |                        |       |           |        |  |       |     |  |       |       |  |           |         |    
|Total                                                                                 |  |                        | 8,533 |           |        |  | 4,017 |     |  |       | 4,077 |  |           |         | 324 |  |  |  | 116 | 
|                                                                                      |  |                        |       |           |        |  |       |     |  |       |       |  |           |         |    



54



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Business Combinations.




Off-Balance Sheet Arrangements






| |   |                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any obligation under a guarantee contract;                                                                                                                                                                                                                                                                                                      
|
| |  | a retained or contingent interest in assets transferred to an
    unconsolidated entity or similar arrangement that serves as
    credit, liquidity or market risk support for such assets;                                                                                                                                                     
|
| |  | any obligation under a derivative instrument that is both
    indexed to our stock and classified in shareholders
    equity, or not reflected, in our statement of financial
    position; or                                                                                                                                                 
|
| |  | any obligation, including a contingent obligation, arising out
    of a variable interest, in an unconsolidated entity that is held
    by, and material to, us, where such entity provides financing,
    liquidity, market risk or credit risk support to us, or engages
    in leasing, hedging or research and development services with us.

Trends






55



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Recently Issued Accounting Standards


Share-Based Payments,




56



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








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

10-K.







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








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures


13a-15(e)




Changes in Internal Control Over Financial Reporting


13a-15(f)


Summary of Material Weaknesses in Internal Control Over
Financial Reporting




57



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Remediation Steps to Address Material Weaknesses






| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Implement additional review and approval procedures over
    accruals;                                                                                                                                           
|
| |  | Formalize process and documentation related to financial
    statement close and consolidation review;                                                                                                           
|
| |  | Formalize and enhance documentation, oversight and review
    procedures related to accounting records of our foreign
    subsidiary to ensure compliance with U.S. generally
    accepted accounting principles;
|
| |  | Review and make appropriate staffing adjustments at all company
    locations to enhance accounting expertise;                                                                                                   

58



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| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revise and enhance review process for unusual and acquisition
    related transactions;                                                                                                     
|
| |  | Supplement internal staff expertise by consulting with
    independent, third-party experts regarding accounting treatment
    of unusual or non-routine transactions when and if necessary;
|
| |  | Supplement our accounting and financial staff to improve the
    breadth and depth of experience;                                                                                           
|
| |  | Improve training for, and integration and communication among,
    accounting and financial staff.                                                                                          




PART III







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



|                              |  |     |    |  |          |                                           
|----------------------------- |  | --- | -- |  | -------- | ------------------------------------------
|Name                          |  | Age |    |  | Position
|                              |  |     |    |  |         
|Jean-Loup Romet-Lemonne, M.D. |  |     | 55 |  |          | Chairman and Chief Executive Officer      
|Robert Beck, M.D.             |  |     | 52 |  |          | Director                                  
|Jean Deleage, Ph.D.           |  |     | 65 |  |          | Director                                  
|Donald Drakeman, Ph.D.        |  |     | 52 |  |          | Director                                  
|Sylvie Grégoire, Pharm.D      |  |     | 44 |  |          | Director                                  
|Michael G. Grey               |  |     | 53 |  |          | Director                                  
|David Haselkorn, Ph.D.        |  |     | 61 |  |          | Director                                  
|John P. McKearn, Ph.D.        |  |     | 52 |  |          | Director                                  
|Robert J. De Vaere            |  |     | 48 |  |          | Vice President and Chief Financial Officer

Dr. Romet-Lemonne


Dr. Beck start-up start-up e-MedSoft.com


Dr. Deleage


59



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Dr. Drakeman


Dr. Grégoire


Mr. Grey


Dr. Haselkorn


Dr. McKearn


60



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##### Table of Contents





Mr. De Vaere .


Independence of the Board of Directors






Board Committees and Meetings






Audit Committee.


61



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##### Table of Contents



10-Q 10-Q




Compensation Committee.


Nominating Committee.


Finance Committee.


Special Committee of the Board of Directors.


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Attendance at Board and Committee Meetings.


Code of Ethics









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

Director Compensation






|                                 |  |            |        | 
|-------------------------------- |  | ---------- | ------ | 
|Director Position                |  | Annual Fee |       
|                                 |  |            |       
|Member of the Board of Directors |  | $          | 20,000 | 
|Audit Committee Chairman         |  | $          | 8,000  | 
|Audit Committee Member           |  | $          | 4,000  | 
|Compensation Committee Chairman  |  | $          | 4,000  | 
|Compensation Committee Member    |  | $          | 2,000  | 
|Nominating Committee Chairman    |  | $          | 3,000  | 
|Nominating Committee Member      |  | $          | 1,500  | 



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20,000-share




Section 16(a) Beneficial Ownership Reporting
Compliance






64



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Compensation of Executive Officers




Summary Compensation Table


|                                   |                                          |                        |      |            |                     |  |            |          |  |              |         |        |  |     |         |   |        |  |         |        |  |  |         |       | 
|---------------------------------- | ---------------------------------------- | ---------------------- | ---- | ---------- | ------------------- |  | ---------- | -------- |  | ------------ | ------- | ------ |  | --- | ------- | - | ------ |  | ------- | ------ |  |  | ------- | ----- | 
|                                   |                                          |                        |      | Long-Term  |                     |  |           
|                                   |                                          | Annual Compensation(1) |      |            | Compensation Awards |  |            |         
|                                   |                                          |                        |      |            |                     |  |            |         
|                                   |                                          |                        |      | Restricted |                     |  | Securities |          |  |             
|                                   |                                          |                        |      | Stock      |                     |  | Underlying |          |  | All Other    |        
|                                   |                                          |                        |      | Awards     |                     |  | Options    |          |  | Compensation |        
|Name and Principal Position        |                                          | Year                   |      |            | Salary($)           |  |            | Bonus($) |  |              | ($)     |        |  | (#) |         |   | ($)(2) | 
|                                   |                                          |                        |      |            |                     |  |            |          |  |              |         |        |  |     |         |   |        | 
|Dr. Jean-Loup Romet-Lemonne(3)(10) |                                          |                        | 2005 |            |                     |  | 144,362    |          |  |              | 94,203  |        |  |     | 179,440 |   |        |  | 107,757 |        |  |  | 7,361   |      
|                                   | Chairman and Chief Executive Officer     |                        |      |            |                     |  |            |          |  |              |         |        |  |     |         |   |        |  |         |        |  |  |         |       | 
|Dr. Emile Loria(4)(5)(6)(9)(10)    |                                          |                        | 2005 |            |                     |  | 375,000    |          |  |              | 375,000 |        |  |     | 370,169 |   |        |  | 8,928   |        |  |  | 507,422 |      
|                                   | President and Chief Business Officer     |                        |      | 2004       |                     |  |            | 350,000  |  |              |         | 50,000 |  |     |         |  |        |  |         | 71,426 |  |  |         | 2,408 | 
|                                   |                                          |                        |      | 2003       |                     |  |            | 350,000  |  |              |         | 25,000 |  |     |         |  |        |  |         | 71,428 |  |  |         | 1,387 | 
|Dr. Mark J. Newman(7)(9)(10)       |                                          |                        | 2005 |            |                     |  | 235,000    |          |  |              | 235,000 |        |  |     | 128,113 |   |        |  | 2,857   |        |  |  | 1,316   |      
|                                   | Vice President, Research and Development |                        |      | 2004       |                     |  |            | 225,000  |  |              |         | 50,000 |  |     |         |  |        |  |         | 22,856 |  |  |         | 828   | 
|                                   | and Assistant Secretary                  |                        |      | 2003       |                     |  |            | 195,833  |  |              |         | 25,000 |  |     |         |  |        |  |         | 7,142  |  |  |         | 724   | 
|Mr. Robert J. De Vaere(8)(9)(10)   |                                          |                        | 2005 |            |                     |  | 235,000    |          |  |              | 117,500 |        |  |     | 127,015 |   |        |  | 2,857   |        |  |  | 802     |      
|                                   | Vice President, Chief Financial Officer  |                        |      | 2004       |                     |  |            | 215,000  |  |              |         | 50,000 |  |     |         |  |        |  |         | 22,856 |  |  |         | 789   | 
|                                   | and Secretary                            |                        |      | 2003       |                     |  |            | 195,000  |  |              |         | 25,000 |  |     |         |  |        |  |         | 7,142  |  |  |         | 724   | 






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 other compensation consists of life insurance premiums paid
    by us unless otherwise noted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (3) | Dr. Romet-Lemonne was appointed our Chairman and Chief
    Executive Officer at the time of the Combination in August 2005
    at an annual salary of $385,000. Bonus payment includes
    14,000 shares calculated using $3.36 per share, the
    closing price of our common stock on the Nasdaq National Market
    on December 19, 2005. All other compensation includes
    living allowances of $4,317, other fringe benefits, including
    life insurance premiums paid by us, of $3,044                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (4) | Dr. Loria served on our Board of Directors since January
    2001, as our President and Chief Executive Officer from June
    2001 until the closing of the Combination and served as our
    Chief Business Officer and President from the closing of the
    Combination until his employment with us ended on
    December 31, 2005. In connection with Dr. Lorias
    employment offer letter and joining our Board of Directors, 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 was secured by a pledge of the
    shares. In September 2003, Dr. Loria surrendered an
    aggregate of 963,740 shares of our common 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.
|
| | (5) | All other compensation for Dr. Loria in 2005 includes, in
    addition to $2,422 in life insurance premiums paid by us, a
    $375,000 severance payment and a stock bonus award of
    50,000 shares calculated using                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |  |                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------
| |  | $2.60 per share, the closing share price of our common
    stock on the Nasdaq National Market on December 30, 2005.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Of the 71,426 options granted to Dr. Loria in 2004, the
    vesting of 26,784 was 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) | Dr. Newman served as our Vice President, Research and
    Development from March 1999 until the closing of the Combination
    and served as our Vice President, Infectious Diseases from the
    closing of the Combination until his employment with us ended on
    December 31, 2005. Of the 22,856 options granted to
    Dr. Newman in 2004, the vesting of 8,571 was 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) | Mr. De Vaere served as our Vice President, Finance and
    Chief Financial Officer since May 2000 and resigned effective
    March 31, 2006. Of the 22,856 options granted to
    Mr. De Vaere in 2004, the vesting of 8,571 was
    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.                                                                                                                                                                                                            



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | All restricted stock awards were deferred issuance stock bonus
    awards granted effective August 16, 2005 and the dollar
    value of such restricted stock awards was calculated using
    $6.99 per share, the closing sale price of our common stock
    on the Nasdaq National Market on August 16, 2005. Shares
    awarded to the Drs. Loria and Newman and Mr. De Vaere
    vest in one or more installments, subject to continuous
    employment with us through the applicable installment date,
    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. Shares awarded to Dr. Romet-Lemonne vest as to
    100% of the underlying shares on the date 42 months after
    the effective date of the employment agreement subject to
    accelerated vesting upon the closing of one or more transactions
    providing a specified level of financing to us, the timely
    filing of a marketing approval application with the appropriate
    agency with respect to Junovan, the regulatory approval in the
    United States or Europe of Junovan and the closing of a
    transaction providing a specified level of funding to our
    infectious disease business. At December 31, 2005, the
    aggregate restricted stock holdings of the Named Executive
    Officers and the value thereof at year end based on the
    then-current market value ($2.60), without giving effect to the
    diminution of value attributable to the restrictions on such
    stock, were as follows: Dr. Romet-Lemonne, $13,348
    (5,134 shares), Dr. Loria, $137,688
    (52,957 shares), Dr. Newman, $47,653
    (18,328 shares), and Mr. De Vaere, $16,533
    (6,359 shares).

