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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005,
 or
 o
    
    Transition Period Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 For the Transition Period From  to.
 Commission file number 0-19591
 IDM PHARMA, INC.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    33-0245076
(I.R.S. Employer Identification No.)
 San Diego, California 92121
 (858) 860-2500
 þ o
 o þ
 o þ




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IDM PHARMA, INC.
QUARTERLY REPORT
FORM 10-Q
 COVER PAGE
    
    
    1TABLE OF CONTENTS
    
    
    2PART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2005
(unaudited) and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations (unaudited) for the
Three and Nine Months Ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Risk Factors
    
    
    28ITEM 4. Controls and Procedures
    
    
    45PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    46ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    *ITEM 3. Defaults upon Senior Securities
    
    
    *ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    46ITEM 5. Other Information
    
    
    *ITEM 6. Exhibits
    
    
    50SIGNATURE
    
    
    55EXHIBIT 10.20EXHIBIT 10.21EXHIBIT 10.23EXHIBIT 10.24EXHIBIT 10.25EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  
 *
    
    No information provided due to inapplicability of item. 2




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PART I. FINANCIAL INFORMATION
 
 ITEM I. FINANCIAL STATEMENTS
 IDM PHARMA, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,252
    
    
    $
    41,777Related party accounts receivable (Sanofi-Aventis)
    
    
    2,385
    
    
    
    1,983Research and development tax credit, current portion
    
    
    657
    
    
    
    719Prepaid expenses and other current assets
    
    
    2,124
    
    
    
    1,293Total current assets
    
    
    26,418
    
    
    
    45,772Restricted long-term cash
    
    
    354
    
    
    
    Property and equipment, net
    
    
    3,190
    
    
    
    2,942Patents, trademarks and other licenses, net
    
    
    5,735
    
    
    
    5,301Goodwill
    
    
    13,865
    
    
    
    Research and development tax credit, less current portion
    
    
    1,752
    
    
    
    1,189Other non-current assets
    
    
    106
    
    
    
    85TOTAL ASSETS
    
    $
    51,420
    
    
    $
    55,289LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    7,069
    
    
    $
    5,100Accrued payroll and related expenses
    
    
    1,344
    
    
    
    1,921Related party deferred revenue (Sanofi-Aventis), current portion
    
    
    707
    
    
    
    747Other current liabilities
    
    
    268
    
    
    
    835Total current liabilities
    
    
    9,388
    
    
    
    8,603Long-term debt, less current portion
    
    
    721
    
    
    
    317Related party deferred revenue (Sanofi-Aventis), less current portion
    
    
    3,099
    
    
    
    3,738Other non-current liabilities
    
    
    430
    
    
    
    130Stockholders equity:Preferred stock, $.01 par value, 10,000,000 and 0 shares authorized, respectively,
and 0 shares issued and outstanding at September 30, 2005 and December 31, 2004.
    
    
    
    
    
    
    Common
stock, $.01 par value, 55,000,000 shares and 8,378,130 shares authorized,
respectively, 13,185,809 shares and 8,378,130 shares issued and outstanding
at September 30, 2005 and December 31, 2004, respectively.
    
    
    132
    
    
    
    84Additional paid-in capital
    
    
    168,600
    
    
    
    139,191Deferred compensation
    
    
    (874
    )
    
    
    (38
    )Accumulated
other comprehensive income (loss)
    
    
    19,052
    
    
    
    22,886Accumulated deficit
    
    
    (149,128
    )
    
    
    (119,622
    )Total stockholders equity
    
    
    37,782
    
    
    
    42,501TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    51,420
    
    
    $
    55,289
 See accompanying notes.
 3




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IDM PHARMA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 (in thousands, except per share data)
 Three months ended Sept. 30,
    
    
    Nine months ended Sept. 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenuesResearch grants and contract revenue
    
    $
    507
    
    
    $
    
    
    
    $
    507
    
    
    $
    License fees and milestones
    
    
    73
    
    
    
    
    
    
    
    73
    
    
    
    Related party revenue
    
    
    1,470
    
    
    
    1,431
    
    
    
    4,611
    
    
    
    4,086Other revenue
    
    
    6
    
    
    
    191
    
    
    
    35
    
    
    
    191Total revenues
    
    
    2,056
    
    
    
    1,622
    
    
    
    5,226
    
    
    
    4,277Costs and expenses:Research and development expenses
    
    
    4,979
    
    
    
