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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

|    |  |                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|[X] |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
quarterly period ended September 30, 2001, or

|      |  |                                                                                                                                        
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|[   ] |  | 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

EPIMMUNE INC.

(Exact name of Registrant as specified in its charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 33-0245076                          
|                         |  |                                     
|(State of Incorporation) |  | (I.R.S. Employer
Identification No.)

5820 Nancy Ridge Drive
San Diego, California 92121

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(Address of principal executive offices)


(858) 860-2500

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(Registrants telephone number)


Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X]      No [   ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

Common Stock: $.01 par value 10,066,153 shares outstanding as of November 6,
2001.

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TABLE OF CONTENTS



|                              |                                                                                              |                                                      |  |  |  |  |  | 
|----------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM I. FINANCIAL STATEMENTS                                                                
|                              |                                                                                              | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                              | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                              | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                              | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|PART II. OTHER INFORMATION   
|                              | ITEM 6. (a) EXHIBITS                                                                        
|SIGNATURES                   
|EXHIBIT 10.89                
|EXHIIBT 10.90                
|EXHIBIT 10.91                
|EXHIBIT 10.92                
|EXHIBIT 10.93                



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EPIMMUNE INC.
QUARTERLY REPORT
FORM 10-Q

TABLE OF CONTENTS

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|COVER PAGE        |  |                       |   |                                                                                                                 | 1  | 
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|TABLE OF CONTENTS |  |                       | 2 |                                                                                                                
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|PART I.           |  | FINANCIAL INFORMATION |   |                                                                                                                 |    | 
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|                  |  | ITEM 1.               |   | Financial Statements                                                                                            |    |  |    | 
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September 30, 2001 and December 31, 2000                            |    |  | 3  | 
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Three and Nine Months Ended September 30, 2001 and 2000 |    |  | 4  | 
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|                  |  |                       |   | Notes to Condensed Consolidated Financial Statements                                                            |    |  | 6  | 
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|                  |  | ITEM 2.               |   | Managements Discussion and Analysis of Financial
Condition and Results of Operations                           |    |  | 8  | 
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|                  |  | ITEM 3.               |   | Quantitative and Qualitative Disclosures about Market Risk                                                      |    |  | 11 | 
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|PART II.          |  | OTHER INFORMATION     |   |                                                                                                                 |    | 
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|                  |  | ITEM 1.               |   | Legal Proceedings                                                                                               |    |  | *  | 
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|                  |  | ITEM 2.               |   | Changes in Securities and Use of Proceeds                                                                       |    |  | *  | 
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|                  |  | ITEM 3.               |   | Defaults upon Senior Securities                                                                                 |    |  | *  | 
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|                  |  | ITEM 4.               |   | Submission of Matters to a Vote of Security Holders                                                             |    |  | *  | 
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|                  |  | ITEM 5.               |   | Other Information                                                                                               |    |  | *  | 
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|                  |  | ITEM 6.               |   | Exhibits and Reports on Form 8-K                                                                                |    |  | 20 | 
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|                  |  | SIGNATURES            |   |                                                                                                                 | 21 | 



|* |  | No information provided due to inapplicability of item.
|- |  | -------------------------------------------------------

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PART I. FINANCIAL INFORMATION




ITEM I. FINANCIAL STATEMENTS





EPIMMUNE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |          |        | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------------- | ------ | ------------ | ----- | -------- | ------ | 
|                                     |                                                                                                                                                                                     |                                            |       | September 30, |        | December 31,
|                                     |                                                                                                                                                                                     |                                            |       | 2001          |        | 2000        
|                                     |                                                                                                                                                                                     |                                            |       |               |        |             
|                                     |                                                                                                                                                                                     |                                            |       | (unaudited)   |        |              |       |         
|Assets                               |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|Current assets:                      |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     | Cash and cash equivalents                                                                                                                                                           |                                            | $     | 7,672         |        |              | $     | 4,181    |       
|                                     | Short-term investments                                                                                                                                                              |                                            |       | 7,418         |        |              |       | 5,412    |       
|                                     | Prepaids and other current assets                                                                                                                                                   |                                            |       | 920           |        |              |       | 507      |       
|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     |                                                                                                                                                                                     | Total current assets                       |       |               | 16,010 |              |       |          | 10,100 | 
|Restricted cash                      |                                                                                                                                                                                     |                                            | 472   |               |        |              | 472   |         
|Property and equipment, net          |                                                                                                                                                                                     |                                            | 859   |               |        |              | 966   |         
|Patents and other assets             |                                                                                                                                                                                     |                                            | 3,107 |               |        |              | 2,948 |         
|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     |                                                                                                                                                                                     | Total assets                               |       | $             | 20,448 |              |       | $        | 14,486 | 
|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|Liabilities and stockholders equity |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|Current liabilities:                 |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     | Accounts payable and accrued liabilities                                                                                                                                            |                                            | $     | 860           |        |              | $     | 1,004    |       
|                                     | Deferred contract revenues                                                                                                                                                          |                                            |       | 2,654         |        |              |       | 229      |       
|                                     | Accrued payroll and related expenses                                                                                                                                                |                                            |       | 248           |        |              |       | 241      |       
|                                     | Current portion of equipment loans and notes payable                                                                                                                                |                                            |       | 407           |        |              |       | 413      |       
|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     |                                                                                                                                                                                     | Total current liabilities                  |       |               | 4,169  |              |       |          | 1,887  | 
|Notes payable, less current portion  |                                                                                                                                                                                     |                                            | 85    |               |        |              | 389   |         
|Deferred rent commitments            |                                                                                                                                                                                     |                                            | 155   |               |        |              | 119   |         
|Stockholders equity:                |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     | Preferred stock, $.01 par value, 10,000,000 shares
authorized, 1,409,288 shares issued and outstanding
at September 30, 2001 and December 31, 2000                                  |                                            |       | 14            |        |              |       | 14       |       
|                                     | Common stock, $.01 par value, 25,000,000 shares
authorized, 10,066,153 shares and 7,847,343 shares
issued and outstanding at September 30, 2001 and
December 31, 2000, respectively |                                            |       | 101           |        |              |       | 78       |       
|                                     | Additional paid-in capital                                                                                                                                                          |                                            |       | 161,184       |        |              |       | 153,720  |       
|                                     | Note receivable from stockholder                                                                                                                                                    |                                            |       | (2,641        | )      |              |       |         |       
|                                     | Accumulated deficit                                                                                                                                                                 |                                            |       | (142,644      | )      |              |       | (141,725 | )     
|                                     | Unrealized gain on available-for-sale securities                                                                                                                                    |                                            |       | 25            |        |              |       | 4        |       
|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     |                                                                                                                                                                                     | Total stockholders equity                 |       |               | 16,039 |              |       |          | 12,091 | 
|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |         
|                                     |                                                                                                                                                                                     | Total
liabilities and stockholders equity |       | $             | 20,448 |              |       | $        | 14,486 | 
|                                     |                                                                                                                                                                                     |                                            |       |               |        |              |       |         

See accompanying notes.