Stock Option Grants and Exercises




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Options Granted in Last Fiscal Year


|                            |  |                   |        |         |                      |  |       |             |                  |                        |            |  |                 |       |          |  |        |  |         |  |  |  |         | 
|--------------------------- |  | ----------------- | ------ | ------- | -------------------- |  | ----- | ----------- | ---------------- | ---------------------- | ---------- |  | --------------- | ----- | -------- |  | ------ |  | ------- |  |  |  | ------- | 
|                            |  | Individual Grants |        |         |                     
|                            |  |                   |        |         | Potential Realizable | 
|                            |  |                   |        | % Total |                      |  |       |             | Value at Assumed |                       
|                            |  | Number 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)             |  |       | ($/Share)   |                  |                        | Date       |  |                 | 5%($) |          |  | 10%($) | 
|                            |  |                   |        |         |                      |  |       |             |                  |                        |            |  |                 |       |          |  |        | 
|Dr. Jean-Loup Romet-Lemonne |  |                   | 77,757 |         |                      |  | 11.96 | %           |                  |                        | 6.9900     |  |                 |       | 08/16/15 |  |        |  | 341,818 |  |  |  | 866,233 | 
|                            |  |                   | 30,000 |         |                      |  | 4.61  | %           |                  |                        | 3.3600     |  |                 |       | 12/19/15 |  |        |  | 63,393  |  |  |  | 160,649 | 
|Dr. Emile Loria(3)          |  |                   | 8,928  |         |                      |  | 1.37  | %           |                  |                        | 10.2900    |  |                 |       | 12/31/07 |  |        |  | 57,776  |  |  |  | 146,416 | 
|Dr. Mark J. Newman(3)       |  |                   | 2,857  |         |                      |  | 0.44  | %           |                  |                        | 10.2900    |  |                 |       | 12/31/07 |  |        |  | 18,489  |  |  |  | 46,854  | 
|Mr. Robert J. De Vaere(3)   |  |                   | 2,857  |         |                      |  | 0.44  | %           |                  |                        | 10.2900    |  |                 |       | 12/31/07 |  |        |  | 18,489  |  |  |  | 46,854  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on options to purchase a total of 650,141 shares
    granted in 2005 under the 2000 Stock 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. 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 (10 years in the case of all options) 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 our estimate or projection of
    future stock price performance. Actual gains, if any, are
    dependent on the actual future performance of our 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) | In accordance with the terms of the respective named executive
    officers employment agreement, the last day to exercise
    this option was extended from 90 days after termination to
    December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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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 at             |   |               | Options at           | 
|                            |  |             |   |  |          | December 31, 2005      |   |               | December 31, 2005    | 
|                            |  | Shares      |   |  |          |                        |   |               |                      |  |              
|                            |  | Acquired    |   |  | Value    |                        |   | Exercisable/  |                      |  | Exercisable/  |        
|Name                        |  | on Exercise |   |  | Realized |                        |   | Unexercisable |                      |  | Unexercisable |        
|                            |  |             |   |  |          |                        |   |               |                      |  |               |        
|Dr. Jean-Loup Romet-Lemonne |  |             |  |  |          |                        |  |               |                      |  | 59,815/       | 132,754 |  |  | / | 
|Dr. Emile Loria             |  |             |  |  |          |                        |  |               |                      |  | 124,998/      |        |  |  | / | 
|Dr. Mark J. Newman          |  |             |  |  |          |                        |  |               |                      |  | 49,634/       |        |  |  | / | 
|Mr. Robert J. De Vaere      |  |             |  |  |          |                        |  |               |                      |  | 44,326/       | 5,671   |  |  | / | 

Employment, Change of Control and Separation Agreements


Current Agreements.




| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 was 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;

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| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mr. De Vaere was 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.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                         







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the restricted stock vests as to 100% of the underlying shares
    on the date 42 months after the effective date of the
    employment agreement;                                                                                                                                                                                                                                                                                                                      
|
| |  | the restricted stock is subject to accelerated vesting upon the
    closing of one or more transactions providing a specified level
    of financing to us, the timely filing of a marketing approval
    application with the appropriate agency with respect to Junovan,
    the regulatory approval in the United States or Europe of
    Junovan and the closing of a transaction providing a specified
    level of funding to our infectious disease business; and
|
| |  | shares subject to the restricted stock grant that become vested
    will be issued to Dr. Romet-Lemonne on the earlier of
    (i) Dr. Romet-Lemonnes termination, or
    (ii) 48 months from the effective date of the
    agreement.                                                                                                                                                                                                                                  



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | severance payments, consisting of his base salary in effect at
    the time of termination, paid for a period of 24 months
    (or, at his option, payment in a lump sum of such amount), in
    the case of termination without cause, and, in the case of
    termination by Dr. Romet-Lemonne with good reason, such
    severance shall be paid from the date of termination until the
    earlier of 12 months or until the date he begins full time
    employment with another entity;
|
| |  | reimbursement for a portion of COBRA heath insurance premiums,
    for up to 12 months in the case of termination with good
    reason, and in the case of termination without cause,
    reimbursement shall continue for up to 24 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 or options granted pursuant to the agreement.                                                                                                                                                                                                                                                                                                                                                           







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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(1)     |                      |                    | in Column (a))       | 
|                                                           |  |                      |           |                  |                   |                      |                    |                      | 
|Equity compensation plans approved by security holders     |  |                      | 1,547,790 |                  |                   | $                    | 14.53              |                      |  |  | 248,379 | 
|Equity compensation plans not approved by security holders |  |                      |          |                  |                   |                      |                   |                      |  |  |        | 
|                                                           |  |                      |           |                  |                   |                      |                    |                      | 
|Total                                                      |  |                      | 1,547,790 |                  |                   | $                    | 14.53              |                      |  |  | 248,379 | 
|                                                           |  |                      |           |                  |                   |                      |                    |                      | 






|    |                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculation of weighted-average exercise price does not include
    188,739 shares issuable pursuant to deferred issuance
    restricted stock awards, which have no exercise price.



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|                                                                                |                             |                         |           |           |            |  |      |      |  
|------------------------------------------------------------------------------- | --------------------------- | ----------------------- | --------- | --------- | ---------- |  | ---- | ---- | -
|                                                                                |                             | Beneficial Ownership(1) |          
|                                                                                |                             |                         |          
|                                                                                |                             | Number of               |           |           | Percent of | 
|Beneficial Owner                                                                |                             | Shares                  |           |           | Shares     | 
|                                                                                |                             |                         |           |           |            | 
|Medarex, Inc.                                                                   |                             |                         |           |           |            |  |      |     
|                                                                                | 707 State Road              |                         |           |           |            |  |      |      |  
|                                                                                | Princeton, NJ 08540         |                         |           | 2,624,279 |            |  |      | 19.7 | %
|Sanofi-Aventis S.A.                                                             |                             |                         |           |           |            |  |      |     
|                                                                                | 174 Avenue de France        |                         |           |           |            |  |      |      |  
|                                                                                | 75635 Paris CEDEX 13 France |                         |           | 1,986,740 |            |  |      | 14.9 | %
|Dr. Donald Drakeman(2)(6)                                                       |                             |                         | 2,627,612 |           |            |  | 19.8 | %   
|Dr. Jean-Loup Romet-Lemonne(3)(6)                                               |                             |                         | 450,403   |           |            |  | 3.4  | %   
|Dr. Jean Deleage(4)(6)                                                          |                             |                         | 383,617   |           |            |  | 2.9  | %   
|Dr. Emile Loria(6)                                                              |                             |                         | 241,192   |           |            |  | 1.8  | %   
|Mr. Robert J. De Vaere(5)(6)                                                    |                             |                         | 70,398    |           |            |  | *    |     
|Dr. Mark J. Newman(6)                                                           |                             |                         | 70,239    |           |            |  | *    |     
|Mr. Michael G. Grey(6)                                                          |                             |                         | 9,760     |           |            |  | *    |     
|Dr. John P. McKearn(6)                                                          |                             |                         | 8,332     |           |            |  | *    |     
|Dr. Robert Beck(6)                                                              |                             |                         | 3,333     |           |            |  | *    |     
|Dr. Sylvie Grégoire(6)                                                          |                             |                         | 3,333     |           |            |  | *    |     
|Dr. David Haselkorn(6)                                                          |                             |                         | 3,333     |           |            |  | *    |     
|All executive officers and directors as a group (11
    persons)(2)(3)(4)(5)(6) |                             |                         | 3,871,552 |           |            |  | 28.3 | %   






| |   |                       
| | - | ----------------------
| | * | 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 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 13,289,472 shares of common stock outstanding on
    February 15, 2006, as adjusted by the rules promulgated by
    the SEC.                                                                                            
|   
|(2) | Includes 2,624,279 shares owned by Medarex, Inc., of which
    Dr. Drakeman is the President and Chief Executive Officer
    and a Director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | Includes 17,296 shares owned by Jecca,
    Dr. Romet-Lemonnes spouse, and 15,087 shares,
    which she has the right to acquire within 60 days after
    February 15, 2006 pursuant to outstanding options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(4) | Includes 236,380 shares owned by Alta BioPharma Partners,
    L.P., 134,995 shares owned by IDM Chase Partners (Alta
    Bio), LLC and 8,909 shares owned by Alta Embarcadero
    BioPharma Partners, LLC. Dr. Deleage is a managing director
    of Alta BioPharma Management, LLC (which is the general partner
    of Alta BioPharma Partners, L.P.), a member of Alta/ Chase
    BioPharma Management LLC (which is the managing member of IDM
    Chase Partners (Alta Bio), LLC), and a manager of Alta
    Embarcadero BioPharma Partners, LLC. As a member, managing
    director, and manager he may be deemed to share voting and
    investment powers for the shares held by the foregoing funds.
|   
|(5) | Includes a deferred issuance restricted stock award that is
    vested and issuable within 60 days after February 1,
    2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

72



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes shares, which certain of executive officers (including
    former executive officers who are named executive officers) and
    directors have the right to acquire within 60 days after
    February 15, 2006 pursuant to outstanding options, as
    follows:



| |                                                                     
| | --------------------------------------------------------------------
| | Dr. Emile Loria, 124,998 shares;                                    
| | Dr. Jean-Loup Romet-Lemonne, 94,240 shares;                         
| | Mr. Robert J. De Vaere, 49,997 shares;                              
| | Dr. Mark J. Newman, 49,634 shares;                                  
| | Mr. Michael G. Grey, 9,760 shares;                                  
| | Dr. John P. McKearn, 8,332 shares;                                  
| | Dr. Robert Beck, 3,333 shares;                                      
| | Dr. Jean Deleage, 3,333 shares;                                     
| | Dr. Donald Drakeman, 3,333 shares;                                  
| | Dr. Sylvie Grégoire, 3,333 shares;                                  
| | Dr. David Haselkorn, 3,333 shares;                                  
| | All executive officers and directors as a group,
    353,626 shares.






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











73



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##### Table of Contents










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



|                      |  |      |         |  |      |   |         | 
|--------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                      |  | 2005 |         |  | 2004 |  
|                      |  |      |         |  |      |  
|Audit Fees(1)         |  | $    | 420,000 |  |      | $ | 143,000 | 
|Audit Related Fees(2) |  |      |        |  |      |   | 110,000 | 
|Tax Related Fees(3)   |  |      | 39,000  |  |      |   | 34,000  | 
|                      |  |      |         |  |      |  
|                      |  | $    | 459,000 |  |      | $ | 287,000 | 
|                      |  |      |         |  |      |  






|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees relate to the audit of our consolidated financial
    statements and reviews of our consolidated financial statements
    included in our Quarterly Reports on
    Form 10-Q for
    2005, accounting consultations, and review of documents filed
    with the SEC.
|   
|(2) | Audit related fees relate primarily to due diligence associated
    with the Combination.                                                                                                                                                                                      
|   
|(3) | Tax related fees are for services related to tax compliance, tax
    advice and tax planning.                                                                                                                                                                                  



Pre-Approval Policies and Procedures.