    4,837
    
    
    
    14,656
    
    
    
    14,026Impairment of patents and licenses
    
    
    2,030
    
    
    
    7,230
    
    
    
    2,325
    
    
    
    7,230Selling and marketing expenses
    
    
    351
    
    
    
    174
    
    
    
    1,001
    
    
    
    838General and administrative expenses
    
    
    1,790
    
    
    
    4,095
    
    
    
    4,686
    
    
    
    6,960Acquired in process research and development
    
    
    13,300
    
    
    
    
    
    
    
    13,300
    
    
    
    Total costs and expenses
    
    
    22,450
    
    
    
    16,336
    
    
    
    35,968
    
    
    
    29,054Loss from operations
    
    
    (20,394
    )
    
    
    (14,714
    )
    
    
    (30,742
    )
    
    
    (24,777
    )Interest income, net
    
    
    141
    
    
    
    139
    
    
    
    484
    
    
    
    551Other expense, net
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    Foreign exchange (loss) gain
    
    
    (50
    )
    
    
    37
    
    
    
    57
    
    
    
    26Loss before income tax benefit
    
    
    (20,305
    )
    
    
    (14,538
    )
    
    
    (30,203
    )
    
    
    (24,200
    )Income tax benefit
    
    
    120
    
    
    
    32
    
    
    
    697
    
    
    
    65Net loss
    
    $
    (20,185
    )
    
    $
    (14,506
    )
    
    $
    (29,506
    )
    
    $
    (24,135
    )Weighted average number of shares
outstanding
    
    
    10,821
    
    
    
    7,330
    
    
    
    9,254
    
    
    
    7,330Basic and diluted loss per share
    
    $
    (1.87
    )
    
    $
    (1.98
    )
    
    $
    (3.19
    )
    
    $
    (3.29
    )Comprehensive loss:Net loss
    
    $
    (20,185
    )
    
    $
    (14,506
    )
    
    $
    (29,506
    )
    
    $
    (24,135
    )Other comprehensive gain (loss)
    
    
    47
    
    
    
    377
    
    
    
    (3,834
    )
    
    
    358Comprehensive loss
    
    $
    (20,138
    )
    
    $
    (14,129
    )
    
    $
    (33,340
    )
    
    $
    (23,777
    )
 See accompanying notes.
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IDM PHARMA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Nine months ended Sept. 30,2005
    
    
    2004OPERATING ACTIVITIESNet loss
    
    $
    (29,507
    )
    
    $
    (24,135
    )Adjustments to reconcile net loss to net cash used in
operating
activities:Amortization of deferred compensation
    
    
    113
    
    
    
    59Depreciation and amortization
    
    
    1,565
    
    
    
    1,847Acquired in process research and development
    
    
    13,300
    
    
    
    Impairment of patents licenses
    
    
    2,077
    
    
    
    7,230Change in operating assets and liabilities:Related party accounts receivable (Sanofi-Aventis)
    
    
    316
    
    
    
    903Prepaid expenses and other current assets
    
    
    (846
    )
    
    
    836Research and development tax credit receivable
    
    
    (744
    )
    
    
    477Other long-term assets
    
    
    (32
    )
    
    
    (212
    )Accounts payable and accrued liabilities
    
    
    656
    
    
    
    1,185Accrued payroll and related expenses
    
    
    (1,498
    )
    
    
    (200
    )Related party deferred revenues (Sanofi-Aventis)
    
    
    (221
    )
    
    
    (338
    )Other liabilities
    
    
    292
    
    
    
    63Net cash used in operating activities
    
    
    (14,529
    )
    
    
    (12,285
    )INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (453
    )
    
    
    (543
    )Patents, trademarks and other licenses
    
    
    (187
    )
    
    
    (429
    )Net cash paid for acquisition
    
    
    (1,613
    )
    
    
    Net cash used in investing activities
    
    
    (2,253
    )
    
    
    (972
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (3,743
    )
    
    
    (878
    )Decrease in cash and cash equivalents
    
    
    (20,525
    )
    
    
    (14,135
    )Cash and
cash equivalents at beginning of period
    
    
    41,777
    
    
    
    41,981Cash and cash equivalents at end of period
    
    $
    21,252
    
    
    $
    27,846
 See accompanying notes.
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IDM PHARMA, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 September 30, 2005
 1. Nature of Business
  
    
    to destroy cancer cells remaining after conventional therapies,
 
    
    to prevent tumor recurrence, and
 
    
    to treat chronic infectious diseases.
   2. Basis of Presentation
 plan dépargne en action
 6