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EPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)

|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |        |  
|-------------------------------------------------------------- | ----------------------------- | - | ---------------------------- | ----- | --------------------------- | - | ------ | ------ | ---- | - | ----- | ------ | - | - | ------ | ------ | -
|                                                               |                               |   | Three months ended Sept. 30, |       | Nine months ended Sept. 30,
|                                                               |                               |   |                              |       |                            
|                                                               |                               |   | 2001                         |       | 2000                        |   | 2001   |        | 2000
|                                                               |                               |   |                              |       |                             |   |        |        |     
|Revenues                                                       |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Research and development                                       |                               | $ | 3,146                        |       |                             | $ |       |        |      | $ | 4,096 |        |   | $ |       |       
|Research grants and
contract revenue                           |                               |   | 1,113                        |       |                             |   | 451    |        |      |   | 2,403 |        |   |   | 1,142  |       
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Total revenues                                                 |                               |   | 4,259                        |       |                             |   | 451    |        |      |   | 6,499 |        |   |   | 1,142  |       
|Costs and expenses                                             |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Research and development                                       |                               |   | 2,070                        |       |                             |   | 1,532  |        |      |   | 5,287 |        |   |   | 4,406  |       
|General and administrative                                     |                               |   | 974                          |       |                             |   | 545    |        |      |   | 2,443 |        |   |   | 1,762  |       
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|                                                               | Total costs and expenses      |   |                              | 3,044 |                             |   |        | 2,077  |      |   |       | 7,730  |   |   |        | 6,168  |  
|                                                               | Profit (loss) from operations |   |                              | 1,215 |                             |   |        | (1,626 | )    |   |       | (1,231 | ) |   |        | (5,026 | )
|Interest income, net                                           |                               |   | 126                          |       |                             |   | 120    |        |      |   | 313   |        |   |   | 392    |       
|Other income (expense), net                                    |                               |   | (1                           | )     |                             |   |       |        |      |   | (1    | )      |   |   | 961    |       
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Net income (loss)                                              |                               | $ | 1,340                        |       |                             | $ | (1,506 | )      |      | $ | (919  | )      |   | $ | (3,673 | )     
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Net profit (loss)
per share  basic                            |                               | $ | 0.15                         |       |                             | $ | (0.21  | )      |      | $ | (0.11 | )      |   | $ | (0.54  | )     
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Net profit (loss)
per share  diluted                          |                               | $ | 0.12                         |       |                             | $ | (0.21  | )      |      | $ | (0.11 | )      |   | $ | (0.54  | )     
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Shares used in computing net
profit (loss) per share  basic   |                               |   | 9,033                        |       |                             |   | 7,063  |        |      |   | 8,203 |        |   |   | 6,779  |       
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       
|Shares used in computing net
profit (loss) per
share  diluted |                               |   | 11,215                       |       |                             |   | 7,063  |        |      |   | 8,203 |        |   |   | 6,779  |       
|                                                               |                               |   |                              |       |                             |   |        |        |      |   |       |        |   |   |        |       

See accompanying notes.

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EPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

|                                                                            |                                                                      |                                          |        |                                 |      |      |        |      |      |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------------------- | ------ | ------------------------------- | ---- | ---- | ------ | ---- | ---- | -
|                                                                            |                                                                      |                                          |        | Nine months ended September 30,
|                                                                            |                                                                      |                                          |        |                                
|                                                                            |                                                                      |                                          |        | 2001                            |      | 2000
|                                                                            |                                                                      |                                          |        |                                 |      |     
|OPERATING ACTIVITIES                                                        |                                                                      |                                          |        |                                 |      |      |        |     
|Net loss                                                                    |                                                                      | $                                        | (919   | )                               |      | $    | (3,673 | )   
|Adjustments to reconcile net loss to net cash used in operating
activities: |                                                                      |                                          |        |                                 |      |      |        |     
|                                                                            | Depreciation and amortization                                        |                                          |        | 494                             |      |      |        | 388  |     
|                                                                            | Amortization of deferred compensation                                |                                          |        | 208                             |      |      |        | 14   |     
|                                                                            | Deferred rent                                                        |                                          |        | 36                              |      |      |        | 49   |     
|                                                                            | Deferred revenue                                                     |                                          |        | 2,425                           |      |      |        | (38  | )   
|                                                                            | Stock warrants relating to severance agreement                       |                                          |        |                                |      |      |        | 29   |     
|                                                                            | Loss on disposal of assets                                           |                                          |        |                                |      |      |        | (5   | )   
|                                                                            | Restructuring operating expenses                                     |                                          |        |                                |      |      |        | (212 | )   
|                                                                            | Net change in operating assets and liabilities, net of divestitures: |                                          |        |                                 |      |      |        |      |     
|                                                                            |                                                                      | Other current assets                     |        |                                 | (413 | )    |        |      | (14  | )
|                                                                            |                                                                      | Accounts payable and accrued liabilities |        |                                 | (144 | )    |        |      | (127 | )
|                                                                            |                                                                      | Accrued payroll and related expenses     |        |                                 | 6    |      |        |      | 24   |  
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     
|Net cash provided by (used in) operating activities                         |                                                                      |                                          | 1,693  |                                 |      |      | (3,565 | )   
|INVESTING ACTIVITIES                                                        |                                                                      |                                          |        |                                 |      |      |        |     
|Purchases of available-for-sale securities                                  |                                                                      |                                          | (4,044 | )                               |      |      | (3,738 | )   
|Maturities of available-for-sale securities                                 |                                                                      |                                          | 2,059  |                                 |      |      | 3,005  |     
|Proceeds from the sale of property and equipment                            |                                                                      |                                          |       |                                 |      |      | 5      |     
|Purchase of property and equipment                                          |                                                                      |                                          | (106   | )                               |      |      | (329   | )   
|Patents                                                                     |                                                                      |                                          | (440   | )                               |      |      | (458   | )   
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     
|Net cash used in investing activities                                       |                                                                      |                                          | (2,531 | )                               |      |      | (1,515 | )   
|FINANCING ACTIVITIES                                                        |                                                                      |                                          |        |                                 |      |      |        |     
|Principal payments under equipment notes payable
and note payable to bank   |                                                                      |                                          | (310   | )                               |      |      | (170   | )   
|Loan draw proceeds-equipment loan                                           |                                                                      |                                          |       |                                 |      |      | 233    |     
|Net proceeds from issuance of common stock                                  |                                                                      |                                          | 4,638  |                                 |      |      | 4,311  |     
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     
|Net cash provided by financing activities                                   |                                                                      |                                          | 4,329  |                                 |      |      | 4,374  |     
|Increase (decrease) in cash and cash equivalents                            |                                                                      |                                          | 3,491  |                                 |      |      | (706   | )   
|Cash and cash equivalents at beginning of period                            |                                                                      |                                          | 4,181  |                                 |      |      | 1,843  |     
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     
|Cash and cash equivalents at end of period                                  |                                                                      | $                                        | 7,672  |                                 |      | $    | 1,137  |     
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                            |                                                                      |                                          |        |                                 |      |      |        |     
|Interest paid                                                               |                                                                      | $                                        | 48     |                                 |      | $    | 52     |     
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     
|DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES                  |                                                                      |                                          |        |                                 |      |      |        |     
|Unrealized gains on available-for-sale securities                           |                                                                      | $                                        | 21     |                                 |      | $    | 42     |     
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     
|Sale of common stock for stockholder note receivable                        |                                                                      | $                                        | 2,641  |                                 |      | $    |       |     
|                                                                            |                                                                      |                                          |        |                                 |      |      |        |     