74



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##### Table of Contents






PART IV







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

(a)(1) Index to Financial Statements


10-K.


|                                                                                                                          |  |           
|------------------------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                                          |  | Page      
|                                                                                                                          |  |           
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                                            |  | F-2       
|Report of Ernst & Young Audit,
    Independent Registered Public Accounting Firm                                          |  | F-3       
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                                          |  | F-4       
|Consolidated Statements of Operations for
    each of the three years in the period ended December 31,
    2005           |  | F-5       
|Consolidated Statements of
    Stockholders Equity for each of the three years in the
    period ended December 31, 2005 |  | F-6       
|Consolidated Statements of Cash Flows for
    each of the three years in the period ended December 31,
    2005           |  | F-7       
|Notes to Consolidated Financial
    Statements                                                                            |  | F-8 - F-32

(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 Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    July 2, 1998.(4)      
|        | 3 | .6                   |  | Certificate of Increase of Series A Junior Participating
    Preferred Stock 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.(6)        
|        | 3 | .9                   |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    July 1, 1999.(7)      
|        | 3 | .10                  |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    September 23, 1999.(8)
|        | 3 | .11                  |  | Certificate of Decrease of Series A Junior Participating
    Preferred Stock filed with the Secretary of State of Delaware on
    September 23, 1999.(8)     
|        | 3 | .12                  |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    June 17, 2004.(9)     

75



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|        |    |                      |  |                                                                                                                                                            
|------- | -- | -------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                     
|Number  |    | Document Description
|        |    |                     
|        | 3  | .13                  |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation filed with the Secretary of State of Delaware on
    August 15, 2005.(10)
|        | 3  | .14                  |  | Certificate of Ownership and Merger, filed with the Secretary of
    State of Delaware on August 15, 2005.(10)                                             
|        | 3  | .15                  |  | Amended and Restated Bylaws of the Company.(11)                                                                                                            
|        | 4  | .1                   |  | Reference is made to Exhibits 3.1 through 3.15.                                                                                                            
|        | 4  | .2                   |  | Specimen certificate of the Common Stock.(32)                                                                                                              
|        | 10 | .1                   |  | Form of Indemnification Agreement entered into between the
    Company and its directors and officers.(1)(*)                                               
|        | 10 | .2                   |  | 1989 Stock Plan, as amended (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                   |  | 1994 Non-Employee Directors Stock Option Plan, as
    amended.(4)(*)                                                                                      
|        | 10 | .6                   |  | Form of Common Stock Purchase agreement dated February 15,
    2000.(12)                                                                                   
|        | 10 | .7                   |  | Letter Agreement between the Company and Robert De Vaere dated
    May 4, 2000.(13)(*)                                                                     
|        | 10 | .8                   |  | Letter Agreement between the Company and Mark Newman dated
    May 4, 2000.(13)(*)                                                                         
|        | 10 | .9                   |  | Form of Common Stock Purchase Agreement dated October 16,
    2000.(14)                                                                                    
|        | 10 | .10                  |  | Letter Agreement between the Company and Dr. Emile Loria
    regarding employment terms dated January 16, 2001.(15)(*)                                     
|        | 10 | .11                  |  | Form of Restricted Stock Purchase Agreement between the Company
    and Dr. Emile Loria dated January 16, 2001.(15)(*)                                     
|        | 10 | .12                  |  | Amendment to Severance Benefits Agreement between the Company
    and Dr. Mark Newman dated March 8, 2001.(15)(*)                                          
|        | 10 | .13                  |  | Amendment to Severance Benefits Agreement between the Company
    and Robert De Vaere dated March 8, 2001.(15)(*)                                          
|        | 10 | .14                  |  | Securities Purchase Agreement between the Company and Genencor
    International Inc. dated July 9, 2001.(16)(A)                                           
|        | 10 | .15                  |  | Non-exclusive License Agreement between the Company and Anosys
    Inc. dated August 31, 2001.(16)(A)                                                      
|        | 10 | .16                  |  | Form of Share Purchase Agreement dated December 18,
    2001.(17)                                                                                          
|        | 10 | .17                  |  | 2001 Employee Stock Purchase Plan.(18)(*)                                                                                                                  
|        | 10 | .18                  |  | Non-Exclusive License Agreement dated October 28, 2002
    between the Company and Valentis, Inc.(19)(B)                                                   
|        | 10 | .19                  |  | Amendment to Letter Agreement between the Company and
    Dr. Emile Loria dated June 20, 2003.(20)(*)                                                      
|        | 10 | .20                  |  | Non-Exclusive License Agreement between the Company and IDM S.A.
    dated July 7, 2003.(20)(C)                                                            
|        | 10 | .21                  |  | Form of Unit Purchase Agreement dated September 18,
    2003.(21)                                                                                          
|        | 10 | .22                  |  | Form of Warrant to Purchase Common Stock dated
    September 18, 2003.(21)                                                                                 
|        | 10 | .23                  |  | Termination of Amendment to Letter Agreement between the Company
    and Dr. Emile Loria dated September 8, 2003.(22)(*)                                   
|        | 10 | .24                  |  | Accelerated Benefits Agreement between the Company and
    Dr. Emile Loria dated February 27, 2004.(23)(*)                                                 
|        | 10 | .25                  |  | Unit Purchase Agreement dated April 7, 2004.(24)                                                                                                           
|        | 10 | .26                  |  | Unit Purchase Agreement dated April 8, 2004.(24)                                                                                                           
|        | 10 | .27                  |  | Forms of Warrants to Purchase Common Stock dated April 7,
    2004.(24)                                                                                    

76



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##### Table of Contents



|        |    |                      |  |                                                                                                                                                                                                        
|------- | -- | -------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                     
|Number  |    | Document Description
|        |    |                     
|        | 10 | .28                  |  | Share Exchange Agreement dated March 15, 2005 among the
    Company and certain shareholders of IDM S.A.(25)                                                                                           
|        | 10 | .29                  |  | Amendment No. 1 (to the Share Exchange Agreement) dated
    March 15, 2005 among the Company and certain shareholders
    of IDM S.A.(25)                                                              
|        | 10 | .30                  |  | Voting Agreement dated March 15, 2005 among the Company,
    Hélène Ploix, as the Shareholder Representative, and
    certain stockholders of the Company.(25)                                         
|        | 10 | .31                  |  | Employment Agreement with Emile Loria, M.D. dated
    March 17, 2005.(25)(*)                                                                                                                           
|        | 10 | .32                  |  | Employment Agreement with Mark Newman, Ph.D. dated
    March 17, 2005.(25)(*)                                                                                                                          
|        | 10 | .33                  |  | Employment Agreement with Robert De Vaere dated March 17,
    2005.(25)(*)                                                                                                                             
|        | 10 | .34                  |  | Amended and Restated Preferred Exchange Agreement dated
    April 12, 2005.(26)                                                                                                                        
|        | 10 | .35                  |  | Amendment No. 2 (to the Share Exchange Agreement) dated
    April 21, 2005 among the Company and certain shareholders
    of IDM S.A.(27)                                                              
|        | 10 | .36                  |  | Amendment No. 3 (to the Share Exchange Agreement) dated
    May 31, 2005 among the Company and certain shareholders of
    IDM S.A.(28)                                                                
|        | 10 | .37                  |  | Amendment No. 4 (to the Share Exchange Agreement) dated
    June 30, 2005 among the Company and certain shareholders of
    IDM S.A.(29)                                                               
|        | 10 | .38                  |  | Amendment No. 5 (to the Share Exchange Agreement) dated
    August 16, 2005 among the Company and certain shareholders
    of IDM S.A.(10)                                                             
|        | 10 | .39                  |  | Employment Agreement with Jean-Loup Romet-Lemonne, M.D.
    dated April 21, 2005.(10)(*)                                                                                                               
|        | 10 | .40                  |  | Indemnity Escrow Agreement dated August 16, 2005, among the
    Company, Helene Ploix, as designated representative of certain
    shareholders of IDM S.A. and U.S. Bank National
    Association.(10)
|        | 10 | .41                  |  | Form of Option Liquidity Agreement between the Company and
    certain shareholders of IDM S.A.(30)                                                                                                    
|        | 10 | .42                  |  | Form of Put/Call Agreement between the Company and certain
    shareholders of IDM S.A.(30)                                                                                                            
|        | 10 | .43                  |  | 2000 Stock Plan, as amended, and French Annex to the 2000 Stock
    Plan.(30)(*)                                                                                                                       
|        | 10 | .44                  |  | Amendment No. 1 to the French Annex to the 2000 Stock
    Plan.(*)                                                                                                                                     
|        | 10 | .45                  |  | Form of Stock Option Agreement under the 2000 Plan.(31)(*)                                                                                                                                             
|        | 10 | .46                  |  | Form of Deferred Issuance Restricted Stock Bonus Agreement under
    the 2000 Plan.(31)(*)                                                                                                             
|        | 10 | .47                  |  | Form of French Participants Deferred Issuance Restricted Stock
    Bonus Agreement under the 2000 Plan.(32)(*)                                                                                         
|        | 10 | .48                  |  | Form of French Annex Stock Option Agreement under the 2000
    Plan.(32)(*)                                                                                                                            
|        | 10 | .49                  |  | Asset Purchase Agreement between the Company and Pharmexa Inc.
    dated November 23, 2005.(D)                                                                                                         
|        | 10 | .50                  |  | Amendment No. 1 to the Asset Purchase Agreement between the
    Company and Pharmexa Inc. dated December 30, 2005.(D)                                                                                  
|        | 10 | .51                  |  | License Agreement for
    EIS®
    between the Company and Pharmexa Inc. dated December 30,
    2005.(D)                                                                                               
|        | 10 | .52                  |  | License Agreement for
    PADRE®
    between the Company and Pharmexa Inc. dated December 30,
    2005.(D)                                                                                             
|        | 10 | .53                  |  | Services Agreement between the Company and Pharmexa Inc. dated
    December 30, 2005.(D)                                                                                                               
|        | 10 | .54                  |  | License Agreement between CIBA-GEIGY Ltd (now Novartis) and
    TherAtid Inc. dated April 4, 1996 (assigned to IDM S.A.
    anuary 30, 2003).(D)                                                       
|        | 10 | .55                  |  | Memorandum of Agreement between IDM S.A. and Sanofi dated
    July 20, 2001.(D)                                                                                                                        
|        | 10 | .56                  |  | IL-13 Agreement between IDM S.A. and Sanofi dated
    November 30, 2001. (D)                                                                                                                           
|        | 10 | .57                  |  | Development, Collaboration and Supply Agreement between IDM S.A.
    and Medarex Inc. dated May 24, 2002.(D)                                                                                           

77



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##### Table of Contents



|        |    |                      |  |                                                                                                                                                                                             
|------- | -- | -------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                     
|Number  |    | Document Description
|        |    |                     
|        | 10 | .58                  |  | IL-13 Development and Manufacturing Agreement between IDM S.A.
    and Biotecnol S.A. dated November 4, 2003.(D)                                                                            
|        | 10 | .59                  |  | Amendment No. 1 to IL-13 Development and Manufacturing
    Agreement between IDM S.A. and Biotecnol S.A. dated May 18,
    2004.(D)                                                         
|        | 10 | .60                  |  | License and Distribution Agreement between IDM S.A. and
    Cambridge Laboratories dated May 10, 2005.(D)                                                                                   
|        | 10 | .61                  |  | Amended and Restated IL-13 License Agreement between IDM S.A.
    and Sanofi dated August 12, 2005.(D)                                                                                      
|        | 10 | .62                  |  | Restricted Stock Bonus Agreement and Grant Notice between the
    Company and Emile Loria, dated January 4, 2006.(*)                                                                        
|        | 10 | .63                  |  | Amended and Restated Directors Deferred Compensation Plan,
    effective as of January 1, 2005.(*)                                                                                         
|        | 14 | .1                   |  | Code of Business Conduct and Ethics dated December 9,
    2003.(25)                                                                                                                         
|        | 21 | .1                   |  | Subsidiaries of IDM Pharma, Inc.                                                                                                                                                            
|        | 23 | .1                   |  | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm.                                                                                                            
|        | 23 | .2                   |  | Consent of Ernst & Young Audit, 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                                                                                                                                                   
|    
|(1)  |  | Incorporated by reference to the Companys
    Form S-1
    Registration Statement and Amendments thereto filed with
    Securities and Exchange Commission (the SEC) (File
    No. 33-43356).
|    
|(2)  |  | Incorporated by reference to the Companys
    Form 8-K, filed
    with the SEC 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 with the SEC 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 with the
    SEC 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 with
    the SEC on November 16, 1998.                
|    
|(6)  |  | Incorporated by reference to the Companys
    Form 8-K, filed
    with the SEC on July 16, 1999.                                                                                               
|    
|(7)  |  | Incorporated by reference to the Companys Definitive Proxy
    Statement, filed with the SEC on Form DEF 14A on
    July 28, 1999.                                                             
|    
|(8)  |  | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarterly period ended September 30, 1999, filed with
    the SEC on November 15, 1999.                
|    
|(9)  |  | Incorporated by reference to the Companys Registration
    Statement on
    Form S-8, filed
    with the SEC on July 2, 2004.                                                                  
|    
|(10) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    with the SEC on August 17, 2005.                                                                           
|    
|(11) |  | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended December 31, 2001, filed with the SEC on
    March 29, 2002.                            
|    
|(12) |  | 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.                                        

78



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|     |  |                                                                                                                                                                                             
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) |  | 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.                               
|    
|(14) |  | 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.                                    
|    
|(15) |  | 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.                                 
|    
|(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 Registration
    Statement on
    Form S-8, filed
    with the SEC on June 27, 2001 (File
    No. 333-63950).                                    
|    
|(19) |  | Incorporated by reference to Amendment No. 1 to the
    Companys Registration Statement on
    Form S-1/ A, filed
    on November 6, 2002.                                                 
|    
|(20) |  | 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.                               
|    
|(21) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    on September 19, 2003.                                                                                 
|    
|(22) |  | 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.                        
|    
|(23) |  | 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.                                    
|    
|(24) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    on April 13, 2004.                                                                                     
|    
|(25) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    on March 18, 2005.                                                                                     
|    
|(26) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    on April 18, 2005.                                                                                     
|    
|(27) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    on April 22, 2005.                                                                                     
|    
|(28) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    on June 2, 2005.                                                                                       
|    
|(29) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    on July 7, 2005.                                                                                       
|    
|(30) |  | Incorporated by reference to the Companys Definitive Proxy
    Statement on Form DEFM14A, filed with the SEC on
    June 30, 2005.                                                         
|    
|(31) |  | Incorporated by reference to the Companys Registration
    Statement on
    Form S-8, filed
    with the SEC on September 8, 2005 (File
    No. 333-128178).                               
|    
|(32) |  | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q, for
    the quarterly period ended September 30, 2005, filed on
    November 14, 2005.                        
|    
|(A)  |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on January 29, 2002.                       
|    
|(B)  |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on November 5, 2002.                       
|    
|(C)  |  | Portions of this exhibit have been granted confidential
    treatment pursuant to an order granted by the Securities and
    Exchange Commission on October 22, 2003.                       
|    
|(D)  |  | Confidential treatment has been requested with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the Securities and Exchange Commission.

