Idm Pharma, Inc (IDMI) - Description of business


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Company Description
      We are a biopharmaceutical company focused on developing innovative products to treat and control cancer while maintaining the patient’s quality of life. We were incorporated in Delaware in July 1987.

Business Combination
      On August 16, 2005, Epimmune Inc., a Nasdaq National Market listed company, completed a share exchange transaction with the shareholders of Immuno-Designed Molecules, S.A. and related transactions, referred to as the Combination, pursuant to a share exchange agreement, dated March 15, 2005, as amended, referred to as the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, Epimmune issued approximately 10.6 million shares of its common stock, after adjusting for a one-for-seven reverse stock split that it effected on August 15, 2005, referred to as the Reverse Split in connection with the Share Exchange Agreement, in exchange for all of IDM S.A.’s outstanding common stock, except for shares held in plan d’épargne en action, referred to as the PEA Shares. In connection with the Combination, Epimmune’s outstanding Series S and Series  S-1 preferred stock was also exchanged for a total of 278,468 shares of Epimmune’s common stock, after giving effect to the Reverse Split, pursuant to an amended and restated preferred exchange agreement dated April 12, 2005, between Epimmune and G.D. Searle, LLC, an affiliate of Pfizer Inc., the holder of all of the outstanding shares of preferred stock of Epimmune. In connection with the closing of the Combination, Epimmune changed its name from Epimmune Inc. to IDM Pharma, Inc. and changed its ticker symbol on the Nasdaq National Market to “IDMI,” and IDM S.A. became our subsidiary.

      Because the former IDM S.A. shareholders held approximately 81% of our outstanding common stock after the Combination, IDM S.A.’s designees to our Board of Directors represent a majority of our Board of Directors and IDM S.A.’s senior management represents a majority of our senior management, IDM S.A. is deemed to be the acquiring company for accounting purposes and the Combination has been accounted for as a reverse acquisition under the purchase method of accounting for business combinations in accordance with

accounting principles generally accepted in the United States. Accordingly, our historical financial statements prior to the Combination are the financial statements of IDM S.A.

Sale of Our Infectious Disease Business
      On December 30, 2005, we completed the sale of specific assets related to our infectious disease programs and certain other assets to Pharmexa A/ S for $12.0 million in net cash. As a result, we are now focusing our resources on our cancer programs.

Product lines
      We are currently developing two lines of products designed to stimulate the patient’s immune response:

  •  to destroy cancer cells remaining after conventional therapies, and
 
  •  to prevent tumor recurrence.

      Our first line of product candidates, which are designed to destroy residual cancer cells, is based on in vivo or ex vivo activation of certain immune cells called macrophages.

      Our lead product candidate, Junovan (previously known as Mepact or L-MTP-PE), is part of this new family of immunotherapeutic agents that activate the body’s natural defenses. Junovan activates macrophages in vivo (meaning inside the body), in order to enhance their ability to destroy cancer cells. We are developing Junovan for the treatment of osteosarcoma, the most common type of bone cancer. This rare, aggressive bone tumor principally affects adolescents and young adults. Junovan has received orphan drug designation in the United States and the European Union for this indication, permitting it to benefit from a set of laws encouraging the development of treatments for rare diseases. A Phase III clinical trial was completed for Junovan, involving almost 800 patients over a six-year period. Statistical analyses indicate that the use of Junovan prolongs disease-free and overall survival of osteosarcoma patients. We are currently preparing marketing authorization applications for submission in the United States with the U.S. Food and Drug Administration, referred to as the FDA, and in Europe with the European Medicines Agency, referred to as the EMEA. We may request fast track designation, which would allow for expedited regulatory review of these applications. We have exclusive worldwide sales and marketing rights for Junovan, except in the UK, Ireland, Israel and South East Europe where we licensed distribution rights to third parties.

      The other type of product that we are developing to destroy residual cancer cells involves MAK cells, or Monocyte-derived Activated Killer cells. We produce MAK cells from the patient’s own white blood cells by activating these cells ex vivo (meaning outside the body) to allow them to recognize and destroy tumor cells. Our MAK cell products are designed to be reinjected into the patient to act locally and kill cancer cells. We have one MAK cell product in clinical development, Bexidem, which is in Phase II/ III clinical development for the treatment of superficial bladder cancer. Our pilot Phase I/ II clinical trial for Bexidem demonstrated potential clinical efficacy and that the product was well-tolerated. We have exclusive worldwide sales and marketing rights for Bexidem.

      Our second line of product candidates designed to prevent tumor recurrence includes both synthetic and cell-based therapeutic cancer vaccines. We have three of these products currently in clinical development.

      Synthetic vaccines are mixtures, or “cocktails,” of synthetic peptides derived from well-characterized tumor antigens. They are formulated with an immune system stimulant and are directly injected into the patient to specifically activate the immune system to recognize and kill tumor cells that display these antigens on their surface. We have one synthetic vaccine in clinical development, EP-2101, which is being evaluated in a Phase II clinical trial for the treatment of non-small cell lung cancer.

      Our cell-based vaccines include Dendritophages that are dendritic cells, a type of specialized immune cells derived from the patient’s own white blood cells. Dendritophages are exposed to tumor cell antigens in our production facility and then reinjected into the patient in order to stimulate the immune system to recognize and kill tumor cells that display these antigens on their surface. We currently have two products based on Dendritophages in clinical trials: the first, Uvidem, which we jointly developed with Sanofi-Aventis

S.A., is in Phase II for the treatment of melanoma; and the second, Collidem, is in Phase I/ II for the treatment of colorectal cancer.

      MAK cells and Dendritophages are types of Cell Drugs, a term we use to refer to therapeutic products derived from the patient’s own white blood cells.

      We control proprietary technology rights in the following areas:

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

      We have entered into a number of collaborations with academic and non-academic institutions and pharmaceutical companies, which are described in more detail under “Collaboration Agreements and Licenses” below. One of our key collaborations is with Sanofi-Aventis for the development and commercialization of Cell Drugs over a ten-year period. As part of this collaboration, Sanofi-Aventis owns approximately 14.9% of our common stock. We also have an agreement with Medarex, Inc., a leader in the development of antibody-based therapies. Medarex owns approximately 19.7% of our common stock. In addition, we have an agreement with Novartis granting us an exclusive, worldwide license to Junovan, an agreement with Pharmexa Inc. for technology access to an epitope identification system and PADRE, a universal immunostimulant, and an agreement with Biotecnol for the manufacturing of interleukin 13, or IL-13, a biological compound that contributes to the transformation of white blood cells into Dendritophages. We also have agreements for the distribution of Junovan with Cambridge Laboratories for the United Kingdom and Ireland, with Medison Pharma for Israel and with Genesis Pharma for South East Europe.