See accompanying notes.

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EPIMMUNE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 2001



|1. |  | Basis of Presentation
|-- |  | ---------------------

The interim unaudited condensed consolidated financial statements contained
herein have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. Accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In managements opinion, the unaudited information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position, results of operations and cash
flows for the periods presented. Interim results are not necessarily
indicative of results to be expected for the full year. The financial
statements should be read in conjunction with the audited consolidated
financial statements and footnotes thereto included in the Companys Form 10-K
for the year ended December 31, 2000.

Earnings per share, EPS, is computed in accordance with Statement of Financial
Accounting Standards No. 128, Earnings per Share, FAS 128. FAS 128 requires
dual presentation of basic and diluted earnings per share. Basic EPS includes
no dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period, excluding owned but
unvested shares. Diluted EPS reflects the potential dilution of securities
that could share in our earnings, such as common stock equivalents that may be
issuable upon exercise of outstanding common stock options or warrants. Common
stock equivalents are not considered in loss periods as the effect is
antidilutive.



|2. |  | New Accounting Standards
|-- |  | ------------------------

In June 1998, the Financial Standards Accounting Board, or FASB, issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Statement will require the recognition of all
derivatives on our balance sheet at fair value. The FASB subsequently delayed
implementation of the standard for the financial years beginning after June 15,
2000. We adopted the new Statement effective January 1, 2001. The impact on
our financial statements was not material.

In June 2001, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets
will continue to be amortized over their useful lives. The adoption of SFAS
No. 141 and 142 is not expected to have a material impact on the financial
position or results of operations of the Company.



|3. |  | CEO Recruitment
|-- |  | ---------------

On January 16, 2001, we entered into an employment agreement with Dr. Emile
Loria for the position of President and Chief Executive Officer. Dr. Loria was
elected to the Companys Board of Directors in January 2001.

Also on January 16, 2001, we entered into a Restricted Stock Purchase agreement
with Dr. Loria for the purchase of 1,056,301 common shares at $2.50 per share.
The shares vest daily over a four-year period and unvested shares are subject
to a repurchase option in favor of the Company. A promissory note was

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issued for the purchase price of the shares, which note is secured by the
shares issued to Dr. Loria. Principal and interest under the promissory note
will be due and payable on January 16, 2005, four years from the date of the
note.



|4. |  | Nexell
|-- |  | ------

On March 28, 2001, we entered into a license agreement with Nexell Therapeutics
Inc. granting Nexell a non-exclusive license to certain cancer antigens and
associated technology for use in ex-vivocell therapy. In connection with the
agreement, we received an upfront license fee, half of which was paid on
signing and half of which will be paid four months from signing. We are also
entitled to receive milestones and royalties on product sales, if any products
are ever developed.



|5. |  | Elan
|-- |  | ----

On April 5, 2001, we entered into a license and option agreement with Elan
which gives Elan an exclusive license to use and evaluate our PADRE technology
in animal studies and Phase I clinical trials for prevention and treatment of
neurodegenerative conditions including Alzheimers Disease. Elan also has the
right to negotiate an exclusive license for continued development and
commercialization of products using the technology in that field. In
connection with the agreement, we received an upfront license fee.



|6. |  | Pharmexa
|-- |  | --------

On June 25, 2001, we entered into a license agreement with Pharmexa A/S
granting Pharmexa a non-exclusive license to our PADRE technology for use in
connection with their AutoVac technology for controlling autoimmune diseases.
In connection with the agreement, we received an upfront license fee and are
also entitled to receive milestones and royalties on product sales, if any
products are ever developed.



|7. |  | Genencor
|-- |  | --------

On July 9, 2001, we entered into license, development and securities purchase
agreements with Genencor International, Inc. Pursuant to those agreements, we
exclusively licensed to Genencor our PADRE and epitope technologies for
vaccines to treat or prevent hepatitis B, hepatitis C and human papilloma
virus. Genencor will also fund research and development activities on those
programs at Epimmune for 30 months and made an initial ten percent equity
purchase in Epimmune. In connection with the license agreement, Genencor paid
us an upfront license fee and will also pay us pre-commercialization milestones
and royalties on product sales, if any products are ever developed.



|8. |  | Biosite
|-- |  | -------

On August 17, 2001, we entered into a license agreement with Biosite
Incorporated granting Biosite a non-exclusive license to our PADRE technology
for use in connection with Biosites antibody technology which can be used to
determine a new molecules function and its utility as a target for diagnostic
or therapeutic products. In connection with the agreement, we received an
upfront license fee.



|9. |  | Anosys
|-- |  | ------

On August 31, 2001, we entered into a license agreement with Anosys Inc.,
formerly AP Cells, granting Anosys a non-exclusive license to certain cancer
antigens and associated technology for use in ex-vivocell therapy. In
connection with the agreement, we received an upfront license fee and are also
entitled to receive milestones and royalties on product sales, if any products
are ever developed.