79



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##### Table of Contents






SIGNATURES






| |                 
| | ----------------
| | IDM Pharma, Inc.



| |    |                            
| | -- | ---------------------------
| | By | /s/ Jean-Loup Romet-Lemonne

| |                                     
| | ------------------------------------
| |                                     
| | Jean-Loup Romet-Lemonne, M.D.       
| | Chairman and Chief Executive Officer

attorney-in 10-K, attorneys-in




|                                                             |  |                                                                                                        |  |                |  | 
|------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------ |  | -------------- |  | 
|Signature                                                    |  | Title                                                                                                  |  | Date          
|                                                             |  |                                                                                                        |  |               
|                                                            
|/s/ Jean-Loup
    Romet-LemonneJean-Loup Romet-Lemonne, M.D. |  | Chairman of the Board, Chief Executive Officer and Director(Principal Executive Officer)               |  | March 31, 2006
|                                                            
|/s/ Robert J. De VaereRobert J. De Vaere                     |  | Vice President and Chief Financial Officer, Secretary
    (Principal Financial and Accounting Officer) |  | March 31, 2006
|                                                            
|/s/ Robert BeckRobert Beck, M.D.                             |  | Director                                                                                               |  | March 31, 2006
|                                                            
|/s/ Jean DeleageJean Deleage, Ph.D.                          |  | Director                                                                                               |  | March 31, 2006
|                                                            
|/s/ Donald DrakemanDonald Drakeman, Ph.D.                    |  | Director                                                                                               |  | March 31, 2006
|                                                            
|/s/ Sylvie
    GrégoireSylvie Grégoire, Pharm.D.             |  | Director                                                                                               |  | March 31, 2006
|                                                            
|/s/ Michael G. GreyMichael G. Grey                           |  | Director                                                                                               |  | March 31, 2006
|                                                            
|/s/ David Haselkorn,
    Ph.D.David Haselkorn, Ph.D.         |  | Director                                                                                               |  | March 31, 2006
|                                                            
|/s/ John P. McKearnJohn P. McKearn, Ph.D.                    |  | Director                                                                                               |  | March 31, 2006

80



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##### Table of Contents



IDM PHARMA INC.







INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                              |  |      |     | 
|------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                              |  | Page |    
|                                                                                                              |  |      |    
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                                |  |      | F-2 | 
|Report of Ernst & Young Audit,
    Independent Registered Public Accounting Firm                              |  |      | F-3 | 
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                              |  |      | F-4 | 
|Consolidated Statements of Operations for
    the Years Ended December 31, 2005, 2004 and 2003                |  |      | F-5 | 
|Consolidated Statements of
    Stockholders Equity for the Years Ended December 31,
    2005, 2004, and 2003 |  |      | F-6 | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2005, 2004 and 2003                |  |      | F-7 | 
|Notes to Consolidated Financial
    Statements                                                                |  |      | F-8 | 

F-1



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##### Table of Contents









REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED


PUBLIC ACCOUNTING FIRM














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





F-2



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##### Table of Contents









REPORT OF ERNST & YOUNG AUDIT, INDEPENDENT REGISTERED


PUBLIC ACCOUNTING FIRM














| |                                   
| | ----------------------------------
| | /s/ Jean-Yves Jégourel            
| | ERNST & YOUNG Audit represented by
| | Jean-Yves Jégourel, Partner       





F-3



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##### Table of Contents



IDM PHARMA INC.








CONSOLIDATED BALANCE SHEETS


|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |              |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | ------------ | ---- | - | ---------- | ------------ | -
|                                                          |                                                                                                                                                                                                                                                     | December 31, |           
|                                                          |                                                                                                                                                                                                                                                     |              |           
|                                                          |                                                                                                                                                                                                                                                     | 2005         |            |              | 2004 |  
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  
|ASSETS                                                   
|Current assets:                                           |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |             
|                                                          | Cash and cash equivalents                                                                                                                                                                                                                           |              | $          | 26,702,000   |      |   | $          | 41,777,000   |  
|                                                          | Related party accounts receivable                                                                                                                                                                                                                   |              |            | 2,540,000    |      |   |            | 1,983,000    |  
|                                                          | Other accounts receivable                                                                                                                                                                                                                           |              |            | 904,000      |      |   |            |             |  
|                                                          | Research and development tax credit, current portion                                                                                                                                                                                                |              |            | 526,000      |      |   |            | 719,000      |  
|                                                          | Prepaid expenses and other current assets                                                                                                                                                                                                           |              |            | 2,223,000    |      |   |            | 1,293,000    |  
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  
|Total current assets                                      |                                                                                                                                                                                                                                                     |              | 32,895,000 |              |      |   | 45,772,000 |             
|Property and equipment, net                               |                                                                                                                                                                                                                                                     |              | 2,109,000  |              |      |   | 2,942,000  |             
|Patents, trademarks and other licenses, net               |                                                                                                                                                                                                                                                     |              | 3,912,000  |              |      |   | 5,301,000  |             
|Goodwill                                                  |                                                                                                                                                                                                                                                     |              | 2,812,000  |              |      |   |           |             
|Research and development tax credit, less current portion |                                                                                                                                                                                                                                                     |              | 1,062,000  |              |      |   | 1,189,000  |             
|Other long-term assets                                    |                                                                                                                                                                                                                                                     |              | 97,000     |              |      |   | 85,000     |             
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  
|                                                          |                                                                                                                                                                                                                                                     | $            | 42,887,000 |              |      | $ | 55,289,000 |             
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  
|                                                         
|LIABILITIES AND STOCKHOLDERS EQUITY                     
|Current liabilities:                                      |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |             
|                                                          | Accounts payable and accrued liabilities                                                                                                                                                                                                            |              | $          | 4,887,000    |      |   | $          | 5,100,000    |  
|                                                          | Accrued payroll and related expenses                                                                                                                                                                                                                |              |            | 2,689,000    |      |   |            | 1,921,000    |  
|                                                          | Related party deferred revenues, current portion                                                                                                                                                                                                    |              |            | 687,000      |      |   |            | 747,000      |  
|                                                          | Other current liabilities                                                                                                                                                                                                                           |              |            | 2,251,000    |      |   |            | 835,000      |  
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  
|Total current liabilities                                 |                                                                                                                                                                                                                                                     |              | 10,514,000 |              |      |   | 8,603,000  |             
|Long-term debt, less current portion                      |                                                                                                                                                                                                                                                     |              | 317,000    |              |      |   | 317,000    |             
|Related party deferred revenues, less current portion     |                                                                                                                                                                                                                                                     |              | 2,875,000  |              |      |   | 3,738,000  |             
|Other non-current liabilities                             |                                                                                                                                                                                                                                                     |              | 437,000    |              |      |   | 130,000    |             
|Stockholders equity:                                     |                                                                                                                                                                                                                                                     |              |            |              |      |   |            |             
|                                                          | Preferred stock, $.01 par value, 10,000,000 shares and
    no shares authorized at December 31, 2005 and 2004,
    respectively. No shares issued and outstanding at
    December 31, 2005 and 2004                                                 |              |            |             |      |   |            |             |  
|                                                          | Common stock, $.01 par value, 55,000,000 shares and
    8,378,130 shares authorized at December 31, 2005 and
    2004, respectively, and 13,219,053 and 8,378,130 shares
    issued and outstanding at December 31, 2005 and 2004,
    respectively |              |            | 132,000      |      |   |            | 84,000       |  
|                                                          | Additional paid-in capital                                                                                                                                                                                                                          |              |            | 170,891,000  |      |   |            | 141,242,000  |  
|                                                          | Deferred compensation                                                                                                                                                                                                                               |              |            | (368,000     | )    |   |            | (43,000      | )
|                                                          | Accumulated other comprehensive income                                                                                                                                                                                                              |              |            | 13,165,000   |      |   |            | 17,085,000   |  
|                                                          | Accumulated deficit                                                                                                                                                                                                                                 |              |            | (155,076,000 | )    |   |            | (115,867,000 | )
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  
|Total stockholders equity                                |                                                                                                                                                                                                                                                     |              | 28,744,000 |              |      |   | 42,501,000 |             
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  
|                                                          |                                                                                                                                                                                                                                                     | $            | 42,887,000 |              |      | $ | 55,289,000 |             
|                                                          |                                                                                                                                                                                                                                                     |              |            |              |      |  



F-4



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##### Table of Contents



IDM PHARMA INC.








CONSOLIDATED STATEMENTS OF OPERATIONS


|                    |                                               |                          |             |             |      |   |             |             |   |   |            |             |  
|------------------- | --------------------------------------------- | ------------------------ | ----------- | ----------- | ---- | - | ----------- | ----------- | - | - | ---------- | ----------- | -
|                    |                                               | Years Ended December 31, |            
|                    |                                               |                          |            
|                    |                                               | 2005                     |             |             | 2004 |   |             | 2003        |  
|                    |                                               |                          |             |             |      |   |             |             |  
|Revenues:           |                                               |                          |             |             |      |   |             |             |   |   |            |            
|                    | Research grants and contract revenue          |                          | $           | 1,621,000   |      |   | $           |            |   |   | $          |            |  
|                    | Related party revenue                         |                          |             | 6,794,000   |      |   |             | 5,805,000   |   |   |            | 6,088,000   |  
|                    | License fees, milestones and other revenues   |                          |             | 124,000     |      |   |             |            |   |   |            |            |  
|                    |                                               |                          |             |             |      |   |             |             |  
|                    | Total revenues                                |                          |             | 8,539,000   |      |   |             | 5,805,000   |   |   |            | 6,088,000   |  
|Costs and expenses: |                                               |                          |             |             |      |   |             |             |   |   |            |            
|                    | Research and development                      |                          |             | 24,021,000  |      |   |             | 20,063,000  |   |   |            | 17,703,000  |  
|                    | Impairment of patents and licenses            |                          |             | 2,555,000   |      |   |             | 7,716,000   |   |   |            | 1,174,000   |  
|                    | Selling and marketing                         |                          |             | 1,270,000   |      |   |             | 1,176,000   |   |   |            | 1,661,000   |  
|                    | General and administrative                    |                          |             | 7,437,000   |      |   |             | 9,541,000   |   |   |            | 5,307,000   |  
|                    | Acquired in process research and development  |                          |             | 13,300,000  |      |   |             |            |   |   |            |            |  
|                    |                                               |                          |             |             |      |   |             |             |  
|                    | Total costs and expenses                      |                          |             | 48,583,000  |      |   |             | 38,496,000  |   |   |            | 25,845,000  |  
|                    | Loss from operations                          |                          |             | (40,044,000 | )    |   |             | (32,691,000 | ) |   |            | (19,757,000 | )
|                    | Interest income, net                          |                          |             | 580,000     |      |   |             | 696,000     |   |   |            | 1,079,000   |  
|                    | Other expenses, net                           |                          |             | (4,000      | )    |   |             |            |   |   |            |            |  
|                    | Foreign exchange (loss) gain                  |                          |             | (162,000    | )    |   |             | (23,000     | ) |   |            | 35,000      |  
|                    |                                               |                          |             |             |      |   |             |             |  
|                    | Loss before income tax benefit                |                          |             | (39,630,000 | )    |   |             | (32,018,000 | ) |   |            | (18,643,000 | )
|                    | Income tax benefit                            |                          |             | 421,000     |      |   |             | 361,000     |   |   |            | 211,000     |  
|                    |                                               |                          |             |             |      |   |             |             |  
|                    | Net loss                                      |                          | $           | (39,209,000 | )    |   | $           | (31,657,000 | ) |   | $          | (18,432,000 | )
|                    |                                               |                          |             |             |      |   |             |             |  
|                    | Weighted average number of shares outstanding |                          |             | 10,208,937  |      |   |             | 7,279,246   |   |   |            | 7,205,575   |  
|                    |                                               |                          |             |             |      |   |             |             |  
|                    | Basic and diluted loss per share              |                          | $           | (3.84       | )    |   | $           | (4.35       | ) |   | $          | (2.56       | )
|                    |                                               |                          |             |             |      |   |             |             |  
|                    | Comprehensive loss:                           |                          |             |             |      |   |             |             |   |   |            |             |  
|                    | Net loss                                      |                          | $           | (39,209,000 | )    |   | $           | (31,657,000 | ) |   | $          | (18,432,000 | )
|                    | Other comprehensive (loss) gain               |                          |             | (3,920,000  | )    |   |             | 1,182,000   |   |   |            | 10,473,000  |  
|                    |                                               |                          |             |             |      |   |             |             |  
|                    |                                               | $                        | (43,129,000 | )           |      | $ | (30,475,000 | )           |   | $ | (7,959,000 | )          
|                    |                                               |                          |             |             |      |   |             |             |  



F-5



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##### Table of Contents





IDM PHARMA INC.








CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


For the three years ended December 31, 2005


|                             |                                                                              |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            |             |  
|---------------------------- | ---------------------------------------------------------------------------- | ------------ | ---------- | --------- | ---------- | - | ------- | -------- |  | ----------------- | ------------- | ---------- | - | ----------- | -------- | ---------- | ------------- | - | ---------- | ---------- | - | - | ------------ | ----------- | - | - | ---------- | ----------- | -
|                             |                                                                              | Common Stock |            |           | Additional |   |         |          |  | Accumulated Other |               |            |   |             | Total    |           
|                             |                                                                              |              |            |           | Paid-In    |   |         | Deferred |  |                   | Comprehensive |            |   | Accumulated |          |            | Stockholders |  
|                             |                                                                              | Shares       |            |           | Amount     |   |         | Capital  |  |                   | Compensation  |            |   | Income      |          |            | Deficit       |   |            | Equity     |  
|                             |                                                                              |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |  
|Balance at December 31, 2002 |                                                                              |              | 7,107,781  |           |            | $ | 72,000  |          |  | $                 | 120,182,000   |            |   | $           | (347,000 | )          |               | $ | 5,430,000  |            |   | $ | (65,778,000  | )           |   | $ | 59,559,000 |            
|                             | Issuance of common stock in connection with private placement
    (net)      |              |            | 121,454   |            |   |         | 1,000    |  |                   |               | 3,079,000  |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 3,080,000   |  
|                             | Issuance of common stock in connection with exercise of warrants             |              |            | 22,308    |            |   |         |         |  |                   |               | 250,000    |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 250,000     |  
|                             | Issuance of warrants                                                         |              |            |           |            |   |         |          |  |                   |               | 13,000     |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 13,000      |  
|                             | Deferred compensation related to employee stock options                      |              |            |           |            |   |         |          |  |                   |               | (43,000    | ) |             |          | 43,000     |               |   |            |            |   |   |              |             |   |   |            |            |  
|                             | Amortization of deferred compensation related to employee stock
    options  |              |            |           |            |   |         |          |  |                   |               |            |   |             |          | 162,000    |               |   |            |            |   |   |              |             |   |   |            | 162,000     |  
|                             | Net loss                                                                     |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |   |   |              | (18,432,000 | ) |   |            | (18,432,000 | )
|                             | Translation adjustment                                                       |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            | 10,473,000 |   |   |              |             |   |   |            | 10,473,000  |  
|                             |                                                                              |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |  
|Balance at December 31, 2003 |                                                                              |              | 7,251,543  |           |            | $ | 73,000  |          |  | $                 | 123,481,000   |            |   | $           | (142,000 | )          |               | $ | 15,903,000 |            |   | $ | (84,210,000  | )           |   | $ | 55,105,000 |            
|                             | Issuance of common stock in connection with private placement
    (net)      |              |            | 1,126,587 |            |   |         | 11,000   |  |                   |               | 17,785,000 |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 17,796,000  |  
|                             | Deferred compensation related to employee stock options                      |              |            |           |            |   |         |          |  |                   |               | (24,000    | ) |             |          | 24,000     |               |   |            |            |   |   |              |             |   |   |            |            |  
|                             | Amortization of deferred compensation related to employee stock
    options  |              |            |           |            |   |         |          |  |                   |               |            |   |             |          | 75,000     |               |   |            |            |   |   |              |             |   |   |            | 75,000      |  
|                             | Net loss                                                                     |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |   |   |              | (31,657,000 | ) |   |            | (31,657,000 | )
|                             | Translation adjustment                                                       |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            | 1,182,000  |   |   |              |             |   |   |            | 1,182,000   |  
|                             |                                                                              |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |  
|Balance at December 31, 2004 |                                                                              |              | 8,378,130  |           |            | $ | 84,000  |          |  | $                 | 141,242,000   |            |   | $           | (43,000  | )          |               | $ | 17,085,000 |            |   | $ | (115,867,000 |             |   | $ | 42,501,000 |            
|                             | Issuance of common stock in connection with exercise of warrants             |              |            | 2,237,862 |            |   |         | 22,000   |  |                   |               | 2,008,000  |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 2,030,000   |  
|                             | Issuance of common stock in connection with Epimmune acquisition             |              |            | 2,569,817 |            |   |         | 26,000   |  |                   |               | 26,450,000 |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 26,476,000  |  
|                             | Issuance of common stock in connection with employee stock
    purchase plan |              |            | 2,344     |            |   |         |         |  |                   |               | 5,000      |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 5,000       |  
|                             | Issuance of common stock in connection with stock bonus grants               |              |            | 30,900    |            |   |         |         |  |                   |               | 104,000    |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 104,000     |  
|                             | Issuance of deferred issuance restricted stock awards                        |              |            |           |            |   |         |          |  |                   |               | 1,059,000  |   |             |          | (1,059,000 | )             |   |            |            |   |   |              |             |   |   |            |            |  
|                             | Issuance of consultant stock option                                          |              |            |           |            |   |         |          |  |                   |               | 22,000     |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 22,000      |  
|                             | Deferred compensation related to employee stock options                      |              |            |           |            |   |         |          |  |                   |               | (2,000     | ) |             |          | 2,000      |               |   |            |            |   |   |              |             |   |   |            |            |  
|                             | Amortization of deferred compensation                                        |              |            |           |            |   |         |          |  |                   |               |            |   |             |          | 732,000    |               |   |            |            |   |   |              |             |   |   |            | 732,000     |  
|                             | Decrease in estimated issuance costs                                         |              |            |           |            |   |         |          |  |                   |               | 3,000      |   |             |          |            |               |   |            |            |   |   |              |             |   |   |            | 3,000       |  
|                             | Net loss                                                                     |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |   |   |              | (39,209,000 | ) |   |            | (39,209,000 | )
|                             | Translation adjustment                                                       |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            | (3,920,000 | ) |   |              |             |   |   |            | (3,920,000  | )
|                             |                                                                              |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |  
|Balance at December 31, 2005 |                                                                              |              | 13,219,053 |           |            | $ | 132,000 |          |  | $                 | 170,891,000   |            |   | $           | (368,000 | )          |               | $ | 13,165,000 |            |   | $ | (155,076,000 | )           |   | $ | 28,744,000 |            
|                             |                                                                              |              |            |           |            |   |         |          |  |                   |               |            |   |             |          |            |               |   |            |            |  



F-6



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##### Table of Contents



IDM PHARMA INC.








CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                |                                              |                                                    |             |            |            |   |             |           |           |   |             |           |            |  
|------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | ----------- | ---------- | ---------- | - | ----------- | --------- | --------- | - | ----------- | --------- | ---------- | -
|                                                                                |                                              | Years Ended December 31,                           |            
|                                                                                |                                              |                                                    |            
|                                                                                |                                              | 2005                                               |             |            | 2004       |   |             | 2003      |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Operating activities                                                            |                                              |                                                    |             |            |            |   |             |           |           |   |             |          
|Net loss                                                                        |                                              | $                                                  | (39,209,000 | )          |            | $ | (31,657,000 | )         |           | $ | (18,432,000 | )        
|Adjustments to reconcile net loss to net cash used in operating
    activities: |                                              |                                                    |             |            |            |   |             |           |           |   |             |          
|                                                                                | Amortization of deferred compensation        |                                                    |             | 859,000    |            |   |             | 75,000    |           |   |             | 162,000   |           
|                                                                                | Depreciation and amortization                |                                                    |             | 1,812,000  |            |   |             | 2,735,000 |           |   |             | 2,630,000 |           
|                                                                                | Acquired in process research and development |                                                    |             | 13,300,000 |            |   |             |          |           |   |             |          |           
|                                                                                | Impairment of patents and licenses           |                                                    |             | 2,555,000  |            |   |             | 7,716,000 |           |   |             | 1,174,000 |           
|                                                                                | Loss on disposal of assets                   |                                                    |             | 2,000      |            |   |             |          |           |   |             |          |           
|                                                                                | Foreign exchange loss                        |                                                    |             |           |            |   |             | 21,000    |           |   |             | (33,000   | )         
|                                                                                | Change in operating assets and liabilities:  |                                                    |             |            |            |   |             |           |           |   |             |           |           
|                                                                                |                                              | Related party accounts receivable (Sanofi-Aventis) |             |            | (826,000   | ) |             |           | 667,000   |   |             |           | (1,369,000 | )
|                                                                                |                                              | Prepaid expenses and other current assets          |             |            | (340,000   | ) |             |           | 816,000   |   |             |           | (1,193,000 | )
|                                                                                |                                              | Research and development tax credit receivable     |             |            | 85,000     |   |             |           | 220,000   |   |             |           | 106,000    |  
|                                                                                |                                              | Other long-term assets                             |             |            | 330,000    |   |             |           | 1,000     |   |             |           | 1,000      |  
|                                                                                |                                              | Accounts payable and accrued liabilities           |             |            | (1,489,000 | ) |             |           | 2,011,000 |   |             |           | 1,194,000  |  
|                                                                                |                                              | Accrued payroll and related expenses               |             |            | 67,000     |   |             |           | 287,000   |   |             |           | 233,000    |  
|                                                                                |                                              | Related party deferred revenues (Sanofi-Aventis)   |             |            | (403,000   | ) |             |           | (687,000  | ) |             |           | (625,000   | )
|                                                                                |                                              | Other liabilities                                  |             |            | 1,624,000  |   |             |           | 248,000   |   |             |           | 240,000    |  
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Net cash used in operating activities                                           |                                              |                                                    | (21,633,000 | )          |            |   | (17,547,000 | )         |           |   | (15,912,000 | )        
|Investing activities                                                            |                                              |                                                    |             |            |            |   |             |           |           |   |             |          
|Proceeds from asset sale                                                        |                                              |                                                    | 12,090,000  |            |            |   |            |           |           |   |            |          
|Purchase of property and equipment                                              |                                              |                                                    | (514,000    | )          |            |   | (505,000    | )         |           |   | (394,000    | )        
|Patents, trademarks and other licenses                                          |                                              |                                                    | (499,000    | )          |            |   | (604,000    | )         |           |   | (1,582,000  | )        
|Net cash paid for acquisition                                                   |                                              |                                                    | (1,015,000  | )          |            |   |            |           |           |   |            |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Net cash provided by (used in) investing activities                             |                                              |                                                    | 10,062,000  |            |            |   | (1,109,000  | )         |           |   | (1,976,000  | )        
|Financing activities                                                            |                                              |                                                    |             |            |            |   |             |           |           |   |             |          
|Proceeds from loans                                                             |                                              |                                                    | 225,000     |            |            |   | 155,000     |           |           |   |            |          
|Repayment of loans                                                              |                                              |                                                    |            |            |            |   |            |           |           |   | (362,000    | )        
|Net proceeds from issuance of common stock                                      |                                              |                                                    | 2,000       |            |            |   | 15,536,000  |           |           |   |            |          
|Proceeds from warrants                                                          |                                              |                                                    |            |            |            |   |            |           |           |   | 263,000     |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Net cash provided by (used in) financing activities                             |                                              |                                                    | 227,000     |            |            |   | 15,691,000  |           |           |   | (99,000     | )        
|Effect of exchange rate on cash and cash equivalents                            |                                              |                                                    | (3,731,000  | )          |            |   | 2,761,000   |           |           |   | 8,290,000   |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Decrease in cash and cash equivalents                                           |                                              |                                                    | (15,075,000 | )          |            |   | (204,000    | )         |           |   | (9,697,000  | )        
|Cash and cash equivalents at beginning of year                                  |                                              |                                                    | 41,777,000  |            |            |   | 41,981,000  |           |           |   | 51,681,000  |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Cash and cash equivalents at end of year                                        |                                              | $                                                  | 26,702,000  |            |            | $ | 41,777,000  |           |           | $ | 41,984,000  |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Supplemental disclosure of cash flow information                                |                                              |                                                    |             |            |            |   |             |           |           |   |             |          
|Interest paid                                                                   |                                              | $                                                  | 3,000       |            |            | $ |            |           |           | $ |            |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Supplemental disclosure of non-cash investing and financing
    activities      |                                              |                                                    |             |            |            |   |             |           |           |   |             |          
|Issuance of shares in exchange for professional services                        |                                              | $                                                  |            |            |            | $ | 944,000     |           |           | $ |            |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Issuance of shares in exchange for patents and licenses                         |                                              | $                                                  | 2,030,000   |            |            | $ |            |           |           | $ | 3,080,000   |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          
|Issuance of shares in connection with Epimmune acquisition                      |                                              | $                                                  | 26,476,000  |            |            | $ |            |           |           | $ |            |          
|                                                                                |                                              |                                                    |             |            |            |   |             |           |          



F-7



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##### Table of Contents



IDM PHARMA INC.








NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                      
|-- | ---------------------------------------------------------------------
|1. | Nature of Business and Summary of Significant Accounting
    Policies



| |                                                                              
| | -----------------------------------------------------------------------------
| | Nature of business, basis of presentation and principles
    of consolidation













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



F-8



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##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



| |                             
| | ----------------------------
| | Foreign currency translation









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





| |                                                
| | -----------------------------------------------
| | Major customer and concentration of credit risk







| |                    
| | -------------------
| | Revenue recognition

Revenue Recognition 00-21, Revenue Arrangements with Multiple Deliverables.






F-9



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##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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









| |                                                              
| | -------------------------------------------------------------
| | Research and development expenses and related tax
    credit.







| |                   
| | ------------------
| | Earnings per share

Earnings per Share.


F-10



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##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


1.                       Nature
of Business and Summary of Significant Accounting
Policies  (Continued)




|                                          |  |      |           |  |      |  |           |      |  |  |           | 
|----------------------------------------- |  | ---- | --------- |  | ---- |  | --------- | ---- |  |  | --------- | 
|                                          |  | 2005 |           |  | 2004 |  |           | 2003 | 
|                                          |  |      |           |  |      |  |           |      | 
|Options Outstanding                       |  |      | 1,547,790 |  |      |  | 623,434   |      |  |  | 622,787   | 
|Warrants Outstanding                      |  |      | 325,056   |  |      |  | 2,237,862 |      |  |  | 2,237,862 | 
|Restricted Stock Awards                   |  |      | 188,730   |  |      |  |          |      |  |  |          | 
|Reserved Pursuant to Put/ Call Agreements |  |      | 78,600    |  |      |  |          |      |  |  |          | 
|                                          |  |      |           |  |      |  |           |      | 
|Total                                     |  |      | 2,140,185 |  |      |  | 2,861,296 |      |  |  | 2,860,649 | 
|                                          |  |      |           |  |      |  |           |      | 



| |                                                    
| | ---------------------------------------------------
| | Intangible assets, Patents, Trademarks and Licenses









| |                                
| | -------------------------------
| | Impairment of long-lived assets

Accounting for the
Impairment or Disposal of Long-Lived Assets,


F-11



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##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



| |                                     
| | ------------------------------------
| | Goodwill and other intangible assets

Goodwill and Other
Intangible Assets,




| |                                    
| | -----------------------------------
| | Fair value of financial instruments





| |                   
| | ------------------
| | Fixed assets  net



|                        |  |  |                                      | 
|----------------------- |  |  | ------------------------------------ | 
|Laboratory Equipment:   |  |  | 5 years                              | 
|Computer Equipment:     |  |  | 3 years                              | 
|Furniture:              |  |  | 5 years                              | 
|Office Equipment:       |  |  | 8 years                              | 
|Leasehold improvements: |  |  | Shorter of useful life or lease term | 



| |             
| | ------------
| | Income taxes

Accounting for Contingencies.




| |                    
| | -------------------
| | Segment information





| |                                                                               
| | ------------------------------------------------------------------------------
| | Warrants and stock options granted to employees, directors
    and consultants

Accounting for Stock Issued to Employees.


F-12



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##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



Accounting for Stock-Based Compensation




|                             |  |      |      |   |      |  |      |      |  |  |      |  
|---------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|Weighted Average Information |  | 2005 |      |   | 2004 |  |      | 2003 | 
|                             |  |      |      |   |      |  |      |      | 
|Risk-free interest rate      |  |      | 5.00 | % |      |  | 4.39 | %    |  |  | 4.33 | %
|Dividend yield               |  |      | 0    | % |      |  | 0    | %    |  |  | 0    | %
|Expected option life (years) |  |      | 6    |   |      |  | 7    |      |  |  | 7    |  
|Volatility factor            |  |      | 115  | % |      |  | *    |      |  |  | *    |  






|  |                                                                                                                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The Company has used the minimum value method to determine the
    fair value of options granted prior to the reverse merger with
    Epimmune on August 16, 2005, which was the date the
    Companys shares became publicly traded. The minimum value
    method does not consider the expected volatility of the
    underlying stock, and is only available to non-public entities.





|                     |                                                                                                                     |      |             |            |      |   |             |            |   |   |             |          |  
|-------------------- | ------------------------------------------------------------------------------------------------------------------- | ---- | ----------- | ---------- | ---- | - | ----------- | ---------- | - | - | ----------- | -------- | -
|                     |                                                                                                                     | 2005 |             |            | 2004 |   |             | 2003       |  
|                     |                                                                                                                     |      |             |            |      |   |             |            |  
|Net loss as reported |                                                                                                                     | $    | (39,209,000 | )          |      | $ | (31,657,000 | )          |   | $ | (18,432,000 | )       
|                     | Add: stock based employee compensation expense included in
    reported net loss                                    |      |             | 859,000    |      |   |             | 75,000     |   |   |             | 162,000  |  
|                     | Deduct: total stock based employee compensation expense
    determined under fair value based method for all awards |      |             | (2,018,000 | )    |   |             | (1,046,000 | ) |   |             | (716,000 | )
|                     |                                                                                                                     |      |             |            |      |   |             |            |  
|Pro forma net loss   |                                                                                                                     | $    | (40,368,000 | )          |      | $ | (32,628,000 | )          |   | $ | (18,986,000 | )       
|                     |                                                                                                                     |      |             |            |      |   |             |            |  
|Net loss per share:  |                                                                                                                     |      |             |            |      |   |             |            |   |   |             |         
|                     | Basic and diluted  as reported                                                                                     |      | $           | (3.84      | )    |   | $           | (4.35      | ) |   | $           | (2.56    | )
|                     |                                                                                                                     |      |             |            |      |   |             |            |  
|                     | Basic and diluted  pro forma                                                                                       |      | $           | (3.95      | )    |   | $           | (4.48      | ) |   | $           | (2.63    | )
|                     |                                                                                                                     |      |             |            |      |   |             |            |  

F-13



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



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

Reporting Comprehensive Income




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





|   |                                                  
|-- | -------------------------------------------------
|2. | Research and Development and Marketing Agreements



| |       
| | ------
| | Jenner



Accounting For Equity
Instruments That Are Issued to Other Than Employees For
Acquiring, or in conjunction with Selling, Goods or
Services,


F-14



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##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




2.     Research and Development and
Marketing Agreements  (Continued)








| |                                              
| | ---------------------------------------------
| | Agreement with Sanofi-Aventis (Related Party)













F-15



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2.     Research and Development and
Marketing Agreements  (Continued)






|                                                       |  |      |           |  |      |   |           |      |  |   |           | 
|------------------------------------------------------ |  | ---- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|                                                       |  | 2005 |           |  | 2004 |   |           | 2003 | 
|                                                       |  |      |           |  |      |   |           |      | 
|Amortization of upfront fee                            |  | $    | 220,000   |  |      | $ | 219,000   |      |  | $ | 200,000   | 
|Amortization of phase I milestone payment              |  |      | 259,000   |  |      |   | 259,000   |      |  |   | 236,000   | 
|Amortization of initial R&D expenses from 1999 to 2001 |  |      | 208,000   |  |      |   | 208,000   |      |  |   | 189,000   | 
|Reimbursement of current R&D expenses                  |  |      | 6,107,000 |  |      |   | 5,119,000 |      |  |   | 5,463,000 | 
|                                                       |  |      |           |  |      |   |           |      | 
|Total revenues                                         |  | $    | 6,794,000 |  |      | $ | 5,805,000 |      |  | $ | 6,088,000 | 
|                                                       |  |      |           |  |      |   |           |      | 









| |                        
| | -----------------------
| | Medarex (Related Party)





Accounting For Equity
Instruments That Are Issued to Other Than Employees For
Acquiring, or in conjunction with Selling, Goods or
Services,


F-16



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




2.     Research and Development and
Marketing Agreements  (Continued)












| |               
| | --------------
| | Cambridge Labs







|   |                                     
|-- | ------------------------------------
|3. | Business Combination and Name Change





F-17



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




3.     Business Combination and Name
Change  (Continued)




|                                                 |  |   |            | 
|------------------------------------------------ |  | - | ---------- | 
|Epimmune common stock                            |  | $ | 21,301,000 | 
|Epimmune preferred stock, as-converted to common |  |   | 2,589,000  | 
|Estimated fair value of options assumed          |  |   | 2,586,000  | 
|Estimated IDM S.A. direct transaction costs      |  |   | 3,298,000  | 
|                                                 |  |   |           
|Total purchase price                             |  | $ | 29,774,000 | 
|                                                 |  |   |           







|                           |                                               |        |   |                  |              |  |  |         | 
|-------------------------- | --------------------------------------------- | ------ | - | ---------------- | ------------ |  |  | ------- | 
|                           |                                               |        |   | Estimated Useful |             
|                           |                                               | Amount |   |                  | Life (Years) | 
|                           |                                               |        |   |                  |              | 
|Purchase price allocation: |                                               |        |   |                  |              |  |  |        
|                           | Net tangible assets (net of liabilities)      |        | $ | 1,607,000        |              |  |  |        | 
|                           | Licensing and milestone agreements            |        |   | 1,600,000        |              |  |  | 5 years | 
|                           | In-process research and development (IPR&D) |        |   | 13,300,000       |              |  |  |        | 
|                           | Goodwill                                      |        |   | 13,267,000       |              |  |  |        | 
|                           |                                               |        |   |                  |              | 
|                           | Total purchase price                          |        | $ | 29,774,000       |              |  |  |         | 
|                           |                                               |        |   |                  |              | 

Accounting
for Research and Development Costs, Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the
Purchase Method,




F-18



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




3.     Business Combination and Name
Change  (Continued)




Goodwill and
Other Intangible Assets,




|   |                                          
|-- | -----------------------------------------
|4. | Sale of Infectious Disease Related Assets



® ®




|                                  |  |        |            |  
|--------------------------------- |  | ------ | ---------- | -
|                                  |  | Amount |           
|                                  |  |        |           
|Prepaids and other current assets |  | $      | 214,000    |  
|Fixed assets                      |  |        | 778,000    |  
|Intangible assets                 |  |        | 1,627,000  |  
|Goodwill                          |  |        | 10,455,000 |  
|Accrued liabilities               |  |        | (146,000   | )
|                                  |  |        |           
|Total carrying value              |  | $      | 12,928,000 |  
|                                  |  |        |           

F-19



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


4.     Sale of Infectious Disease
Related Assets  (Continued)






|                                              |  |                   |         |   |                   |   |         |                   |  |   |         |  
|--------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                                              |  | Year Ended        |         |   | Year Ended        |   |         | Year Ended        | 
|                                              |  | December 31, 2005 |         |   | December 31, 2004 |   |         | December 31, 2003 | 
|                                              |  |                   |         |   |                   |   |         |                   | 
|Revenues                                      |  | $                 | 7,134   |   |                   | $ | 6,650   |                   |  | $ | 6,949   |  
|Net loss                                      |  | $                 | (39,483 | ) |                   | $ | (38,016 | )                 |  | $ | (26,232 | )
|Net loss per common share  basic and diluted |  | $                 | (3.87   | ) |                   | $ | (2.89   | )                 |  | $ | (2.07   | )



|   |                          
|-- | -------------------------
|5. | Balance Sheet Information



| |                          
| | -------------------------
| | Cash and Cash equivalents



|                                        |  |                    |            |  |      |   |            |      |  |   |            | 
|--------------------------------------- |  | ------------------ | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- | 
|                                        |  | As of December 31, |           
|                                        |  |                    |           
|                                        |  | 2005               |            |  | 2004 |   |            | 2003 | 
|                                        |  |                    |            |  |      |   |            |      | 
|Money market funds                      |  | $                  | 14,574,000 |  |      | $ | 467,000    |      |  | $ | 150,000    | 
|Cash, including certificates of deposit |  |                    | 12,128,000 |  |      |   | 41,310,000 |      |  |   | 41,831,000 | 
|                                        |  |                    |            |  |      |   |            |      | 
|Total cash and cash equivalents         |  | $                  | 26,702,000 |  |      | $ | 41,777,000 |      |  | $ | 41,981,000 | 
|                                        |  |                    |            |  |      |   |            |      | 



| |                                  
| | ---------------------------------
| | Prepaids and Other Current Assets



|                           |  |      |           |  |      |   |           | 
|-------------------------- |  | ---- | --------- |  | ---- | - | --------- | 
|                           |  | 2005 |           |  | 2004 |  
|                           |  |      |           |  |      |  
|Prepaid expenses           |  | $    | 758,000   |  |      | $ | 381,000   | 
|Value added tax receivable |  |      | 514,000   |  |      |   | 849,000   | 
|Prepaid services agreement |  |      | 900,000   |  |      |   |          | 
|Other current assets       |  |      | 51,000    |  |      |   | 63,000    | 
|                           |  |      |           |  |      |  
|                           |  | $    | 2,223,000 |  |      | $ | 1,293,000 | 
|                           |  |      |           |  |      |  