Industry and Scientific Background

      Cancer is a group of related diseases characterized by uncontrolled proliferation of abnormal cells. It is caused or promoted by both internal factors, such as immune conditions, hormones and inherited mutations and external factors, such as tobacco, radiation, chemicals and viruses. Cancer cells accumulate locally, forming tumors, and can spread throughout the body, a process known as metastasis. Proliferating tumors can destroy normal tissue and organs and ultimately result in death.

      Each year, there are an estimated 10 million new cases of cancer globally, of which almost half are in Asia, slightly over a quarter in Europe and 14% in North America, based on information from the World Health Organization. The World Cancer Report estimates that the incidence of cancer between 2003 and 2020 could increase by 50% to 15 million cases annually.

      According to the American Cancer Society, cancer is the second leading cause of death in the United States, exceeded only by heart disease. The cancer death rate was 4% higher in 2000 than in 1950, according to American Cancer Society estimates, despite a decrease in death rates for other major chronic diseases during this period. The American Cancer Society also estimates that almost 1.4 million people in the United States will be diagnosed with cancer in 2006 and about 565,000 people will die from the disease. According to the American Cancer Society, lung and bronchus cancer is expected to be the most common fatal cancer in men, representing approximately 31% of cancer deaths, followed by colon and rectal cancers (10%) and prostate (9%). In women, lung and bronchus cancer is also expected to be the most common fatal cancer, representing approximately 26% of cancer deaths, followed by breast (15%) and colon and rectal cancers (10%). As cancer is a disease that may progress slowly, the total number of people living with cancer significantly exceeds the number of patients diagnosed with cancer in a given year.

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


Source: American Cancer Society.
     The treatment of cancer is characterized by a considerable unmet medical need because traditional therapies generally do not cure cancer and their benefits are often limited by the side effects associated with their use. The goal for effective cancer treatment is the complete elimination of cancer cells at the site of tumor origin, as well as at sites to which they have spread. Many kinds of malignant cancer can be put into remission, meaning there is no clinical evidence of disease, using current standard therapies such as surgery, chemotherapy, radiation therapy and hormone therapy. However, the majority of malignant cancers will recur as a result of microscopic deposits of tumor cells that remain undetected or tumor regrowth. In addition, many tumors are inoperable or resistant to chemotherapy either from the beginning of treatment, or after prolonged treatment.

      Moreover, radiation and chemotherapy are highly toxic and affect healthy cells as well as cancer cells, causing impairment of the immune system and severe side effects in rapidly dividing tissues such as blood cells and cells lining the digestive tract.

      Population demographics, increasing disease incidence, improvements in early diagnosis and new innovative and costly therapies are expected to drive growth in the global market for oncology drugs.

The Immune System and Our Therapeutic Approaches

      Our core area of expertise lies in understanding and enhancing immune response. The human immune system plays a crucial role in the body’s defense against cancer and infectious diseases. The immune system has multiple mechanisms for combating diseases, including macrophage-based and lymphocyte-based immune responses. Our products are designed to enhance the body’s natural immune defenses against cancer by stimulating these two response mechanisms, as described below.

Our Products to Destroy Residual Cancer Cells
      Macrophages are large white blood cells capable of ingesting microbes and diseased cells, including cancer cells. They begin their life in the bone marrow, enter the blood where they are known as monocytes and then mature into macrophages upon entering tissues. Some macrophages are naturally attracted by tumors,

where they can either facilitate tumor growth or destroy tumor cells. Macrophage activators can be used to manipulate this dual function of macrophages. The ability of macrophages to destroy tumor cells can be harnessed by reprogramming the macrophages inside the patient’s body or by activating macrophages outside the body and reinjecting them into the patient. Even though the attraction of macrophages to cancer cells occurs naturally, it can be amplified by the presence of specific antibodies. Antibodies recognize and bind to specific molecular structures called antigens that are displayed on cell surfaces. Cancer cells have been found to express a high level of certain antigens on their surface that may allow them to be distinguished from normal cells by the immune system.

      Macrophages can be activated either inside or outside the body. Our lead product candidate, Junovan, is one of a family of macrophage activators, or immune system stimulants, that activate macrophages inside the body. Junovan is a fully synthetic chemical entity based on bacterial cell wall components and designed to activate macrophages in the body. It is administered in a formulation that promotes selective delivery to lung and liver macrophages. Extensive development of Junovan has been completed, including a large randomized Phase III study in patients with osteosarcoma, a type of bone cancer. Junovan has received orphan drug designation in the United States and the European Union for use in this cancer indication.

      Macrophages can also be produced and activated outside the human body. We have developed a process for activating macrophages to convert them into MAK cells outside the body by taking the patient’s own monocytes and activating them using a synthetic version of a natural activator called gamma interferon. For certain MAK cell products, we combine these activated macrophages with antibodies to allow them to target specific cancer cells. Pharmacological studies of tumor-bearing rodents have shown evidence of significant regression of experimental tumors after treatment with MAK cells. Phase I/ II clinical trials were undertaken in human patients with mesothelioma, a type of lung cancer usually associated with exposure to asbestos, bladder cancer and ovarian cancer. These studies established that local injection of up to one billion MAK cells in the pleural cavity, bladder or peritoneum is well-tolerated. No significant serious adverse events were attributed to the MAK cell products administered in the more than 100 patients treated so far by local injection in these locations. We have one MAK cell product currently in clinical development, Bexidem, which is in Phase II/ III clinical development for the treatment of superficial bladder cancer.

Our Products to Prevent Tumor Recurrence
      In the field of clinical immunology it is generally agreed that an efficient vaccine must include three key components:

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

      We have assembled a broad platform of patented technologies covering all three components.

Antigens
      Clearance of infectious pathogens and tumor control or regression as a response to immunotherapy are associated with cellular and antibody mediated or humoral immune reactions. Specialized immune cells called T lymphocytes, also known as T cells, circulate in the bloodstream and throughout the body to target and destroy tumor cells or pathogens that they have been “educated” to recognize. This recognition occurs when circulating T lymphocytes are specifically attracted to antigen fragments, known as antigen-specific epitopes, which are presented on the surface of cancer cells or cells infected with pathogens. T cells become educated and activated when they are first presented such specific epitopes by other immune system cells called dendritic cells. For this exposure to be effective, the epitopes must be located on specific molecules, called MHC molecules, present on the surface of dendritic cells. Educated T cells initially circulate in the blood, then remain in the lymph nodes in order to preserve an immune memory, thereby facilitating a long-lived immune response that can mediate its effect upon reappearance of the same pathogen or tumor.