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ITEM 2 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 Risks
Factors, as well as those discussed in the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2000.

Epimmune Inc. was a majority-owned subsidiary of Cytel Corporation until July
1, 1999, at which time Cytel and Epimmune merged. All references to we, us
or our company are to the combined entity of Cytel and Epimmune. Epimmune
and PADRE® are trademarks of the Company.

Since Cytels inception in July 1987, we have devoted substantially all of our
resources to the discovery and development of potential therapeutic and
prophylactic products. To date, we have not received any revenues from the
sale of products. We have funded our research and development primarily from
equity-derived working capital and through strategic alliances with other
companies. We have been unprofitable since our inception and expect to incur
substantial operating losses for the next several years. As of September 30,
2001, our accumulated deficit was approximately $142.6 million.

Results of Operations

Three months ended September 30, 2001 (2001), as compared with three months
ended September 30, 2000 (2000).

In 2001, we had total revenues of $4.3 million from research grants, research
and development contracts and license fees, as compared to $0.5 million of
revenue related to research grants in 2000.

Research and development expenses increased to $2.1 million in 2001 from $1.5
million in 2000. The increase relates primarily to higher labor and related
costs due to increased staffing and salary increases, increased expenditures on
general scientific supplies and higher patent related expenses during 2001 as
compared to 2000.

General and administrative expenses increased to $1.0 million in 2001 from $0.5
million in 2000. This increase relates primarily to increased labor,
recruiting and related costs and increased legal expenses resulting from
licensing and collaborative efforts during the 2001 period.

Net interest income was approximately $0.1 million in 2001 and 2000, based on
comparable average cash balances.

Net income for 2001 was $1.3 million or $0.15 per basic share and $0.12 per
diluted share, compared with a net loss in 2000 of $1.5 million or ($0.21) per
basic and diluted share. The 2001 profit resulted from receipt of payments
during the quarter, under licensing agreements with Genencor, Biosite and
Anosys. Since the revenues recorded resulted primarily from revenue recognized
under these licensing agreements in the third quarter, we do not expect
profitability to continue into the fourth quarter.

Nine months ended September 30, 2001 (2001), as compared with nine months
ended September 30, 2000 (2000).

In 2001, we had total revenues of $6.5 million related to research grants,
research and development contracts and license fees, as compared to revenues of
$1.1 million in 2000 related to research grants.

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Research and development expenses in 2001 increased to $5.3 million from $4.4
million in 2000. The increase relates primarily to higher labor and related
costs due to increased staffing and salary increases, increased expenditures on
general scientific supplies, and higher equipment related costs in 2001
compared to 2000 as well as increased costs for sponsored research as part of
our HIV grant program during the 2001 period.

General and administrative expenses were $2.4 million in 2001 compared to $1.8
million in 2000. This increase relates primarily to increased labor,
recruiting and related costs and increased legal expenses resulting from
licensing and collaborative efforts during the 2001 period.

Net interest income was $0.3 million in 2001 compared to $0.4 million in 2000,
based on lower average returns on cash balances during the 2001 period.

There was no other income in 2001 compared to $1.0 million of other income in
2000. The 2000 amount represents a payment from Elan of $0.5 million related
to the assignment of a license and the release of $0.5 million from escrow
under the Neose agreement.

Net loss for 2001 was $0.9 million or ($0.11) per basic and diluted share.
This compares to a net loss of $3.7 million or ($0.54) per basic and diluted
share in 2000. The decrease in the net loss resulted from a third quarter
profit that we achieved due to the receipt of payments during the quarter under
licensing agreements mentioned above. Because the revenues that were recorded
resulted primarily from revenue recognized under these licensing agreements in
the third quarter, we do not expect profitability to continue into the fourth
quarter.

We expect to incur operating losses over the next several years due to
continuing expenses associated with our research and development programs,
including preclinical testing and clinical trials. Operating losses may
fluctuate from quarter to quarter as a result of differences in the timing of
revenues received and expenses incurred, and such fluctuations may be
substantial.

Liquidity and Capital Resources

We have financed operations since inception primarily through private
placements of our equity securities (including investments by licensing
partners), two public common stock offerings, license fees, revenues under
collaborative research and development agreements, grant revenues, capital and
operating lease transactions, certain asset divestitures and interest income.
Through September 2001, we have raised approximately $156.0 million from the
sale of equity securities. As of September 30, 2001, we had 11,586,184 shares
outstanding on an as-converted basis, assuming conversion of preferred shares
held by Pharmacia Corporation.

As of September 30, 2001, our cash, cash equivalents, restricted cash and
short-term investments were $15.6 million compared to $10.1 million at December
31, 2000. The increase was due to proceeds from license fees paid to us during
the first nine months of 2001 and the sale of securities to Genencor
International, Inc., in connection with a series of agreements we entered into
with them, partially offset by cash used for operations during the first nine
months of 2001. We expect to continue to use our cash, cash equivalents and
short-term investments to fund our ongoing vaccine research programs. We had
net working capital of $11.8 million as of September 30, 2001 compared to $8.2
million as of December 31, 2000.

Capital expenditures totaled $0.1 million in the first nine months of 2001,
compared to $0.3 million in the first nine months of 2000. Expenditures,
during both periods, were primarily for laboratory equipment. We have financed
our laboratory equipment and research and office facilities primarily through
operating lease arrangements and a note payable.

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Payments related to capitalized patent expenses were $0.4 million in the first
nine months of 2001, compared to $0.5 million in the corresponding period of
2000.