F-20



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


5.     Balance Sheet
Information  (Continued)




| |                   
| | ------------------
| | Fixed Assets  Net



|                                               |  |                    |            |   |      |   |            |  
|---------------------------------------------- |  | ------------------ | ---------- | - | ---- | - | ---------- | -
|                                               |  | As of December 31, |           
|                                               |  |                    |           
|                                               |  | 2005               |            |   | 2004 |  
|                                               |  |                    |            |   |      |  
|Laboratory equipment                           |  | $                  | 2,488,000  |   |      | $ | 2,722,000  |  
|Computer equipment                             |  |                    | 1,591,000  |   |      |   | 1,778,000  |  
|Furniture and other equipment                  |  |                    | 683,000    |   |      |   | 1,065,000  |  
|Leasehold improvements                         |  |                    | 1,857,000  |   |      |   | 2,120,000  |  
|                                               |  |                    |            |   |      |  
|Total fixed assets                             |  |                    | 6,619,000  |   |      |   | 7,685,000  |  
|Less accumulated depreciation and amortization |  |                    | (4,510,000 | ) |      |   | (4,743,000 | )
|                                               |  |                    |            |   |      |  
|Fixed assets  net                             |  | $                  | 2,109,000  |   |      | $ | 2,942,000  |  
|                                               |  |                    |            |   |      |  





| |                        
| | -----------------------
| | Intangible Assets  Net



|                           |  |                         |            |                  |                         |   |             |     |  |   |                  |  |  |            |            |  |     |   |             |   |  |   |           | 
|-------------------------- |  | ----------------------- | ---------- | ---------------- | ----------------------- | - | ----------- | --- |  | - | ---------------- |  |  | ---------- | ---------- |  | --- | - | ----------- | - |  | - | --------- | 
|                           |  | As of December 31, 2005 |            |                  | As of December 31, 2004 |  
|                           |  |                         |            |                  |                         |  
|                           |  |                         |            | Accumulated      |                         |   |             |     |  |   | Accumulated      |  |  |           
|                           |  |                         |            | Amortization and |                         |   |             |     |  |   | Amortization and |  |  |           
|                           |  | Original Cost           |            |                  | Impairment              |   |             | Net |  |   | Original Cost    |  |  | Impairment |            |  | Net |  
|                           |  |                         |            |                  |                         |   |             |     |  |   |                  |  |  |            |            |  |     |  
|Patents                    |  | $                       | 3,055,000  |                  |                         | $ | (2,105,000  | )   |  | $ | 950,000          |  |  | $          | 3,154,000  |  |     | $ | (1,950,000  | ) |  | $ | 1,204,000 | 
|Trade marks                |  |                         | 592,000    |                  |                         |   | (513,000    | )   |  |   | 79,000           |  |  |            | 596,000    |  |     |   | (287,000    | ) |  |   | 309,000   | 
|Other licenses(1)          |  |                         | 4,374,000  |                  |                         |   | (1,491,000  | )   |  |   | 2,883,000        |  |  |            | 5,001,000  |  |     |   | (1,213,000  | ) |  |   | 3,788,000 | 
|Sanofi-Aventis licenses(1) |  |                         | 2,030,000  |                  |                         |   | (2,030,000  | )   |  |   |                 |  |  |            |           |  |     |   |            |   |  |   |          | 
|Medarex licenses(1)        |  |                         | 16,998,000 |                  |                         |   | (16,998,000 | )   |  |   |                 |  |  |            | 19,432,000 |  |     |   | (19,432,000 | ) |  |   |          | 
|                           |  |                         |            |                  |                         |   |             |     |  |   |                  |  |  |            |            |  |     |  
|Total                      |  | $                       | 27,049,000 |                  |                         | $ | (23,137,000 | )   |  | $ | 3,912,000        |  |  | $          | 28,183,000 |  |     | $ | (22,882,000 | ) |  | $ | 5,301,000 | 
|                           |  |                         |            |                  |                         |   |             |     |  |   |                  |  |  |            |            |  |     |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On August 12, 2005, Sanofi-Aventis exercised warrants that
    were granted in connection with the 1999 Agreement in exchange
    for a new license agreement for the Companys use of IL-13
    in Phase III clinical trials and for the commercialization
    of the Companys products using IL-13. The fair value of
    the shares issued to Sanofi-Aventis was estimated at
    approximately $2,030,000. The fair value allocated to the
    license was reflected in intangible assets and immediately
    impaired in full since the Company does not currently have a
    product using IL-13 in Phase III clinical trials.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2000, the Company acquired licenses from Medarex, which were
    capitalized for an amount of $12,379,000. In 2004, the Company
    recorded an impairment charge of $6,776,000 relating to the
    remaining carrying value of the Medarex licenses. This
    impairment charge was related to IDMs decision not to
    further pursue a development program in connection with the
    MDX-210 antibody, an antibody used in the Companys
    Osidem-2 product candidate.
|
| | Following a successful Phase I/ II clinical trial of
    Osidem, the Company had initiated Phase III clinical trials
    of the product in May 2000 in Europe and Australia. It also
    received approval for a Phase II clinical trial in the
    United States in April 2002. This approval required that the
    product be manufactured in a                                                                                                                               

F-21



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##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                   
| | --------------------------------------------------
| | 5.     Balance Sheet
    Information  (Continued)





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 2003, upon successful preclinical testing of
    Osidem-2, the Company terminated the Phase III studies of
    Osidem in order to start a new clinical development program for
    Osidem-2. The Company intended to either pursue the development
    of Osidem-2 on its own, subject to appropriate financing, or
    seek a strategic partnership to explore the potential of
    Osidem-2 as a first-line treatment for advanced ovarian cancer.                                                                                                           
|
| | In September 2004, without new financing, the Company decided
    not to pursue its Osidem-2 development program. In the absence
    of other available collaborations or strategic partnerships to
    continue the development of the product candidate, the Company
    considered that no commercially viable alternative future use
    existed and accordingly, the fair value of the license was
    deemed to be zero. The Company impaired the remaining value of
    the corresponding Medarex license for $6,776,000 during the year
    ended December 31, 2004.
|
| | During 2003, the main acquisition of the Company was the Jenner
    licenses for an amount of $3,080,000. The amortization period of
    these licenses is 10 years. (See note 2.1)                                                                                                                                                                                                                                                                                                                                                                                         



|             |            |      |           |           |      |   |           |           |  |   |           |           | 
|------------ | ---------- | ---- | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|             |            | 2005 |           |           | 2004 |   |           | 2003      | 
|             |            |      |           |           |      |   |           |           | 
|Amortization |            |      |           |           |      |   |           |           |  |   |           |          
|             | Patents    |      | $         | 166,000   |      |   | $         | 382,000   |  |   | $         | 191,000   | 
|             | Licenses   |      |           | 509,000   |      |   |           | 1,345,000 |  |   |           | 1,548,000 | 
|             | Trademarks |      |           | 47,000    |      |   |           | 42,000    |  |   |           | 42,000    | 
|             |            |      |           |           |      |   |           |           | 
|             |            | $    | 722,000   |           |      | $ | 1,769,000 |           |  | $ | 1,781,000 |          
|             |            |      |           |           |      |   |           |           | 
|Impairment   |            |      |           |           |      |   |           |           |  |   |           |          
|             | Patents    |      | $         | 264,000   |      |   | $         | 357,000   |  |   | $         | 18,000    | 
|             | Licenses   |      |           | 2,071,000 |      |   |           | 7,359,000 |  |   |           | 1,084,000 | 
|             | Trademarks |      |           | 220,000   |      |   |           |          |  |   |           | 72,000    | 
|             |            |      |           |           |      |   |           |           | 
|             |            | $    | 2,555,000 |           |      | $ | 7,716,000 |           |  | $ | 1,174,000 |          
|             |            |      |           |           |      |   |           |           | 



| |         
| | --------
| | Goodwill



|                                                                       |  |              |             |  
|---------------------------------------------------------------------- |  | ------------ | ----------- | -
|                                                                       |  | Year Ended   |            
|                                                                       |  | December 31, |            
|                                                                       |  |              |            
|                                                                       |  | 2005         |            
|                                                                       |  |              |            
|Beginning balance                                                      |  | $            |            |  
|Goodwill recorded in connection with business combination
    (Note 3) |  |              | 13,267,000  |  
|Reduction in goodwill in connection with asset sale (Note 4)           |  |              | (10,455,000 | )
|                                                                       |  |              |            
|Ending balance                                                         |  | $            | 2,812,000   |  
|                                                                       |  |              |            

F-22



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


5.     Balance Sheet
Information  (Continued)




| |                           
| | --------------------------
| | Other Currents Liabilities



|                                 |  |      |           |  |      |   |         | 
|-------------------------------- |  | ---- | --------- |  | ---- | - | ------- | 
|                                 |  | 2005 |           |  | 2004 |  
|                                 |  |      |           |  |      |  
|Value added tax payable  IDM SA |  | $    | 399,000   |  |      | $ | 407,000 | 
|Accrued tax contingency          |  |      | 1,638,000 |  |      |   |        | 
|European grant  IDM SA          |  |      | 214,000   |  |      |   | 428,000 | 
|                                 |  |      |           |  |      |  
|                                 |  | $    | 2,251,000 |  |      | $ | 835,000 | 
|                                 |  |      |           |  |      |  



| |                                    
| | -----------------------------------
| | Long-term Debt less Current Portion



|                                              |  |                    |         |  |      |  |         | 
|--------------------------------------------- |  | ------------------ | ------- |  | ---- |  | ------- | 
|                                              |  | As of December 31, |        
|                                              |  |                    |        
|                                              |  | 2005               |         |  | 2004 | 
|                                              |  |                    |         |  |      | 
|Interest-free loan from governmental agencies |  | $                  | 277,000 |  |      |  | 317,000 | 
|Long-term equipment lease                     |  |                    | 40,000  |  |      |  |        | 
|                                              |  |                    |         |  |      | 
|Long term portion                             |  | $                  | 317,000 |  |      |  | 317,000 | 
|                                              |  |                    |         |  |      | 







|   |                     
|-- | --------------------
|6. | Shareholders Equity





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





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





F-23



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




6.     Shareholders
Equity  (Continued)














Stock Warrants








F-24



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




6.     Shareholders
Equity  (Continued)




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







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







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



| |                           
| | --------------------------
| | 1998 IDM Stock Option Plan



F-25



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




6.     Shareholders
Equity  (Continued)




| |                           
| | --------------------------
| | 2000 IDM Stock Option Plan







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





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





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



F-26



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


6.     Shareholders
Equity  (Continued)










|                             |           |        |           |          |       |   |       |       | 
|---------------------------- | --------- | ------ | --------- | -------- | ----- | - | ----- | ----- | 
|                             |           |        |           | Weighted |      
|                             |           |        |           | Average  |      
|                             |           | Shares |           |          | Price |  
|                             |           |        |           |          |       |  
|Balance at December 31, 2002 |           |        | 561,897   |          |       | $ | 17.53 |      
|                             | Granted   |        |           | 196,083  |       |   | $     | 27.03 | 
|                             | Cancelled |        |           | (135,193 | )     |   | $     | 19.29 | 
|                             |           |        |           |          |       |  
|Balance at December 31, 2003 |           |        | 622,787   |          |       | $ | 23.81 |      
|                             | Granted   |        |           | 38,258   |       |   | $     | 23.83 | 
|                             | Exercised |        |           |         |       |   | $     |      | 
|                             | Cancelled |        |           | (37,611  | )     |   | $     | 28.37 | 
|                             |           |        |           |          |       |  
|Balance at December 31, 2004 |           |        | 623,434   |          |       | $ | 25.30 |      
|                             | Granted   |        |           | 981,384  |       |   | $     | 8.14  | 
|                             | Cancelled |        |           | (57,028  | )     |   | $     | 22.46 | 
|                             |           |        |           |          |       |  
|Balance at December 31, 2005 |           |        | 1,547,790 |          |       | $ | 14.53 |      
|                             |           |        |           |          |       |  