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3. Summary of Significant Accounting Policies
  Foreign Currency Translation
   7




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Revenue Recognition
 Revenue Recognition.
     8




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Research and development expenses and related tax credit
   Patents
  Earnings per share
   2005
    
    
    2004Common stock outstanding
    
    
    13,185,809
    
    
    
    7,330,174Options outstanding
    
    
    837,019
    
    
    
    591,703Restricted stock awards
    
    
    138,739
    
    
    
    Warrants outstanding
    
    
    325,056
    
    
    
    2,237,862Reserved pursuant to option liquidity agreements
    
    
    403,984
    
    
    
    Reserved pursuant to put/call agreements
    
    
    78,600
    
    
    
    Fully diluted shares
    
    
    14,969,207
    
    
    
    10,159,739
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Stock-based compensation
 Accounting for Stock-based Compensation Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation Transition and Disclosure
 Three months ended Sept 30,
    
    
    Nine months ended Sept 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss as reported
    
    ($
    20,185,000
    )
    
    ($
    14,506,000
    )
    
    ($
    29,506,000
    )
    
    ($
    24,135,000
    )Add: stock-based employee
compensation expense included
in reported net loss
    
    
    10,000
    
    
    
    22,000
    
    
    
    24,000
    
    
    
    72,000Deduct: stock-based employee
compensation expense
determined under fair value based
method for all awards
    
    
    (344,000
    )
    
    
    (221,000
    )
    
    
    (731,000
    )
    
    
    (843,000
    )Pro forma net loss
    
    ($
    20,519,000
    )
    
    ($
    14,705,000
    )
    
    ($
    30,213,000
    )
    
    ($
    24,906,000
    )Net loss per share:Basic and diluted  as reported
    
    ($
    1.87
    )
    
    ($
    1.98
    )
    
    ($
    3.19
    )
    
    ($
    3.29
    )Basic and diluted  pro forma
    
    ($
    1.90
    )
    
    ($
    2.01
    )
    
    ($
    3.27
    )
    
    ($
    3.40
    )
  Intangible assets
  10




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Impairment of long lived assets
  4. Recent Accounting Pronouncements
  5. Business Combination and Name Change
   11




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Epimmune common stock
    
    $
    21,301Epimmune preferred stock, as-converted to common
    
    
    2,589Estimated fair value of options assumed
    
    
    2,586Estimated IDM S.A. direct transaction costs
    
    
    3,896Total preliminary estimated purchase price
    
    $
    30,372
   First Year
    
    
    Estimated UsefulAmount
    
    
    Amortization
    
    
    Life (Years)Purchase price allocation:Net tangible assets (net of liabilities)
    
    $
    1,607
    
    
    
    
    
    
    
    Licensing and milestone agreements
    
    
    1,600
    
    
    
    320
    
    
    
    5 yearsIn-process research and development (IPR&D)
    
    
    13,300
    
    
    
    
    
    
    
    Goodwill
    
    
    13,865
    
    
    
    
    
    
    
    Total purchase price
    
    $
    30,372
    
    
    
    320
   12




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Pro Forma Results of Operations
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    2,056
    
    
    $
    3,654
    
    
    $
    9,241
    
    
    $
    10,656Net Loss
    
    
    (23,847
    )
    
    
    (15,477
    )
    
    
    (36,305
    )
    
    
    (26,558
    )Net loss per common
share-basic and
diluted
    
    $
    (1.81
    )
    
    $
    (1.20
    )
    
    $
    (2.75
    )
    
    $
    (2.08
    )
 6. Research and Development Agreements
 Jenner Biotherapies, Inc.
   13




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Sanofi-Aventis S.A. (Related Party)
     Medarex, Inc. (Related Party)
  14




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Cambridge Laboratories Ltd
     Innogenetics N.V.
  7. Commitments
 Biotecnol S.A.
  15




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Accovion GmbH
  PEA Shares
 Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity
 Restricted Stock Awards
  16




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Operating results for the three and nine months ended September 30, 2005 are not necessarily
indicative of results that may occur in future periods.
 Except for the historical information contained herein, the following discussion contains
forward-looking statements that involve risks and uncertainties. When used herein, the words
believe, anticipate, expect, estimate and similar expressions are intended to identify such
forward-looking statements. There can be no assurance that these statements will prove to be
correct. Our actual results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in this
section. We undertake no obligation to update any of the forward-looking statements contained
herein to reflect any future events or developments.
 Overview
  
    
    to destroy cancer cells remaining after conventional therapies,
 
    
    to prevent tumor recurrence, and
 
    
    to treat chronic infectious diseases.
   