      Through our agreement with Pharmexa, we have access to an epitope identification system called EIS ® to rapidly identify antigen-specific epitopes from the genetic information of tumor-associated antigens. Using EIS, we have identified epitopes for a number of indications, including lung, colon and breast cancers. The identified epitopes include those that are recognized by cytotoxic T cells called CTL epitopes, and those recognized by helper T cells called HTL epitopes. Among the identified epitopes, those that are selected have the highest affinity for their interaction with MHC molecules and are therefore the most potent for inducing immune responses. EIS is also used to modify epitopes to increase or potentially decrease ability to induce immune responses.

Delivery vehicles
      T cells are educated and activated in lymph nodes when they are exposed to epitopes which are delivered by other specialized immune cells known as dendritic cells. To successfully encounter and educate naïve T cells, dendritic cells must first be exposed to the relevant antigens, known as antigen loading, and must then migrate to the lymph nodes. Antigen loading occurs when specific antigens or fragments of the antigen called peptides are taken up by dendritic cells naturally residing inside the patient’s body or by preparing loaded dendritic cells outside the body and reinjecting them into the patient. Once taken up, antigens or peptides are broken into pieces that include the epitopes which are then transferred to the MHC molecule on the surface of the dendritic cell. We use several proprietary technologies to either deliver antigens or peptides directly inside the patient’s body or deliver ex vivo antigen-loaded dendritic cells into the patient.

      We have developed a method for the ex vivo generation of monocyte-derived dendritic cells, or Dendritophages, using IL-13, a biological compound that contributes to the transformation of white blood cells into Dendritophages. In our good manufacturing practices, or GMP, compliant manufacturing facilities, we generate Dendritophages and expose them to relevant antigens or epitopes before reinjection into the patient. The effects of Dendritophages loaded with a recombinant protein, tumor cell lysates which are a type of cell extract, or epitopes have been or are currently being studied in Phase I/ II clinical trials. We currently have two products based on Dendritophages in clinical development: Uvidem ® , which we jointly developed with Sanofi-Aventis, in Phase II for the treatment of melanoma and Collidem ® , in Phase I/ II for the treatment of colorectal cancer.

      Antigens can also be delivered into the patient without cells, using alternative vehicles. We have initiated a partnership with the Walter Reed U.S. Army Institute for the use of a liposomal formulation of a proprietary antigen, the human KSI/4 antigen, or KSA, which is expressed on many types of cancers including breast, colon, lung and prostate. Liposomes are spherical vessels that are similar to cellular membranes. Selected antigen(s) can be trapped or encapsulated within the spherical structure of liposomes together with an immune system stimulant. They are used to deliver that antigen directly into the patient, for uptake by immune system antigen presenting cells such as macrophages and dendritic cells. The liposomal formulation facilitates the uptake process, and enhances the likelihood of an immune response being induced. Our joint development program with the Walter Reed Institute is focused on the treatment of prostate cancer.

Immune system stimulants
      The induction of a potent immune response against a pathogen or a cancer cell requires that appropriate stimulants be used. Immune stimulants, depending on their composition, can be effective at several stages in the immune cycle. When dendritic cells process antigens, stimulants will activate and mature them into a state where antigen presentation to T cells is enhanced. At a later stage, dendritic cells loaded with common antigens or peptides will generally educate and activate cytotoxic T cells, but simultaneous activation of helper T cells may be useful to trigger a more robust immune response.

      We currently utilize a purified extract of bacterial cell membrane, FMKP, which is added in the last steps of its GMP manufacturing process, in order to mature dendritic cells into potent antigen presenting cells capable of optimal induction of T-cell responses.

      In order to elicit helper T cell activation, we also have access to PADRE through a license from Pharmexa. The PADRE technology consists of a family of proprietary molecules that are potent, synthetic,

universal epitopes for helper T-cells. PADRE induces important signals that activate helper T cells. When combined with vaccines, PADRE assists in boosting the helper T cell response, which in turn augments both cellular and antibody responses.

Advantages of our Approaches

      We believe that our immunotherapy products represent a significant innovation in the development and delivery of cancer therapeutics and consider them to be more attractive than existing approaches for the following reasons:

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

Products in Development

      A Phase III trial has been completed for our lead product candidate, Junovan. We have four other product candidates in clinical development, and two product candidates in preclinical development. Our

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


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

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

Our Products to Destroy Residual Cancer Cells
      Junovan for Treatment of Osteosarcoma. Junovan is an immune system stimulant that we are developing for the treatment of osteosarcoma, which is a rare aggressive bone tumor that occurs primarily in adolescents and young adults. Current standard therapy includes surgical removal of the primary tumor and systemic chemotherapy. Long-term disease-free survival can be achieved in up to 65% of patients diagnosed without metastases. The others will relapse, typically with metastases in the lungs. When the lung nodules can be completely removed, the 5-year survival rate is between 20% and 45%, but is reduced to less than 5% for those patients that are inoperable. The incidence of osteosarcoma is low, with approximately 900 new cases per year in the United States, mostly among children and adolescents, qualifying Junovan for orphan drug designation in the United States for this disease in 2001. We have also received orphan drug designation for Junovan in the European Union in 2004. This designation allows us to benefit from certain advantages during the regulatory process for marketing approval.

      A randomized Phase III study of Junovan in 793 patients for the treatment of newly diagnosed osteosarcoma in combination with a three- or four-drug chemotherapy regimen was conducted by Children’s Oncology Group, under an investigational new drug application, or IND, granted by the FDA and held by the National Cancer Institute, prior to our purchase of Junovan in 2003. Statistical analyses indicate that the use of Junovan prolongs the disease-free and overall survival of osteosarcoma patients. Junovan is currently limited for clinical investigational use only; its safety and efficacy have not been reviewed or approved for commercial distribution by any regulatory agencies. We are currently preparing marketing authorization applications for submission in the United States and Europe, which we expect to submit in 2006. If our applications are submitted as planned and are accepted by the respective agencies, and if we receive regulatory approval, we intend to start commercializing Junovan in 2007.

      The statistical significance of the Phase III trial results summarized below is expressed by the p-values from a stratified log-rank test. The stratified log-rank test is a statistical tool used to compare disease-free survival, or DFS, and overall survival, or OS, for patients who received treatment with chemotherapy with the addition of Junovan, with DFS and OS for patients who received treatment with chemotherapy without Junovan, while adjusting for the use of ifosfamide, a chemotherapy agent. The stratified log-rank test is also performed to compare DFS and OS for patients who received treatment with chemotherapy with the addition of ifosfamide, with DFS and OS for patients who received treatment with chemotherapy without ifosfamide, while adjusting for Junovan use. The reference to p-value means the probability of being wrong when asserting that a true difference exists between the results for the patients who received the investigational treatment versus those who did not. As summarized in the following table, the p-values from the stratified log-rank test for 664 eligible patients with non-metastatic disease that was amenable to surgery were 0.030 for disease-free survival and 0.039 for overall survival. Generally, a p-value less than 0.05 is considered by regulatory agencies to be indicative of a significant difference. However, the p-values in the following table should be compared with 0.04 rather than the usual 0.05 because of adjustments made to accommodate interim analyses that were done during the conduct of the trial. We can make no assurances that the FDA or any other regulatory body will find the Phase III trial results and other data on Junovan described below sufficient to support approval for marketing Junovan.
                             