We expect to incur substantial additional research and development
expenditures, including costs related to preclinical testing, clinical trials
and manufacturing, as well as marketing and distribution expenses. We intend
to seek additional collaborative research and development relationships and
licensing arrangements with suitable partners. We cannot assure you that any
agreements that may result from these discussions will successfully reduce our
funding requirements. Additional equity or debt financing will be required, and
we cannot assure you that these funds will be available on favorable terms, if
at all. If adequate funds are not available we may be required to delay, scale
back or eliminate one or more of our drug discovery or development programs or
obtain funds through arrangements with collaborative partners or others that
may require us to relinquish rights to certain of our technologies, product
candidates or products that we would not otherwise relinquish.

We anticipate that our existing resources will enable us to maintain our
current and planned operations through at least 2002. The estimate for the
period for which we anticipate our existing resources to enable us to maintain
our current and planned operations is a forward-looking statement that involves
risks and uncertainties as set forth herein.

Our future capital requirements will depend on many factors, including:



| |  | our ability to establish and maintain collaborative arrangements;     
|- |  | ----------------------------------------------------------------------
| 
| |  | progress with preclinical testing and clinical trials;                
| 
| |  | the time and costs involved in obtaining regulatory approvals;        
| 
| |  | the costs involved in filing, prosecuting and enforcing patent claims;
| 
| |  | competing technological and market developments;                      
| 
| |  | changes in our existing research relationships;                       
| 
| |  | continued scientific progress in our drug discovery programs;         
| 
| |  | the magnitude of our drug discovery programs;                         
| 
| |  | the cost of manufacturing scale-up; and                               
| 
| |  | effective commercialization activities and arrangements.              

As is typical in the biotechnology industry, our commercial success will depend
in part on neither infringing patents issued to competitors nor breaching the
technology licenses upon which our products might be based. Our business is
also subject to other significant risks, including the uncertainties associated
with our ability to enter into new collaborations, and maintain our
collaborations and the lengthy regulatory approval process and with potential
competition from other products. Even if our products appear promising at an
early stage of development, they may not reach the market for a number of
reasons. Such reasons include, but are not limited to our inability to fund
clinical development of such products, or the possibilities that the potential
products will be found ineffective during clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale or
be uneconomical to market.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2001, our investment portfolio included fixed-income
securities of $15.1 million. These securities are subject to interest rate
risk and will decline in value if interest rates increase. Due to the short
duration of our investment portfolio, an immediate 10 percent increase in
interest rates would not have a material impact on our financial condition or
results of operations.

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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 the 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.

We are at an early stage of development and we may experience delays and other
problems in developing products.

We are a research and development focused company. There are many factors
outside of our control that may affect the timing of commencement and
completion of clinical trials of any of our drug candidates, and we cannot
assure you that clinical trials will commence or be completed within any
anticipated timeframe. For example, although we previously indicated that
Pharmacia Corporation was expected to initiate Phase I/II human clinical trials
of a drug candidate in our cancer program by late 2000 or early 2001, Pharmacia
terminated our collaboration in the cancer field in November 2000. We are
working with Pharmacia to implement an orderly conclusion to the collaboration
and transfer of applicable materials and documentation to us so that we may
proceed with the cancer program, either alone or with another partner, or both.
As a result, the clinical trials for our cancer program did not begin within
the previously indicated timeframe, and we expect our clinical trials for our
lung cancer vaccine candidate will actually begin in late 2002 or early 2003.
Although we expect to initiate clinical trials for a therapeutic vaccine
targeting HIV by early 2002, we may experience unexpected delays in our
research and development efforts that would require us to delay these trials.
In addition, we may not be able to file an Investigational New Drug application
for our initial vaccine for our lung cancer program by late 2002 or early 2003
and the related clinical trials may not begin one month later, pending FDA
review, we may not be able to file and Investigational New Drug application for
our HIV vaccine program in the first quarter of 2002 and the related clinical
trials may not begin one month later, pending FDA review.

We cannot guarantee that our research and development programs will be
successful or that we can show that our products are safe and effective in
humans. Unacceptable toxicities or side effects may occur at any time in the
course of human clinical trials or during commercial use. Delays in planned
patient enrollment in our clinical trials may result in increased costs,
program delays or both. The appearance of any unacceptable toxicities or side
effects could interrupt, limit, delay or abort the development of any of our
products or, if previously approved, require us to withdraw them from the
market.

We may never obtain approvals from the U.S. Food and Drug Administration, or
FDA, or other necessary regulatory approvals to successfully commercialize any
of our products under development. Further, we may not be able to manufacture
any products in commercial quantities in compliance with regulatory
requirements at an acceptable cost. Even if we successfully develop and obtain
approval for our products, we may fail to achieve the necessary market
acceptance of these products. Our failure to address problems and delays
relating to research and development, regulatory approval, manufacturing and
marketing would harm our business.

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

We have not completed the development of any product and, accordingly, have not
begun to market or generate revenues from the commercialization of any product.
We do not expect to market any of our therapeutic or prophylactic products for
a number of years. If we do not successfully develop and commercialize
products, we may never generate revenues that would allow us to become
profitable. Our potential therapies under development will require time
consuming and costly research and development

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efforts, preclinical studies, clinical testing, regulatory approvals and
additional investment prior to their commercialization, which may never occur.

Pharmacias decision to end our collaboration may delay or limit our ability to
develop our cancer epitope products.

Pharmacia terminated our research and development collaboration in November
2000 with respect to the production, use and sale of pharmaceutical products
derived from our cancer epitopes and the use of these epitopes in therapeutic
vaccines. We do not expect to receive further revenues from Pharmacia.

In light of the termination of our collaboration with Pharmacia, our
preclinical or clinical development of drug candidates in our cancer program
(excluding our lung cancer candidate) is delayed and could be terminated, which
could harm our business.

If we cannot obtain and maintain collaboration or license agreements on
acceptable terms in the future, we may not successfully develop some of our
products or realize the expected value of our license agreements.