    
    EP-2101, a synthetic peptide-based vaccine that is being evaluated in a Phase II
clinical trial for the treatment of non-small cell lung cancer, and
 
    
    two products based on Dendritophages, which are dendritic cells, or specialized immune
cells, derived from the patients own white blood cells: Uvidem®, in Phase II for the
treatment of melanoma, jointly developed with Sanofi-Aventis; and Collidem®, in Phase I/II
for the treatment of colorectal cancer.
  17




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18




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Results of Operations for the Three Months Ended September 30, 2005 and 2004
 Revenues
  19




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Research and Development Expenses and Impairment of Patents and Licenses
    20




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Selling and Marketing Expenses
 General
and Administrative Expenses
 Acquired in Process Research and Development
 Interest Income
 Income Tax Benefit
  Net Loss
 Results of Operations for the Nine Months Ended September 30, 2005 and 2004
 Revenues
    21




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Research and Development Expenses and Impairment of Patents and Licenses
    Selling and Marketing Expenses
 General
and Administrative Expenses
 22




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Acquired in Process Research and Development
 Interest Income
 Income Tax Benefit
  Net Loss
 Liquidity and Capital Resources
     23




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24




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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
   25




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See risk factor Our
substantial additional capital requirements and potentially limited access to financing may harm
our ability to develop products and fund our operations below.
 Recent Accounting Pronouncements
  26




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  27




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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 rapidly changing and competitive
and involves a high degree of risk.
 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.
  28




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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; for example, in November 2000, Pharmacia
Corporation terminated its research and collaboration with us for therapeutic vaccines
based on our cancer epitopes, and we have borne the operating expenses and capital
requirements of continued development of our therapeutic cancer vaccines;
 
    
    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;
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
    
    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.
  Some of our research and development programs are funded by the U.S. government and the U.S.
government may not allocate funds for these programs in future fiscal years.
  Our principal source of revenues and cash receipts is a collaboration agreement under which our
partner has limited obligations.
  Our revenues and operating results are likely to fluctuate.
  30




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
    
    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.
  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;
 31




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
    
    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 HIV 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.
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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.
  33




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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;
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##### Table of Contents




    
    disputes may arise delaying or terminating the research, development or
commercialization of our product candidates, or result in significant and costly litigation
or arbitration; and
 
    
    collaborations and licensee arrangements may be terminated, 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.
   35




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##### Table of Contents



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.
  36




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We are subject to extensive and uncertain government regulation and we may not be able to obtain
necessary regulatory approvals.
  
    
    fines and penalties;
 
    
    injunctions;
 
    
    seizure of products;
 
    
    total or partial suspension of product marketing;
 
    
    failure of a regulatory agency to grant a new drug application;
 
    
    withdrawal of marketing approvals; and
 
    
    criminal prosecution.
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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.
  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.
  38




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##### Table of Contents




    
    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.
     39




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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.
 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.
  40




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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;
    
    effective implementation of a publications strategy; and
    
    garnering support from well-respected external advocates.
  41




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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.
  
    
    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.
  42




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Our use of hazardous materials could expose us to significant costs.
   Our financial results may be adversely affected by fluctuations in foreign currency exchange rates.
  The volatility of the price of our common 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;
 43




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##### Table of Contents




    
    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.
  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.
  44




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ITEM 4. CONTROLS AND PROCEDURES
     45




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    To approve the issuance of shares of Epimmunes common stock in accordance with the
terms of the Share Exchange Agreement, dated March 15, 2005, as amended, between Epimmune
and certain shareholders of IDM S.A., the Put/Call Agreements to be entered into between
Epimmune and certain shareholders of IDM, the Option Liquidity Agreements to be entered
into between Epimmune and certain option holders of IDM S.A. and the Amended and Restated
Preferred Exchange Agreement, dated April 12, 2005, between Epimmune and G.D. Searle LLC.2.
    
    To approve an amendment of Epimmunes Amended and Restated Certificate of Incorporation
to change the corporate name of Epimmune to IDM, Inc.3.
    