Stratified Log-Rank Analysis of Disease Free Survival (DFS) and Overall Survival (OS) for Eligible Patients with Non-
Metastatic Disease that was Amenable to Surgical Removal
 
Testing for Effect of Junovan   Testing for Effect of Ifosfamide
     
DFS   OS   DFS   OS
             
  0.030       0.039       0.934       0.992  


      As shown in the table, after this adjustment, both DFS and OS were significantly improved for those patients who received Junovan compared to those patients who received chemotherapy only, but were not improved by the addition of ifosfamide to a chemotherapy treatment. The most frequent adverse events were those typically associated with intensive chemotherapy.

      In a single-arm non-randomized Phase II trial conducted at M.D. Anderson Cancer Center, patients with recurring lung metastases who had been rendered disease free by surgical excision were given either 12 or 24 weeks of Junovan therapy. The median time to relapse for 16 patients who had received 24 weeks of Junovan was 9.0 months, compared to 6.8 months for 12 patients receiving 12 weeks of therapy and 4.5 months for a historical control group of 21 patients that had been treated post-operatively with chemotherapy. Of the patients that received Junovan for 24 weeks, 56% survived five years after completion of therapy, compared to 25% of patients who received 12 weeks of treatment. Only two of 21 patients in the control group, or 9.5%, experienced long-term survival. The most significant side effects included chills, fever, headache, muscular pain and fatigue, all of which occurred primarily during the first administration. In a second Phase II study conducted at M.D. Anderson Cancer Center and Memorial Sloan-Kettering Cancer Center, patients with relapsed osteosarcoma were treated with a combination of Junovan and ifosfamide. This study demonstrated that Junovan and ifosfamide can be administered together safely and provided the basis for proceeding to the randomized Phase III study in newly diagnosed osteosarcoma patients.

      Overall, approximately 400 patients with advanced malignancies, of which about half were under an IND and for which we have detailed data, have been treated in Phase I/ II trials with Junovan. In general, Junovan demonstrated acceptable tolerability, even when administered once weekly up to six months. These studies, conducted in the United States, Canada, Belgium, Germany and France, established the safety profile of Junovan and provided information for dosing schedules.

      Preclinical studies with Junovan in mice and dogs demonstrated tumor regression in mice with lung and lymph node disease and 36% long-term survival (greater than one year) in dogs with spontaneous osteosarcoma treated with a combination of surgery, chemotherapy and Junovan. We believe Junovan may have potential for treatment of other types of cancer, because it targets pulmonary macrophages. We anticipate we may explore its use in the treatment of cancers that are prone to lung or liver metastases, such as breast, digestive tract and renal cancers.

      Bexidem for Treatment of Superficial Bladder Cancer. Bexidem is a cell-based immunotherapeutic consisting of MAK cells derived from the patient’s own white blood cells. This Cell Drug is in development as an adjuvant treatment after transurethral resection, or TUR, for patients with superficial bladder cancer. A Phase II/ III study of Bexidem for treatment of patients with superficial bladder cancer with intermediate to high risk of recurrence is currently in progress in France, Belgium, Luxembourg and Germany. We also plan to initiate a Phase II/ III pivotal study in the United States in order to compare TUR associated with Bexidem to TUR alone in patients with recurrent superficial papillary bladder cancer who have failed intravesical BCG therapy. BCG is an immunostimulant initially developed as a vaccine to prevent tuberculosis. We have exclusive worldwide sales and marketing rights for Bexidem.

      Tumors of the urinary bladder are the second leading cause of genito-urinary cancer and preferentially occur in male subjects with a male/female incidence ratio of 3:1. Tumors of the bladder are diagnosed at a mean age of 65 years. Approximately 70% of newly diagnosed patients with bladder cancer will present a superficial bladder cancer.

      The initial treatment for patients with superficial bladder cancer is surgical removal of tumors by TUR, which is often sufficient in low-risk tumors. The risk of recurrence and progression of the disease is correlated to the stage and grade of tumors as well as to their number. Intravesical therapies are most often used after TUR in patients with multiple tumors, with recurrent tumors or with high-risk tumors. BCG is a commonly used treatment for superficial bladder tumors, especially certain aggressive tumors. Several studies have shown that BCG therapy following tumor removal, compared to tumor removal alone, provides therapeutic benefit. However, recurrence-free survival is only observed in 48% of treated patients. Furthermore, significant toxicities are associated with BCG intravesical therapy. As a result, 30% of bladder cancer patients are unable

to continue BCG therapy, either because of nonresponsive disease or toxicity. There is therefore considerable unmet medical need for treatment of recurring superficial bladder cancer.

      In a pilot Phase I/ II study, we evaluated the ability of Bexidem to reduce tumor recurrence in superficial bladder cancer. The study included 17 patients with superficial bladder cancer with a high probability of recurrence. Patients received six weekly local injections of Bexidem into the bladder. Five patients also received maintenance therapy at three-month intervals. All patients were followed for two years or more. A total of 112 injections were performed with no serious side effects observed. The most frequent associated adverse effects were urinary tract disorders observed in six patients and prostatic disorders observed in two patients. The total number of tumor occurrences experienced by the 17 patients decreased from 34 during the year prior to the six-week treatment to eight during the first year after treatment, a statistically significant decrease (p-value = 0.0005). The reference to p-value means the probability of being wrong when asserting that a true difference exists between the results for the patients prior to treatment and after treatment. For example, a p-value of 0.0005 indicates that there is a less then five in ten thousand chance that results observed in the group prior to treatment and the results observed after treatment are not really different. In the second year following treatment, the same 17 patients experienced a total of 10 recurrences, suggesting the continuing effects of treatment with Bexidem.

      This proof of concept demonstrating a good tolerance of the intravesical treatment and potential clinical efficacy provided the basis for our current European, multicenter, open-label, randomized Phase II/ III study that compares Bexidem to intravesical BCG therapy in patients with intermediate to high risk of recurrence of superficial papillary bladder cancer after complete transurethral resection.