We expect to rely on collaborative arrangements both to develop and
commercialize pharmaceutical products. On July 9, 2001 we entered into a
collaboration with Genencor International, Inc. under which we licensed to
Genencor our PADRE and epitope technologies for vaccines to treat or prevent
hepatitis B, hepatitis C and human papilloma virus. We cannot be certain,
however, that we will be able to enter into collaborations in the future, that
any of our collaborations, including our collaboration with Genencor will
remain in place or be successful or that we will receive royalty revenues,
license fees or milestone payments from any of our collaborations. For
example, our cancer vaccine collaboration with Pharmacia was recently
terminated. We have licensed to third parties some of our technology in
markets that we are not pursuing ourselves or through our collaborations. As a
result, we depend on these licensees to develop and commercialize products
under the license agreements. Our collaborative partners or licensees may
pursue alternative technologies or develop alternative compounds either on
their own or in collaboration with others in competition with compounds
developed under licenses or collaborations with us. In addition, we may be
required to enter into licenses or other collaborations with third parties in
order to access technologies that are necessary to successfully develop certain
of our products. We cannot be certain that we will be able to successfully
negotiate acceptable licenses or other collaborative arrangements that will
allow us to access such technologies. In addition, we cannot be certain that
any technologies accessed through such licenses or other collaborations will
successfully meet our requirements.

We do not directly control the amount or timing of resources that our
collaborators and licensees will devote to our collaborations and out-license
agreements, including the decision whether to proceed with clinical trials.
Our collaborators and licensees may not commit sufficient resources to research
and development programs or the commercialization of products. If our
collaborators fail to conduct their activities in a timely manner, or at all,
our preclinical or clinical development related to our partnership with them
could be delayed or terminated. If our licensees fail to conduct their
activities in a timely manner, or at all, we may not realize the expected
benefits under the applicable license agreement. The suspension or termination
of our collaborations or licenses, the failure of such collaborations or
licenses to be successful or the delay in the development or commercialization
of pharmaceutical products pursuant to such collaborations or licenses could
harm our business.

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

As of September 30, 2001, we had $15.6 million in cash, cash equivalents,
restricted cash and short-term investments. Our future capital requirements
will depend on many factors, including: continued

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scientific progress in our drug discovery programs; the magnitude of our drug
discovery programs; our ability to establish and maintain collaborative
arrangements; progress with preclinical testing and clinical trials and the
cost of such trials; the time and costs involved in obtaining regulatory
approvals; the costs involved in filing, prosecuting and enforcing patent
claims; competing technological and market developments; the cost of
manufacturing scale-up; and effective commercialization activities and
arrangements.

We intend to seek additional funding through collaborative arrangements,
research grants or equity or debt financings. If additional financing is not
available, we anticipate that our existing resources will enable us to maintain
our current and planned operations through at least 2002. We may not be able
to obtain financing on favorable terms, if at all, or enter into additional
collaborations to reduce our funding requirements. If we acquire funds by
issuing securities, further dilution to existing stockholders may result. If
we acquire funds through additional collaborations, we will likely have to
relinquish some or all of the rights to products or technologies that we may
have otherwise developed ourselves. If we are unable to obtain funding, we may
be required to sell the Company or certain of its assets or technologies or to
cease operations.

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

We have experienced significant operating losses since our inception in 1987.
As of September 30, 2001, we had an accumulated deficit of $142.6 million. We
have not generated revenues from the commercialization of any product. All of
our revenues to date have consisted of contract research and development
revenues, license and milestone payments, research grants, certain asset
divestitures and interest income. We expect that substantially all of our
revenues for the foreseeable future will result from research grants and
contract revenues and, if we are able to establish new collaborations, payments
under those future collaborations, including royalties on product sales and
interest income. We expect to continue to incur substantial net operating
losses which may imperil our ability to continue operations. To achieve
profitable operations, we, alone or with partners, must successfully identify,
develop, register and market proprietary products. We may not be able to
generate sufficient product revenue to become profitable on a sustained basis
or at all.

If we or our partners cannot cost-effectively manufacture products that use our
technology in commercial quantities and in compliance with regulatory
requirements, we or our partners may not be able to successfully commercialize
the products.

To be successful, products that use our technology must be manufactured in
commercial quantities in compliance with regulatory requirements and at an
acceptable cost. We have not commercialized any products, nor have we or our
partners demonstrated that we can manufacture commercial quantities of product
candidates that use our technology in accordance with regulatory requirements.
We intend to rely on third party contract manufacturers to produce materials
needed for clinical trials and product commercialization. Third party
manufacturers may not be able to meet our needs with respect to timing,
quantity or quality. If we are unable to contract for a sufficient supply of
needed materials on acceptable terms, or if we should encounter delays or
difficulties in our relationships with manufacturers, it may delay clinical
trials, regulatory approvals and marketing efforts for our products. Such
delays could adversely affect our competitive position and our chances of
achieving profitability. We cannot be sure that we can manufacture, either on
our own our through contracts with third parties, such products at a cost or in
quantities which are commercially viable.

The lengthy approval process and uncertainty of government regulatory
requirements may delay or prevent us or our partners from commercializing
products.

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We and our partners cannot commercialize our products if we do not receive FDA
or foreign approval for our products. Clinical testing, manufacture, promotion
and sale of our products are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA, and
corresponding state and foreign regulatory agencies. These regulations may
delay or prevent us from commercializing products. Noncompliance with
applicable requirements can result in, among other things, fines, injunctions,
seizure of products, total or partial suspension of product marketing, failure
of the government to grant pre-market approval, withdrawal of marketing
approvals and criminal prosecution.

The regulatory process for new therapeutic drug products, including the
required preclinical studies and clinical testing, is lengthy and expensive.
We and our partners may not receive necessary FDA or foreign clearances for any
of our potential products in a timely manner, or at all. The length of the
clinical trial process and the number of patients the FDA will require to be
enrolled in the clinical trials in order to establish the safety and efficacy
of our products is uncertain. The FDA or we and our collaborators may decide
to discontinue or suspend clinical trials at any time if the subjects or
patients who are participating in such trials are being exposed to unacceptable
health risks or if the results show no or limited benefit in patients treated
with the drug compared to patients in the control group.

We and our partners may encounter significant delays or excessive costs in our
efforts to secure necessary approvals. Regulatory requirements are evolving
and uncertain. Future United States or foreign legislative or administrative
acts could also prevent or delay regulatory approval of our products. We and
our partners may not receive the necessary approvals for clinical trials,
manufacturing or marketing of any of our products under development. Even if we
obtain commercial regulatory approvals, the approvals may significantly limit
the indicated uses for which we may market our products. In addition, the FDA
may continually review a product after its initial approval and
commercialization. Later discovery of previously unknown problems or failure
to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from
the market, as well as possible civil or criminal sanctions.