F-27



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


6.     Shareholders
Equity  (Continued)




|                         |  |             |           |          |                |  |          |                |  |   |             |                  |  |                  |         |  |  |   |       | 
|------------------------ |  | ----------- | --------- | -------- | -------------- |  | -------- | -------------- |  | - | ----------- | ---------------- |  | ---------------- | ------- |  |  | - | ----- | 
|                         |  |             |           | Weighted |                |  |          |                |  |   | Weighted    |                 
|                         |  |             |           | Average  |                |  | Weighted |                |  |   |             | Average Exercise | 
|                         |  | Options     |           |          | Remaining Life |  |          | Average        |  |   | Options     |                  |  | Price of Options |        
|Range of Exercise Prices |  | Outstanding |           |          | in Years       |  |          | Exercise Price |  |   | Exercisable |                  |  | Exercisable      |        
|                         |  |             |           |          |                |  |          |                |  |   |             |                  |  |                  |        
|$1.09                    |  |             | 3,221     |          |                |  | 1.96     |                |  | $ | 1.09        |                  |  |                  | 3,221   |  |  | $ | 1.09  | 
|$3.36                    |  |             | 343,468   |          |                |  | 9.72     |                |  |   | 3.36        |                  |  |                  | 14,687  |  |  |   | 3.36  | 
|$5.00 to $9.99           |  |             | 296,644   |          |                |  | 9.53     |                |  |   | 5.90        |                  |  |                  | 19,429  |  |  |   | 6.38  | 
|$10.00 to $19.99         |  |             | 435,470   |          |                |  | 6.20     |                |  |   | 12.23       |                  |  |                  | 412,813 |  |  |   | 12.17 | 
|$20.00  $29.99          |  |             | 452,091   |          |                |  | 6.73     |                |  |   | 26.01       |                  |  |                  | 317,470 |  |  |   | 25.69 | 
|$30 and above            |  |             | 16,896    |          |                |  | 4.29     |                |  |   | 44.46       |                  |  |                  | 16,896  |  |  |   | 44.46 | 
|                         |  |             |           |          |                |  |          |                |  |   |             |                  |  |                  |        
|Total                    |  |             | 1,547,790 |          |                |  | 7.74     |                |  | $ | 13.40       |                  |  |                  | 784,516 |  |  | $ | 13.38 | 
|                         |  |             |           |          |                |  |          |                |  |   |             |                  |  |                  |        





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



|                                                  |  |  |           | 
|------------------------------------------------- |  |  | --------- | 
|Options granted and outstanding                   |  |  | 1,547,790 | 
|Options authorized for future grants              |  |  | 248,379   | 
|Employee stock purchase plan for future purchases |  |  | 72,357    | 
|Common stock warrants                             |  |  | 325,056   | 
|Restricted stock awards                           |  |  | 246,739   | 
|                                                  |  |  |          
|                                                  |  |  | 2,440,321 | 
|                                                  |  |  |          



|   |                                
|-- | -------------------------------
|7. | Income Tax Provision (Benefit):



|         |                                      |              |   |          |      |  |   |          |   |  |   |          |  
|-------- | ------------------------------------ | ------------ | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|         |                                      | December 31, |  
|         |                                      |              |  
|         |                                      | 2003         |   |          | 2004 |  |   | 2005     |  
|         |                                      |              |   |          |      |  |   |          |  
|Current: |                                      |              |   |          |      |  |   |          |   |  |   |         
|         | Federal                              |              | $ |         |      |  | $ |         |   |  | $ | 120,000  |  
|         | State                                |              |   |         |      |  |   |         |   |  |   | 5,000    |  
|         | Foreign                              |              |   | (211,000 | )    |  |   | (361,000 | ) |  |   | (546,000 | )
|         |                                      |              |   |          |      |  |   |          |  
|         | Provision (Benefit) for income taxes |              | $ | (211,000 | )    |  | $ | (361,000 | ) |  | $ | (421,000 | )
|         |                                      |              |   |          |      |  |   |          |  

F-28



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                  
|-- | -------------------------------------------------
|7. | Income Tax Provision
    (Benefit):  (Continued)



|                                           |  |              |            |   |      |   |             |      |  |   |             |  
|------------------------------------------ |  | ------------ | ---------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                           |  | December 31, |           
|                                           |  |              |           
|                                           |  | 2003         |            |   | 2004 |   |             | 2005 | 
|                                           |  |              |            |   |      |   |             |      | 
|Amounts computed at statutory federal rate |  | $            | (6,339,000 | ) |      | $ | (10,886,000 | )    |  | $ | (13,474,000 | )
|State taxes net of federal benefit         |  |              | (398,000   | ) |      |   | (397,000    | )    |  |   | (1,337,000  | )
|Nondeductible expenses                     |  |              |           |   |      |   |            |      |  |   | 372,000     |  
|Refundable credits                         |  |              | (211,000   | ) |      |   | (361,000    | )    |  |   | (546,000    | )
|Foreign tax rate differential              |  |              | (827,000   | ) |      |   | (1,764,000  | )    |  |   | (1,169,000  | )
|Change in valuation allowance              |  |              | 7,564,000  |   |      |   | 13,047,000  |      |  |   | 5,946,000   |  
|Asset basis differences                    |  |              |           |   |      |   |            |      |  |   | 9,663,000   |  
|Alternative minimum tax                    |  |              |           |   |      |   |            |      |  |   | 124,000     |  
|                                           |  |              |            |   |      |   |             |      | 
|                                           |  | $            | (211,000   | ) |      | $ | (361,000    | )    |  | $ | (421,000    | )
|                                           |  |              |            |   |      |   |             |      | 



|                                            |                                          |      |             |            |      |   |              |            |  
|------------------------------------------- | ---------------------------------------- | ---- | ----------- | ---------- | ---- | - | ------------ | ---------- | -
|                                            |                                          | 2004 |             |            | 2005 |  
|                                            |                                          |      |             |            |      |  
|Deferred tax liabilities:                   |                                          |      |             |            |      |   |              |           
|                                            | Patents expensed for tax                 |      | $           |           |      |   | $            | (58,000    | )
|                                            | Fixed assets                             |      |             | (138,000   | )    |   |              | (110,000   | )
|                                            |                                          |      |             |            |      |  
|Total deferred tax liabilities              |                                          |      | (138,000    | )          |      |   | (168,000     | )         
|Deferred tax assets:                        |                                          |      |             |            |      |   |              |           
|                                            | Capitalized research expenses            |      |             |            |      |   |              | 1,400,000  |  
|                                            | Reserves and accruals                    |      |             | 420,000    |      |   |              | 449,000    |  
|                                            | US net operating loss carryforwards      |      |             | 6,117,000  |      |   |              | 59,337,000 |  
|                                            | Foreign net operating loss carryforwards |      |             | 35,816,000 |      |   |              | 60,978,000 |  
|                                            | Research and development credits         |      |             |           |      |   |              | 9,545,000  |  
|                                            | Other, net                               |      |             |           |      |   |              | 143,000    |  
|                                            |                                          |      |             |            |      |  
|Total deferred tax assets                   |                                          |      | 42,353,000  |            |      |   | 131,852,000  |           
|Valuation allowance for deferred tax assets |                                          |      | (42,215,000 | )          |      |   | (131,684,000 | )         
|                                            |                                          |      |             |            |      |  
|Net deferred tax assets                     |                                          | $    |            |            |      | $ |             |           
|                                            |                                          |      |             |            |      |  



F-29



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                  
|-- | -------------------------------------------------
|7. | Income Tax Provision
    (Benefit):  (Continued)













|              |       |                    |             |             |      |   |             |             |   |   |             |             |  
|------------- | ----- | ------------------ | ----------- | ----------- | ---- | - | ----------- | ----------- | - | - | ----------- | ----------- | -
|              |       | As of December 31, |            
|              |       |                    |            
|              |       | 2003               |             |             | 2004 |   |             | 2005        |  
|              |       |                    |             |             |      |   |             |             |  
|Foreign       |       | $                  | (11,817,000 | )           |      | $ | (25,203,000 | )           |   | $ | (16,692,000 | )          
|United States |       |                    | (6,826,000  | )           |      |   | (6,815,000  | )           |   |   | (22,938,000 | )          
|              |       |                    |             |             |      |   |             |             |  
|              | Total |                    | $           | (18,643,000 | )    |   | $           | (32,018,000 | ) |   | $           | (39,630,000 | )
|              |       |                    |             |             |      |   |             |             |  



|   |                              
|-- | -----------------------------
|8. | Benefit Plans and 401(k) Plan





F-30



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




8.     Benefit Plans and 401(k)
Plan  (Continued)








|   |            
|-- | -----------
|9. | Commitments



| |                            
| | ---------------------------
| | Operating lease commitments







|           |  |           |           | 
|---------- |  | --------- | --------- | 
|           |  | Operating |          
|Year       |  | Leases    |          
|           |  |           |          
|2006       |  | $         | 755,000   | 
|2007       |  |           | 741,000   | 
|2008       |  |           | 760,000   | 
|2009       |  |           | 680,000   | 
|2010       |  |           | 70,000    | 
|Thereafter |  |           | 168,000   | 
|           |  |           |          
|Total      |  | $         | 3,174,000 | 
|           |  |           |          





| |                          
| | -------------------------
| | Commitment with Biotecnol





| |                         
| | ------------------------
| | Commitment with Accovion



F-31



---



##### Table of Contents



IDM PHARMA INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                          
|-- | -------------------------
|9. | Commitments  (Continued)





|    |                           
|--- | --------------------------
|10. | Related Party Transactions







|    |                                          
|--- | -----------------------------------------
|11. | Unaudited quarterly financial information



|                             |                                         |             |   |       |             |  |   |             |   |  |             |       |   |  |   |       |  
|---------------------------- | --------------------------------------- | ----------- | - | ----- | ----------- |  | - | ----------- | - |  | ----------- | ----- | - |  | - | ----- | -
|                             |                                         | 1st Quarter |   |       | 2nd Quarter |  |   | 3rd Quarter |   |  | 4th Quarter |      
|                             |                                         |             |   |       |             |  |   |             |   |  |             |      
|Year Ended December 31, 2005 |                                         |             |   |       |             |  |   |             |   |  |             |       |   |  |   |      
|                             | Revenues                                |             | $ | 1.6   |             |  | $ | 1.6         |   |  | $           | 2.1   |   |  | $ | 3.3   |  
|                             | Loss from operations                    |             |   | (5.3  | )           |  |   | (5.1        | ) |  |             | (20.4 | ) |  |   | (9.3  | )
|                             | Net loss                                |             |   | (4.7  | )           |  |   | (4.7        | ) |  |             | (20.2 | ) |  |   | (9.7  | )
|                             | Basic and diluted net loss per share(a) |             |   | (0.55 | )           |  |   | (0.55       | ) |  |             | (1.87 | ) |  |   | (0.74 | )

|                             |                                      |             |   |       |             |  |   |             |   |  |             |       |   |  |   |       |  
|---------------------------- | ------------------------------------ | ----------- | - | ----- | ----------- |  | - | ----------- | - |  | ----------- | ----- | - |  | - | ----- | -
|                             |                                      | 1st Quarter |   |       | 2nd Quarter |  |   | 3rd Quarter |   |  | 4th Quarter |      
|                             |                                      |             |   |       |             |  |   |             |   |  |             |      
|Year Ended December 31, 2004 |                                      |             |   |       |             |  |   |             |   |  |             |       |   |  |   |      
|                             | Revenues                             |             | $ | 1.5   |             |  | $ | 1.1         |   |  | $           | 1.4   |   |  | $ | 1.7   |  
|                             | Loss from operations                 |             |   | (4.9  | )           |  |   | (5.1        | ) |  |             | (14.9 | ) |  |   | (7.7  | )
|                             | Net loss                             |             |   | (4.7  | )           |  |   | (4.9        | ) |  |             | (14.7 | ) |  |   | (7.3  | )
|                             | Basic and diluted net loss per share |             |   | (0.64 | )           |  |   | (0.68       | ) |  |             | (1.98 | ) |  |   | (1.00 | )






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

F-32