      Recruitment of 138 patients for the Phase-II stage of the study was completed in December 2005. A first safety analysis will be carried out when all patients complete the treatment in the second half of 2006. In addition, in order to finalize the number of patients needed for the Phase-III stage of the study, an interim analysis is planned when all Phase II patients complete at least six months of follow-up after their last injection. Enrollment may resume after the interim analysis is performed.

      In November 2005, we filed a Special Protocol Assessment, or SPA, request for a second Phase II/ III clinical study of Bexidem planned in the United States. In December 2005, the FDA determined that the design and planned analyses of this study sufficiently address its objectives and that this study is adequately designed to provide the necessary clinical data that, depending upon outcome, could support a license application submission. Clearance to initiate the study is still subject to FDA’s approval of complementary chemistry, manufacturing, and control, or CMC, information to be provided by us with respect to Bexidem and its manufacturing process.

Products to Prevent Tumor Recurrence
      Uvidem for Treatment of Melanoma. Uvidem is a Cell Drug made from the patient’s own cells and consists of Dendritophages loaded with melanoma cell antigens using cell lines licensed to us by third parties. Uvidem is in Phase II clinical trials for the treatment of melanoma. Sanofi-Aventis has exercised an option under our agreement for the joint development of Uvidem.

      Melanoma is the most serious form of skin cancer, accounting for approximately 8,000 deaths each year in the United States. Because of the relatively young age of onset in most patients, melanoma takes a very high toll in years of potential life lost, second only to leukemia among all cancer types in the United States. The outcome of melanoma treatment depends on the stage of disease. Patients with metastatic, or stage IV, disease have a five-year survival rate of about 15%. The treatment of metastatic melanoma remains challenging. The standard chemotherapy treatments have response rates of about 15-25% with generally short-lived responses ranging from three to six months. Multiple drug combinations have been tested; however the current data suggest that while these combinations may increase the clinical response rate, there is insufficient data to demonstrate clear survival advantage.

      We are currently running two Phase II clinical trials of Uvidem in melanoma. The first one, which is on-going in the United States, is meant to assess Uvidem’s clinical activity and safety in patients with in-transit or

low volume metastatic melanoma. The second one is a European randomized trial recently started in order to compare and evaluate the induction of immune responses by Uvidem alone or in combination with low doses of interferon alpha in stage II/ III melanoma patients.

      We completed a randomized Phase I/ II safety study that compares immune responses with two different versions of Uvidem in stage IV melanoma patients. Out of the 49 treated patients, no significant adverse events related to the treatment have been reported. Disease stabilizations were observed in 10 patients representing 20% of all treated patients. Furthermore, 14 patients out of 40 who were analyzed were immune responders.

      We also completed a single arm Phase I/ II study in 15 patients with stage IV metastatic melanoma using Dendritophages loaded with melanoma antigens. The product was well-tolerated with no major product-related toxicities reported. Increases in immune responses were detected after administration of Uvidem in some patients. Signs of activity were observed, with one patient in complete remission for more than 18 months and one patient with stable disease for 10 months.

      EP-2101 for Non-Small Cell Lung Cancer. Cancer of the lungs continues to be a major health problem with a very high mortality rate and represents the leading cause of cancer death in the United States. According to the American Cancer Society, approximately 174,470 new lung cancer cases will be diagnosed in the United States in 2006, and an estimated 162,460 patients will die from lung cancer. The current course of treatment for lung cancer includes surgery, if possible, followed by various regimens of radiation and chemotherapy to try to destroy cancer cells. Chemotherapy causes well-known adverse side effects such as hair loss, decreased function of various organs, and a substantial suppression of the immune system, leading to susceptibility to other diseases.

      We commenced our Phase I/ II clinical trial of our EP-2101 therapeutic, multi-epitope vaccine in non-small cell lung cancer, or NSCLC, and colorectal cancer patients in February 2003. The primary objectives of this trial were to determine the safety and immunogenicity of the EP-2101 vaccine. The Phase I/ II trial closed to enrollment in April 2004, with the final patient completing the study in August 2004. A total of 24 patients were enrolled and 16 patients completed the trial. Final safety data showed that the EP-2101 vaccine was safe and well tolerated in the 24 patients who were treated with the vaccine. The most common side effect reported was a localized reaction at the injection site. Final immunogenicity data from the patients analyzed showed that the vaccine was immunogenic and effective at inducing strong and broad CTL responses in at least 50% of the patients.

      Based on these immune responses, a Phase II clinical protocol was submitted to the FDA to test EP-2101 in advanced stage NSCLC patients in a Phase II trial. The primary endpoints for this trial were safety and overall survival, with progression-free survival, and immunogenicity of vaccine epitopes being secondary endpoints. In February 2006 we announced that we were closing enrollment to the Phase II EP-2101 therapeutic vaccine trial. Based on interim results and an ongoing review of the program, we determined that the number of patients already enrolled and treated in the study represents a sufficient study population to guide our future development of EP-2101. In addition, after discussion with clinical investigators on the study, we determined we would amend the clinical protocol to extend the treatment of patients who have completed one-year on study, to allow for a second course of treatment, using the available supply of vaccine. The current supply of manufactured vaccine would not likely support this extension in addition to the originally planned number of patients in the trial. Additional follow up data will be obtained from this protocol amendment, which will also help guide future development.

      Our cancer vaccine candidate is composed of multiple tumor-specific CTL epitopes that were selected from tumor-associated antigens. Some of the epitopes have been modified to create analogs in order to enhance the potency of the T cell response induced by the vaccine. The vaccine candidate is delivered as an injection of peptide epitopes in combination with conventional therapies. In addition, the vaccine candidate includes the PADRE universal helper T cell epitope we have licensed from Pharmexa.

      Collidem for Treatment of Colorectal Cancer. Collidem is a Cell Drug that completed Phase I development for the treatment of advanced colorectal cancer. Collidem is composed of Dendritophages that

have been loaded with six CTL epitopes from three tumor associated antigens, or TAA, including two proprietary native epitopes and four modified, or analog, epitopes. Tolerance to TAA, which is a failure of the immune system to recognize the cancer as diseased tissue, is broken by using these analog epitopes which enhance the potency of the T cell response. The dendritic cells are also loaded with PADRE included in the vaccine as an immunostimulant. A control antigen is included to assess general immune function in the patients.

      The peptides used in Collidem, originally licensed to IDM S.A. by Epimmune prior to our Combination, represent tumor-associated antigens that are expressed in breast, colon and lung cancers, with the highest expression of antigens being in colon cancer. These peptides, in combination with our Dendritophages, have been shown to induce potent immune responses ex vivo, and one of the peptides, in combination with dendritic cells, has been shown to induce immune responses that were correlated with clinical responses in patients with colon cancer.