To market any drug products outside of the United States, we and our partners
are also subject to numerous and varying foreign regulatory requirements,
implemented by foreign health authorities, governing the design and conduct of
human clinical trials and marketing approval. The approval procedure varies
among countries and can involve additional testing, and the time required to
obtain approval may differ from that required to obtain FDA approval. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above, and approval by the FDA does not ensure
approval by the health authorities of any other country, nor does the approval
by foreign health authorities ensure approval by the FDA.

Among the other requirements for regulatory approval is the requirement that
prospective manufacturers conform to the FDAs Good Manufacturing Practices, or
GMP, requirements specifically for biological drugs, as well as for other
drugs. In complying with the FDAs GMP requirements, manufacturers must
continue to expend time, money and effort in production, record keeping and
quality control to assure that the product meets applicable specifications and
other requirements. Failure to comply with the FDAs GMP requirements subjects
the manufacturer to possible FDA regulatory action. If we or our contract
manufacturers or partners, if any, fail to maintain compliance with the FDAs
GMP requirements on a continuing basis, it could materially adversely affect
our operations, commercialization efforts and profitability.

Technological change and competition may render our potential products
obsolete.

The biotechnology industry continues to undergo rapid change and competition is
intense and is expected to increase. Our competitors may succeed in developing
technologies and products that treat the

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indications that we are pursuing sooner than us, that are more effective or
affordable than any of the products we are developing or which would render our
technology and products obsolete and noncompetitive. We compete with many
public and private companies, including pharmaceutical companies, chemical
companies, specialized biotechnology companies and academic institutions. Many
of our competitors have substantially greater experience, financial and
technical resources and production, marketing and development capabilities than
us. In addition, many of our competitors have significantly greater experience
conducting preclinical studies and clinical trials of new products, and in
obtaining regulatory approvals for such products. Accordingly, some of our
competitors may succeed in obtaining developing and commercializing products
more rapidly or effectively than us, or in developing technology and products
that would render our technology and products obsolete or noncompetitive. We
are aware of companies that are pursuing the development of novel
pharmaceuticals which target the same diseases that we are targeting. These
and other efforts by potential competitors may be successful, and other
technologies may be developed to compete with our technologies. If we cannot
successfully respond to technological change in a timely manner, our
commercialization efforts may be harmed.

Our products under development address a range of markets. Our competition
will be determined in part by the potential indications for which our compounds
are developed and ultimately approved by regulatory authorities. For certain
of our potential products, an important factor in competition may be the timing
of market introduction of our products and competitive products. Accordingly,
the relative speed with which we can develop products, complete the clinical
trials and approval processes and supply commercial quantities of the products
to the market are expected to be important competitive factors. We expect that
competition among products approved for sale will be based, among other things,
on product effectiveness, safety, reliability, availability, price and patent
position.

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

Our success will depend in part on our ability to obtain patent protection for
our products and processes, both in the United States and other countries. The
patent position of biotechnology and pharmaceutical companies is highly
uncertain and involves complex legal and factual questions. There is no
consistent policy regarding the breadth of claims allowed in biotechnology
patents. We intend to file applications and pursue patent prosecution as
appropriate for patents covering both our products and processes. We cannot be
sure that patents will issue from any of the patent applications that we own or
license or that, if patents do issue, that claims allowed will be sufficiently
broad to protect our products and processes. In addition, we cannot be certain
that third parties will not challenge, invalidate or circumvent any patents
issued to us, or that the rights granted under the patents will provide
proprietary protection to us.

We also protect our proprietary technology and processes in part by
confidentiality agreements with our collaborative partners, employees and
consultants. Our collaborative partners, employees and consultants may breach
these agreements, we may not have adequate remedies for any breach, and our
trade secrets may otherwise become known or be independently discovered by
competitors.

We may not be able to commercialize our other products under development if
they infringe existing patents or patents that have not yet issued, which would
materially harm our business.

As is typical in the biotechnology industry, our commercial success will depend
in part on our ability to avoid infringing patents issued to competitors or
breaching the technology licenses upon which we might base our products. If we
fail to obtain a license to any technology that we require to commercialize our
products, or to develop an alternative compound and obtain FDA approval within
an acceptable period of time if required to do so, our business would be
harmed. Litigation, which could result in substantial costs to us, may also be
necessary to enforce any patents issued to us or to determine the scope and
validity of others proprietary rights. In addition, we may have to
participate in interference proceedings

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declared by the United States Patent and Trademark Office which could result in
substantial costs to determine the priority of inventions.

Our future success depends in part on the continued service of our key
scientific and management personnel and our ability to identify, hire and
retain additional personnel.

We are highly dependent on the principal members of our scientific and
management staff. We do not maintain key person life insurance on the life of
any employee and although we have an employment contract with Dr. Emile Loria,
he may terminate his employment at any time. Our future success also will
depend in part on the continued service of our key scientific and management
personnel and our ability to identify, hire and retain additional qualified
personnel. There is intense competition for qualified personnel in the areas
of our activities, and we cannot be sure that we will be able to continue to
attract and retain such personnel necessary for the development of our
business. Because of the intense competition, we cannot be sure that we will
be successful in adding technical personnel as needed to meet the staffing
requirements of additional collaborative relationships. Our failure to attract
and retain key personnel could be significantly detrimental to our product
development programs and could harm our business.

If we do not develop a sufficient sales and marketing force, we may not be able
to successfully commercialize our products.

We have no experience in sales, marketing or distribution. Before we can
market any of our products directly, we must develop a substantial marketing
and sales force with technical expertise and supporting distribution
capability. Alternatively, we may obtain the assistance of one or more
pharmaceutical companies with a large distribution system and a large direct
sales force. Other than our agreement with Takara, we do not have any existing
distribution arrangements with any pharmaceutical company for our products
under development. We cannot be sure that we can establish sales and
distribution capabilities or successfully gain market acceptance for our
products. If we cannot develop sales and distribution capabilities, we may not
be able to successfully commercialize our products.

Adverse determinations concerning product pricing, reimbursement and related
matters could prevent us from successfully commercializing products.

Our ability to successfully commercialize our products may depend in part on
the extent to which reimbursement for the cost of such products and related
treatment will be available from government health administration authorities,
private health insurers and other organizations. Third-party payors are
increasingly challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, and we cannot be certain that adequate third-party
coverage will be available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in product development. If we
cannot obtain adequate third-party coverage for our products, it could harm our
business.

Product liability risks may expose us to significant liability.