    To approve a series of amendments of Epimmunes Amended and Restated Certificate of
Incorporation as provided below, the specific level of reverse stock split to be determined
by Epimmunes Board of Directors:
        4.
    
    To approve an amendment of Epimmunes Amended and Restated Certificate of Incorporation
to increase Epimmunes authorized capital stock to a total of 65,000,000 shares, consisting
of 10,000,000 shares of authorized preferred stock and 55,000,000 shares of authorized
common stock after giving effect to the reverse stock split.
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5.
    
    To approve an amendment of the Epimmune 2000 Stock Plan to increase the number of shares of Epimmunes common stock available for issuance under the plan by 8,800,000 shares
(on a pre-reverse stock split basis).6.
    
    To approve an amendment of the Epimmune 2001 Employee Stock Purchase Plan to increase
the number of shares of Epimmunes common stock available for issuance under the plan by
185,000 shares (on a pre-reverse stock split basis).7.
    
    To approve the adoption of the Epimmune Employee Stock Purchase Plan for IDM employees
with 215,000 shares (on a pre-reverse stock split basis) of Epimmunes common stock
available for issuance under the plan.8.
    
    To elect six directors to serve for the ensuing year or until successors are elected.9.
    
    To ratify the selection by the Board of Directors of Ernst & Young LLP, Independent
Registered Public Accounting Firm, as the independent auditors of Epimmune for its fiscal
year ending December 31, 2005.
   1.
    
    Approval of the issuance of shares of Epimmunes common stock in accordance with the
terms of the Share Exchange Agreement, the Put/Call Agreements, the Option Liquidity
Agreements and the Amended and Restated Preferred Exchange Agreement.
 VotesFor
    
    
    10,680,600Against
    
    
    1,833,451Abstain
    
    
    26,954Broker Non-Votes
    
    
    4,021,486
 2.
    
    Approval of an amendment of Epimmunes Amended and Restated Certificate of
Incorporation to change the corporate name of Epimmune to IDM, Inc.
 VotesFor
    
    
    14,782,979Against
    
    
    1,733,563Abstain
    
    
    45,949Broker Non-Votes
    
    
    0
 47




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##### Table of Contents



3.
    
    Approval of a series of amendments of Epimmunes Amended and Restated Certificate of
Incorporation as provided below, the specific level of reverse stock split to be determined
by the Board:A.
    
    To effect a one-for-four reverse stock split of the outstanding shares of
Epimmunes common stock.
 VotesFor
    
    
    9,943,646Against
    
    
    2,571,406Abstain
    
    
    35,393Broker Non-Votes
    
    
    4,012,046
 B.
    
    To effect a one-for-five reverse stock split of the outstanding shares of
Epimmunes common stock.
 VotesFor
    
    
    9,687,408Against
    
    
    2,802,693Abstain
    
    
    60,344Broker Non-Votes
    
    
    4,012,046
 C.
    
    To effect a one-for-six reverse stock split of the outstanding shares of Epimmunes
common stock.
 VotesFor
    
    
    9,642,005Against
    
    
    2,846,496Abstain
    
    
    61,944Broker Non-Votes
    
    
    4,012,046
 D.
    
    To effect a one-for-seven reverse stock split of the outstanding shares of
Epimmunes common stock.
 VotesFor
    
    
    9,624,927Against
    
    
    2,862,974Abstain
    
    
    62,544Broker Non-Votes
    
    
    4,012,046
 E.
    
    To effect a one-for-eight reverse stock split of the outstanding shares of
Epimmunes common stock.
 VotesFor
    
    
    9,608,783Against
    
    
    2,880,118Abstain
    
    
    61,544Broker Non-Votes
    
    
    4,012,046
 F.
    
    To effect a one-for-nine reverse stock split of the outstanding shares of
Epimmunes common stock.
 VotesFor
    
    
    9,616,065Against
    
    
    2,872,712Abstain
    
    
    61,544Broker Non-Votes
    
    
    4,012,170
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##### Table of Contents



G.
    
    To effect a one-for-ten reverse stock split of the outstanding shares of Epimmunes
common stock.
 VotesFor
    
    
    10,447,732Against
    
    
    2,057,026Abstain
    
    
    45,687Broker Non-Votes
    
    
    4,012,046
 4.
    