      Colorectal cancer is the third leading cause of cancer death in the United States. According to the American Cancer Society, it is estimated that approximately 148,610 new cases of colorectal cancer will be diagnosed in the United States in 2006. Surgery is the primary form of treatment for disease localized to the bowel and is effective in approximately 50% of these patients. However, recurrence following surgery is a major problem. Response rates for the standard treatment agents (used alone or in combination with other treatment agents) have generally not exceeded 25%. As a result, patients with metastatic colorectal cancer represent a significant unmet medical need.

      We recently completed a Phase I trial of Collidem and reported the results of that trial at the 2006 ASCO Gastrointestinal Cancers Symposium in January 2006. In this clinical trial that was undertaken in the United States at the University of California at San Francisco, the University of Pittsburgh and the City of Hope National Medical Center, patients with advanced colorectal cancer who had failed standard therapies were vaccinated with Collidem. Intradermal administration of the vaccine was well tolerated with only mild injection site reactions reported. CD8 antigen specific responses were observed in a subset of patients that were broad (to multiple peptides) and sustained (detected at multiple time points) and could be detected in both direct and restimulation assays. This pilot study in very advanced patients met its end point showing a well-tolerated treatment with the induction of immune responses.

Products in Preclinical Development

Jenact
      Jenact is a second-generation compound derived from our lead product candidate, Junovan. Jenact is an immune system stimulant that can be administered orally or in a systemic fashion. Preclinical studies have shown that it has low toxicity and it has also shown efficacy in an animal model. Preclinical models also demonstrated a potential as an adjuvant as well as anti-infectious activity. We intend to explore its use for treatment of cancers that are prone to lung or liver metastases, such as breast, digestive tract and renal cancers.

Liposomal KSA Vaccine
      We are developing liposomal delivery systems for loading our Cell Drugs with antigens and for use alone as non-cellular vaccines. The first liposomal vaccine that we are developing uses our proprietary antigen KSA, which is expressed on most carcinomas particularly cancers that occur in the breast, colon, lung and prostate. A Phase I clinical study was conducted by academic investigators in colorectal cancer. It showed low toxicity and a strong antibody response to KSA. Current preclinical development work is carried out in collaboration with the Walter Reed Army Institute and within a consortium coordinated by IDM and financed by European grants.

Our Basic Research Programs

      Over the past several years, our basic research program has had a threefold focus: (i) improving existing products and technologies, (ii) leveraging our technology to validate new targets and develop new products and (iii) conducting basic research in immunology in collaboration with academic teams.

Improving existing products and technologies
      We are exploring ways to prolong the potential therapeutic effects of our product candidates to destroy cancer cells. In-vivo immune system stimulants, such as Junovan and Jenact, could increase the capacity of our MAK product candidates to engulf and kill tumor cells. A new concept we are examining is MAK products modified to produce their own stimulant.

      We are also investigating ways to enhance the potential therapeutic effects of our product candidates to prevent tumor recurrence by experimenting with different compounds to mature our Dendritophages. We have identified a compound that increases 1000 fold the capacity of Dendritophages to stimulate tumor specific T cells ex vivo . We have identified another compound that enhances the capacity of Dendritophages to be attracted to T cells ex vivo . We are looking for compounds that combine these two functions in order to achieve optimal activity in the body.

Leveraging our technology to validate new targets and develop new products
      We have a technology in-house that allows us to test whether a given antigen or antibody can be used to make a new product aimed at destroying tumor cells or preventing tumor recurrence. This validation process involves a series of highly sophisticated ex vivo tests, which are both quantitative and functionally relevant. For example, such a test will tell us whether the product candidate activates T cells to produce interferon, proliferate and kill tumor cells. Because these tests are very robust, they allow us to compare various candidates, optimize them and choose the most promising ones before entering clinical development.

Conducting basic research in immunology in collaboration with academic researchers
      We monitor the immunological effects of our products after injection into patients. With this goal, we are developing and implementing new technologies to monitor treatment-induced T cell responses. In particular, we intend to define the characteristics of immune responses correlated with clinical benefit. Because anti-viral T cells are known to be effective at providing protection against previously encountered viral diseases, we analyze their characteristics. We then compare the immune responses of T cells specific for viruses with those specific for tumors in our patients. By evaluating the correlation of these immune responses with the ex vivo effects of our Cell Drugs, we can further refine the predictive value of our ex vivo tests. Furthermore, by evaluating the correlation of the immune responses with the clinical responses, we may identify early predictors of clinical responses. Overall, a better knowledge of the human immune system should help to accelerate the development of new products.

Product Manufacturing

      We rely on two methods for manufacturing our product candidates: outsourcing and in-house manufacturing.

      Junovan and EP-2101 are the only product candidate for which we rely on outsourced manufacturing.

      MTP-PE is the active ingredient in Junovan. MTP-PE is a fully synthetic derivative of muramyldipeptide, a naturally occurring component of bacterial cell walls that is synthesized in a multi-step process. Junovan is a liposomal formulation of MTP-PE combined with two synthetic lipids, a type of organic compound. When saline is added to the final product, the lipids form liposomes, which are spherical vessels used to deliver MTP-PE to macrophages and monocytes. In seeking regulatory approval for Junovan, we have initiated outsourcing agreements with third parties to provide us with our supply and manufacturing needs for commercialization of Junovan. We intend to have sufficient third-party arrangements for the commercial

production of Junovan in place at the time of marketing authorization submissions in the United States and the European Union.

      For our EP-2101 vaccine candidate, the peptides are assembled using standard chemistry for solid phase peptide synthesis starting with the appropriate resins. The 10 peptides are dissolved into an acidic solution, a basic solution, or an organic solvent. These three peptide-containing pools are sterilized by filtration. Under aseptic conditions, these three peptide pools are combined and then homogenized with an adjuvant to form the EP-2101 therapeutic vaccine drug product.

      We rely on licensing and collaboration agreements with our partners to supply us with certain ancillary components and raw materials required for our manufacturing processes, including biological products, chemical compounds, antibodies and antigens.

      We have pioneered the development of an efficient manufacturing process for generating our Cell Drugs. Under this process, white blood cells are collected from a patient at a clinical site and then stimulated ex vivo at our facilities. In the stimulation process for MAK cell products, white blood cells are cultured for seven days in a solution containing a stimulating factor called Granulocyte Macrophage Colony Stimulating Factor, or GM-CSF, that causes them to transform into macrophages. Later in the process, a synthetic version of gamma interferon, a natural compound that activates macrophages, is added in order to enhance the ability of the macrophages to kill cancer cells. We have also developed a similar process for producing Dendritophages, during which white blood cells are cultured for seven days in a solution containing GM-CSF and IL-13. Together, these compounds cause white blood cells to transform into Dendritophages. Both of these processes are undertaken in centralized manufacturing facilities under GMP conditions.