Our business exposes us to potential product liability risks which are inherent
in the testing, manufacturing and marketing of human therapeutic products.
While we currently have product liability insurance, we cannot be sure that we
can maintain such insurance on acceptable terms or that our insurance will
provide adequate coverage against potential liabilities.

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

Our research and development processes involve the controlled storage, use and
disposal of hazardous materials, chemicals and radioactive compounds. We are
subject to federal, state and local laws and

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regulations governing the use, manufacture, storage, handling and disposal of
these materials and some waste products. Although we believe that our safety
procedures for handling and disposing of these materials comply with the
standards prescribed by these laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of an accident, we could be held liable for any damages that
result, and any liability could exceed our resources.

Although we believe that we are in compliance in all material respects with
applicable environmental laws and regulations and currently do not expect to
make material capital expenditures for environmental control facilities in the
near term, we cannot be sure that compliance with environmental laws and
regulations in the future will not entail significant costs, or that our
business will not be harmed by current or future environmental laws or
regulations.

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

The market prices for securities of biotechnology companies, including our
common stock, have historically been highly volatile, and the market from time
to time has experienced significant price and volume fluctuations that are
unrelated to the operating performance of such companies. The following
factors may have a significant effect on the market price of our common stock:



| |  |  | announcements of technological innovations or new commercial
therapeutic products by us or others;  
| | - |  | ----------------------------------------------------------------------------------------------------
|
| |  |  | governmental regulation that affects the biotechnology and pharmaceutical industries;               
|
| |  |  | developments in patent or other proprietary rights;                                                 
|
| |  |  | developments in, or termination of, our relationships with our collaborative partners;              
|
| |  |  | public concern as to the clinical results and/or, the safety
of drugs developed by us or others; and
|
| |  |  | general market conditions.                                                                          

Fluctuations in financial performance from period to period also may have a
significant impact on the market price of our common stock.

The subordination of our common stock to our preferred stock could hurt common
stockholders.

Our common stock is expressly subordinate to our Series S and Series S-1
Preferred Stock in the event of our liquidation, dissolution or winding up. If
we were to cease operations and liquidate our assets, we would first be
required to pay $10 million to our holders of preferred stock and there may not
be any remaining value available for distribution to the holders of common
stock after providing for the Series S and Series S-1 Preferred Stock
liquidation preference.

The effect of anti-takeover provisions could adversely affect our common
stockholders.

Our certificate of incorporation includes a provision that requires the
approval of holders of at least 66 2/3% of our voting stock as a condition to a
merger or certain other business transactions with, or proposed by, a holder of
15% or more of our voting stock. This approval is not required in cases where
certain of our directors approve the transaction or where certain minimum price
criteria and other procedural requirements are met. Our certificate of
incorporation also requires the approvals of holders of at least 66 2/3% of our
voting stock to amend or change the provisions mentioned relating to the

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transaction approval. Finally, our certificate of incorporation provides that
any action required or permitted to be taken by our stockholders must be
effected at a duly called annual or special meeting rather than by any consent
in writing.

Further, pursuant to the terms of our stockholder rights plan, we have
distributed a dividend of one right for each outstanding share of common stock.
These rights will cause substantial dilution to the ownership of a person or
group that attempts to acquire us on terms not approved by the Board of
Directors and may have the effect of deterring hostile takeover attempts.

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

Our officers, directors and stockholders with at least 10% of our stock
together control approximately 52% of our outstanding common stock and
preferred stock, on a combined, as-converted basis. If these officers,
directors and principal stockholders act together, they will be able to exert a
significant degree of influence over our management and affairs and over
matters requiring stockholder approval, including the election of directors and
approval of mergers or other business combination transactions. The interests
of this concentration of ownership may not always coincide with our interests
or the interests of other stockholders. For instance, officers, directors and
principal stockholders, acting together, could cause us to enter into
transactions or agreements that we would not otherwise consider. Similarly,
this concentration of ownership may have the effect of delaying or preventing a
change in control of our company otherwise favored by our other stockholders.
This concentration of ownership could depress our stock price.

We have never paid dividends.

We have never paid any cash dividends and do not anticipate paying cash
dividends in the foreseeable future.

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PART II. OTHER INFORMATION




ITEM 6. (a) EXHIBITS

|              |  |                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.89 |  | License Agreement between Epimmune and Genencor
International Inc. dated July 9, 2001 (with certain
confidential portions deleted). (1)            
|             
|             
|             
|             
|             
|             
|             
|             
|Exhibit 10.90 |  | Collaboration Agreement between Epimmune and
Genencor International Inc. dated July 9, 2001 (with
certain confidential portions deleted). (1)      
|             
|             
|             
|             
|             
|             
|             
|             
|Exhibit 10.91 |  | Securities Purchase Agreement between Epimmune and
Genencor International Inc. dated July 9, 2001 (with
certain confidential portions deleted). (1)
|             
|             
|             
|             
|             
|             
|             
|             
|Exhibit 10.92 |  | Non-exclusive License Agreement between Epimmune
and Biosite Incorporated dated August 17, 2001 (with
certain confidential portions deleted). (1)  
|             
|             
|             
|             
|             
|             
|             
|             
|Exhibit 10.93 |  | Non-exclusive License Agreement between Epimmune
and Anosys Inc. dated August 31, 2001 (with certain
confidential portions deleted). (1)           



| |  | (1)  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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (b)  REPORTS ON FORM 8-K                                                                                                                                                                 
|
| |  | Form 8-K filed on October 2, 2001 attaching a press release providing an
update on its cancer vaccine program.                                                                           
|
| |  | Form 8-K filed on September 7, 2001 attaching a press release providing
an update on its HIV vaccine program.                                                                            

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EPIMMUNE INC.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

|                        |                                                                   |                
|----------------------- | ----------------------------------------------------------------- | ---------------
|                        | EPIMMUNE INC.                                                    
|                       
|Date: November 14, 2001 | By:                                                               | /s/ Emile Loria
|                        |                                                                  
|                        | Emile Loria, M.D.
President, Chief Executive Officer and Director

|                        |                                                                                                                  |                    
|----------------------- | ---------------------------------------------------------------------------------------------------------------- | -------------------
|Date: November 14, 2001 | By:                                                                                                              | /s/ Robert De Vaere
|                        |                                                                                                                 
|                        | Robert De Vaere
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)

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