    Approval of an amendment of Epimmunes Amended and Restated Certificate of
Incorporation to increase Epimmunes authorized capital stock to a total of 65,000,000
shares, consisting of 10,000,000 shares of authorized preferred stock and 55,000,000 shares
of authorized common stock after giving effect to the reverse stock split.
 VotesFor
    
    
    10,524,610Against
    
    
    1,977,504Abstain
    
    
    48,331Broker Non-Votes
    
    
    4,012,046
 5.
    
    Approval of an amendment of the 2000 Plan to increase the number of shares of
Epimmunes common stock available for issuance under the plan by 8,800,000 shares.
 VotesFor
    
    
    9,356,071Against
    
    
    2,885,202Abstain
    
    
    309,172Broker Non-Votes
    
    
    4,012,046
 6.
    
    Approval of an amendment of the Purchase Plan to increase the number of shares of
Epimmunes common stock available for issuance under the plan by 185,000 shares.
 VotesFor
    
    
    10,442,294Against
    
    
    2,019,553Abstain
    
    
    88,598Broker Non-Votes
    
    
    4,012,046
 7.
    
    Approval of the adoption of the French Purchase Plan with 215,000 shares of Epimmunes
common stock available for issuance under the plan.
 VotesFor
    
    
    11,231,344Against
    
    
    1,246,403Abstain
    
    
    72,698Broker Non-Votes
    
    
    4,012,046
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##### Table of Contents



8.
    
    Election of six directors to serve for the ensuing year or until successors are
elected.
 Nominees
    
    For
    
    WithheldHoward E. Greene, Jr.
    
    
    14,229,129
    
    
    
    2,333,362William T. Comer, Ph.D.
    
    
    15,045,397
    
    
    
    1,517,094Michael G. Grey
    
    
    14,788,084
    
    
    
    1,774,407Georges Hibon
    
    
    14,780,884
    
    
    
    1,781,607Emile Loria, M.D.
    
    
    14,696,306
    
    
    
    1,886,185John P. McKearn, Ph.D.
    
    
    15,045,797
    
    
    
    1,516,694
 9.
    
    Ratification of the selection by the Board of Ernst & Young LLP as independent
registered public accounting firm of Epimmune for its fiscal year ending December 31, 2005.
 VotesFor
    
    
    16,176,531Against
    
    
    262,514Abstain
    
    
    114,006Broker Non-Votes
    
    
    9,440
 
 ITEM 6. EXHIBITS
 Exhibit 3.1
    
    Amended and Restated Certificate of Incorporation filed with the
Secretary of State of Delaware on December 2, 1991.(1)Exhibit 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)Exhibit 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)Exhibit 3.4
    
    Certificate of Increase of Series A Junior Participating Preferred Stock
filed with the Secretary of State of Delaware on July 5, 1995.Exhibit 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)Exhibit 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)Exhibit 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)Exhibit 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)Exhibit 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)
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Exhibit 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)Exhibit 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)Exhibit 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)Exhibit 3.13
    
    Amended and Restated Bylaws of the Registrant.(10)Exhibit 3.14
    
    Certificate of Amendment of Amended and Restated Certificate of
Incorporation filed with the Secretary of State of Delaware on August 15,
2005.(16)Exhibit 3.15
    
    Certificate of Ownership and Merger, filed with the Secretary of State
of Delaware on August 15, 2005.(16)Exhibit 4.1
    
    Reference is made to Exhibits 3.1 through 3.15.Exhibit 4.2
    
    Specimen certificate of the common stock.(1)Exhibit 10.1
    
    Share Exchange Agreement dated March 15, 2005 among Epimmune Inc. and
certain shareholders of IDM S.A.(11)Exhibit 10.3
    
    Amendment No. 1 (to the Share Exchange Agreement) dated March 15, 2005
among Epimmune Inc. and certain shareholders of IDM S.A.(11)Exhibit 10.4
    
    Voting Agreement dated March 15, 2005 among Epimmune Inc., Hélène
Ploix, as the Shareholder Representative, and certain stockholders of Epimmune
Inc.(11)Exhibit 10.5
    
    Preferred Exchange Agreement dated March 15, 2005.(11)Exhibit 10.6
    
    Employment Agreement with Emile Loria, M.D. dated March 17, 2005.(11)Exhibit 10.7
    
    Employment Agreement with Mark Newman, Ph.D. dated March 17, 2005.(11)Exhibit 10.8
    
    Employment Agreement with Robert De Vaere dated March 17, 2005.(11)Exhibit 10.9
    
    Amended and Restated Preferred Exchange Agreement dated April 12,
2005.(12)Exhibit 10.10
    