      We have therefore been able to produce large quantities of Cell Drugs, which can be divided into individual doses and frozen for delivery and subsequent administration. We have produced Cell Drugs in our own facilities for our research and development programs, preclinical testing and clinical trials. For our current trials and those we plan for the future, the final formulated Cell Drugs are frozen. This enables centralized manufacturing within our own facilities and thereby allows full control. Following manufacture, the final product is shipped to the clinical center for administration to the patient. We currently have one clinical scale facility operational in Paris, France, and a second such facility in Irvine, California.

      We have a comprehensive process development program for Cell Drugs to support the improvement and enhancement of our manufacturing methods concurrently with clinical development on an ongoing basis. These development projects are focused on increased automation towards higher throughput, increased consistency and safety, and decreased labor requirements for processing. In support of later phase trials, we anticipate expanding our current facilities or constructing commercial scale manufacturing plants in the United States and Europe as necessary to meet our future needs, although we have no near-term plans to do so.

Marketing and Sales

      We plan to market Junovan and our Cell Drugs and other immunotherapy products either directly or through collaborations with third parties. We have initiated such collaborations through our agreement with Cambridge Laboratories for the distribution of Junovan in the UK and Ireland, with Medison Pharma for the distribution of Junovan in Israel and with Genesis Pharma for the distribution of Junovan in South East Europe. We also intend to develop our own internal sales force for our future products and/or form strategic alliances with pharmaceutical partners that are leaders in oncology in order to maximize the market penetration and overall value of Junovan, our vaccines and our Cell Drugs.

Collaboration Agreements and Licenses

      We plan to continue to develop collaborations with academic and non-academic institutions and pharmaceutical companies. We believe that these collaborations enable us to secure access to specific technologies and compounds that we require for our research and development. We rely heavily on our collaboration partners, most importantly Sanofi-Aventis, to aid us in clinical trials, manufacturing and marketing of our products and for certain proprietary technology. In addition, in the ordinary course of our

business, we enter into collaborations with third parties for the conduct of clinical trials and for the supply and production of certain of our product candidates or their components. Our principal collaborations and licenses are described below.

Collaboration with Sanofi-Aventis
      In July 2001, we entered into an agreement, referred to as the 2001 Agreement, with Sanofi-Aventis, or Sanofi, a French pharmaceutical company, for the development and commercialization of up to 20 Cell Drugs over a 10-year period. For each Cell Drug for which Sanofi chooses to exercise the joint development option under the collaboration, we will receive milestone payments and reimbursement of certain expenses, as described below. In return, upon securing marketing approval for any Cell Drug developed under the collaboration, Sanofi will have a further option for an exclusive worldwide license to commercialize that product.

      In connection with the 2001 Agreement, Sanofi invested approximately $33 million in our subsidiary and as a result of the Combination, currently owns approximately 14.9% of our outstanding common stock.

      Sanofi has options to participate in the clinical development of up to 20 Cell Drugs, each a Cell Drug Program, over 10 years, up to 10 Cell Drug Programs for the first five years and up to two per year through the tenth year. With respect to any Cell Drug Program, Sanofi’s option is exercisable at the beginning of clinical development of the product related to that program, following presentation by us to Sanofi of a satisfactory development plan including proof of concept in vitro and safety in vivo. One such option was exercised by Sanofi for the ongoing melanoma development program Uvidem.

      For all but two of the 20 Cell Drug Programs, Sanofi will pay us an up-front payment upon exercising its option for any Cell Drug Program and further milestone payments upon successfully completing each of Phase I, II and III clinical trials (followed by a decision to commercialize). Sanofi may select the two Cell Drug Programs for which such payments are not required, but the two programs may not be chosen consecutively.

      With respect to each of the 20 Cell Drug Programs, Sanofi will pay us a final milestone payment once marketing approvals with respect to a product have been obtained. Part of this payment will be made upon obtaining FDA approval and the rest upon obtaining approval from the EMEA or from the regulatory authorities of a certain number of countries in Europe. The precise amount to be paid will be determined when such regulatory approvals are granted and will reflect the marketing potential of the specific product. In addition, the amount may be supplemented later to reflect increased market potential, expansion of the product’s indications or the territory for which it is approved.

      We retain all operational responsibility for the development of any Cell Drug Program selected by Sanofi, which we carry out in accordance with the development plan decided upon at the time the option is exercised. Sanofi bears all costs of clinical development (other than certain intellectual property costs), which it becomes obligated to pay beginning on the date on which it exercises its option.

      At any stage of development, Sanofi may terminate its participation in a given Cell Drug Program without penalty and without affecting its ability to exercise its remaining options with respect to other Cell Drug Programs, in which case all rights to such Cell Drug Program will automatically revert to us. Should we then seek a partner to develop such Cell Drug Program, Sanofi will have a right of first refusal exercisable with respect to no more than three Cell Drug Programs over any offer made by such potential partner in connection with such Cell Drug Program, including the right to replace such partner within 60 days. If Sanofi chooses not to exercise this right of first refusal, we would be allowed to enter into the contemplated collaboration with a third party only in accordance with the terms and conditions presented to Sanofi.

      Generally, in case of disagreement concerning the conduct of a Cell Drug Program, we are able to reclaim Sanofi’s rights over the results of such Cell Drug Program upon paying Sanofi an amount set by an appointed expert. However, in case of a disagreement over the continued development of a Cell Drug Program for new or expanded indications, either partner may undertake further clinical development unilaterally at its own cost and would receive a royalty from the other party.

      Upon securing marketing approval for a product developed under a Cell Drug Program, Sanofi will have an option for an exclusive worldwide license, with the right to sub-license, to commercialize that product. If Sanofi does not exercise this option, all rights to the product will automatically revert to us. Our compensation for granting commercialization rights to Sanofi will consist solely of the transfer price we will obtain for acting as exclusive manufacturer of the relevant product. This transfer price will comprise: (i) the supply cost, including all royalties due to third parties, (ii) royalties due to us on net sales, and (iii) trademark royalties. If the supply costs, as determined by an independent expert, exceed a certain percentage of the sale price, the total transfer price will be increased correspondingly up to a maximum percentage of the sale price. Upon reaching such maximum percentage, if no agreement is reached as to how to proceed, Sanofi may abandon commercialization of such product, whereupon all rights to the product will revert automatically to us, although we will not be allowed to commercialize on the basis of a transfer price lower than the one proposed to Sanofi. If the supply cost decreases, we will share the resulting additional profit margin equally with Sanofi.