    Amendment No. 2 (to the Share Exchange Agreement) dated April 21, 2005
among Epimmune Inc. and certain shareholders of IDM S.A.(13)Exhibit 10.11
    
    Amendment No. 3 (to the Share Exchange Agreement) dated May 31, 2005
among Epimmune Inc. and certain shareholders of IDM S.A.(14)
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Exhibit 10.12
    
    Amendment No. 4 (to the Share Exchange Agreement) dated June 30, 2005
among Epimmune Inc. and certain shareholders of IDM S.A.(15)Exhibit 10.13
    
    Amendment No. 5 (to the Share Exchange Agreement) dated August 16,
2005 among Epimmune Inc. and certain shareholders of IDM S.A.(16)Exhibit 10.14
    
    Employment Agreement with Jean-Loup Romet-Lemonne, M.D. dated April
21, 2005.(16)Exhibit 10.15
    
    Indemnity Escrow Agreement dated August 16, 2005, among Epimmune Inc.,
Helene Ploix, as designated representative of certain shareholders of IDM S.A.
and U.S. Bank National Association.(16)Exhibit 10.16
    
    Form of Option Liquidity Agreement between Epimmune Inc. and certain
shareholders of IDM S.A.(17)Exhibit 10.17
    
    Form of Put/Call Agreement between Epimmune Inc. and certain
shareholders of IDM S.A.(17)Exhibit 10.18
    
    Form of Stock Option Agreement under the 2000 Plan. (18)Exhibit 10.19
    
    Form of Deferred Issuance Restricted Stock Bonus Agreement under the
2000 Plan. (18)Exhibit 10.20
    
    Form of French Participants Deferred Issuance Restricted Stock Bonus
Agreement under the 2000 Plan.Exhibit 10.21
    
    Form of French Annex Stock Option Agreement under the 2000 Plan.Exhibit 10.22
    
    2000 Stock Plan, as amended. (17)Exhibit 10.23
    
    Third Amendment of the License Agreement to Hepatitis Virus Immunology
and Immunotherapy between The Scripps Research Institute and Epimmune Inc.,
dated July 30, 2005. (19)Exhibit 10.24
    
    Fourth Amendment of the License Agreement between IDM Pharma, Inc. and
Innogenetics N.V., dated September 28, 2005.Exhibit 10.25
    
    Fourth Amendment of the Collaboration Agreement between IDM Pharma,
Inc. and Innogenetics N.V., dated September 28, 2005. (19)Exhibit 31.1
    
    Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.Exhibit 31.2
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.Exhibit 32.1
    
    Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. § 1350).
 52




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##### Table of Contents



(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 Annual Report on
Form 10-K for the fiscal year ended December 31, 2001, filed with the SEC on
March 29, 2002.(11)
    
    Incorporated by reference to our Current Report on Form 8-K,
filed with the SEC on March 18, 2005.(12)
    
    Incorporated by reference to our Current Report on Form 8-K,
filed with the SEC on April 18, 2005.(13)
    
    Incorporated by reference to our Current Report on Form 8-K,
filed with the SEC on April 22, 2005.(14)
    
    Incorporated by reference to our Current Report on Form 8-K,
filed with the SEC on June 2, 2005.(15)
    
    Incorporated by reference to our Current Report on Form 8-K,
filed with the SEC on July 7, 2005.(16)
    
    Incorporated by reference to our Current Report on Form 8-K,
filed with the SEC on August 17, 2005.(17)
    
    Incorporated by reference to our Definitive Proxy Statement on
Form DEFM14A, filed with the SEC on June 30, 2005. 53




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##### Table of Contents



(18)
    
    Incorporated by reference to our Securities to be Offered to
Employees in Employee Benefit Plans on Form S-8, filed with the SEC on
September 8, 2005.(19)
    
    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. 54




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##### Table of Contents



IDM PHARMA, INC.
 
 SIGNATURES
  IDM PHARMA, INC.Dated: November 14, 2005
    
    By:
    
    /s/ Jean-Loup Romet-LemonneJean-Loup Romet-Lemonne, M.D.
Chief Executive Officer and Chairman
(Principal Executive Officer)Dated: November 14, 2005
    
    By:
    
    /s/ Robert De VaereRobert De Vaere
Vice President, Chief Financial Officer and
Secretary
(Principal Financial and Accounting Officer)
 55