      If Sanofi decides not to commercialize a product, or otherwise fails to commercialize the products in the United States or the European market, all rights to such products in such market will revert to us upon notification to Sanofi. Sanofi may discontinue commercialization at any time without penalty, at which time all rights will automatically revert to us.

      Prior to the 2001 Agreement, we had entered into a protocol with Sanofi, referred to as the 1999 Protocol, which was replaced by an agreement signed on November 30, 2001, referred to as the IL-13 Agreement. Under the IL-13 Agreement, Sanofi agreed to provide us with a non-exclusive license to IL-13 intellectual property to meet our requirements through commercialization, including a right to sub-license with Sanofi’s approval. In exchange, Sanofi was issued shares in our subsidiary, IDM SA, and granted warrants to purchase additional shares of IDM SA capital stock. These warrants were exercised on August 12, 2005, prior to the Combination, in exchange for a new license agreement for our use of IL-13 in Phase III clinical trials and for the commercialization of our products using IL-13. The exercise price of the warrants was offset by a lump-sum payment of approximately $2.0 million corresponding to the payment for the new IL-13 license agreement.

      To the extent that we and/or one of our partners other than Sanofi sell any products using IL-13, whether for therapeutic or non-therapeutic use, we will pay royalties to Sanofi. The IL-13 Agreement will remain in force until the expiration of the last IL-13 patent. However, it may be terminated upon termination of the 2001 Agreement, at which point the 1999 Agreement would come into force again, resulting primarily in an increase in the amount of our royalty obligations on products using IL-13 and the re-entry into force of Sanofi’s option for an exclusive license to commercialize those products in Europe, or under various other circumstances.

Collaboration with Medarex
      In July 2000, we entered into an Amended and Restated Technology Access Agreement, as amended, referred to as the ARTA Agreement, with Medarex, Inc., a New Jersey-based biopharmaceutical company, and GenPharm International, Inc., a wholly-owned subsidiary of Medarex, Inc., with Medarex, Inc. and GenPharm, Inc. referred to collectively as Medarex.

      Under the ARTA Agreement, Medarex granted us licenses to manufacture and commercialize several antibodies developed by Medarex. In addition, we agreed to expend a specific amount related to a research and development program with respect to any of the antibodies or products licensed under the ARTA Agreement. As of December 31, 2005, we had met our obligations with respect to such expenditure and program. Unless earlier terminated, the ARTA Agreement remains in force on a country-by-country and product-by-product basis until expiration of the last patent covering any product contemplated by the agreement.

      In consideration for Medarex’s granting of the licenses and certain payments made by Medarex, IDM SA issued shares and units to Medarex, pursuant to the Unit Purchase Agreement signed with Medarex in July 2000. Each “unit” comprised one IDM SA share and 19 warrants, each warrant giving the right to subscribe for one bond convertible into or redeemable for one IDM SA share, at a price of $10.01 per bond, from

September 11, 2002 through September 10, 2012. These warrants were exercised on August 12, 2005, prior to the Combination, all of the bonds were converted, and Medarex now owns approximately 19.7% of our outstanding common stock.

      We also signed a Development Collaboration and Supply Agreement with Medarex in May 2002, referred to as the DCS Agreement, under which we agreed to collaborate and share information with Medarex for the development of dendritic cell products using anti-CTLA-4 antibody, which is administered alone or in conjunction with anticancer vaccines to boost immune response. Medarex has primary responsibility for developing the commercial scale manufacturing process for the anti-CTLA-4 antibody for Phase III and commercialization, while we have primary responsibility for preclinical and clinical trials related to the dendritic cell products.

      Under the DCS Agreement, each party granted to the other the right to use and reference marketing authorization approvals for dendritic cell products jointly developed under the DCS Agreement using the anti-CTLA-4 antibody, together with information of either party that is relevant to the development of dendritic cell products. In addition, each party granted to the other certain limited worldwide exclusive licenses under patents related to the collaboration. In consideration of the rights and licenses granted by each party to the other, we agreed to pay to Medarex certain milestone payments upon approval of the first biologic license application or equivalent in the United States, upon regulatory approval for marketing in the European Union, and upon regulatory approval for marketing in Japan. If Medarex grants a sublicense under the rights and licenses granted to Medarex by us under the DCS Agreement to a third party for the research, development or commercialization of a product based on Dendritophages for prostate cancer, Medarex has agreed to pay us a certain percentage of net revenues received from the sublicensee. Further, if Medarex grants a sublicense to a third party under certain of our patents or joint patents, then Medarex has agreed to pay us a percentage of net revenues received from the sublicensee, which percentage varies depending on the characteristics of the sublicense.

      The DCS Agreement is effective until May 2007 or, if shorter, the term of the product development program.

License Agreement with Novartis
      Through the acquisition of certain assets relating to Junovan from Jenner Biotherapies in April 2003, we obtained an exclusive worldwide license from Ciba-Geigy Ltd., now known as Novartis, covering patent rights to compounds that we use in the production of Junovan and Jenact. Under the license agreement, we are required to make certain milestone payments with respect to each of these compounds upon completion of specific development milestones. We also agreed to pay royalties with respect to net sales of the licensed products. Part of the milestone payments may be credited against these royalty obligations. Unless earlier terminated, the license agreement shall continue on a country-by-country and product-by-product basis until there are no remaining royalty payments in each country covered by the patents obtained under the agreement. In addition to certain standard termination clauses, we may terminate the agreement with respect to any patent upon 60 days’ written notice.

Collaboration with Biotecnol
      In March 2001, we entered into a Prototype Production Contract with Biotecnol S.A., or Biotecnol, a Portuguese company specializing in the general use of Escherichia coli, or E-coli, as a host for the expression of proteins. The objective of the contract is to develop a process for the production of IL-13 using E-coli as a host. Under the terms of this contract, we paid a success fee to Biotecnol in August 2002.

      We have been pursuing IL-13 development in collaboration with Biotecnol since April 2003, based on a Letter of Intent we executed with Biotecnol on March 2003. In November 2003, we and Biotecnol entered into an IL-13 Development and Manufacturing Agreement, referred to as the 2003 Agreement. This agreement aims at developing a GMP IL-13 process and its future manufacturing and is effective for five years, commencing upon the release of the first finished product batch which meets the contractual

specifications and includes recombinant IL-13 formulated in vials usable for Phase III clinical trials, referred to as clinical grade IL-13.

      Under the 2003 Agreement, Biotecnol will complete development of clinical grade IL-13 according to a program of GMP manufacturing, control, testing and release, as defined with advice from Sanofi-Aventis. Under the terms of the 2003 Agreement, Biotecnol will use a subcontractor for GMP manufacturing. The 2003 Agreement provides that we will provide financial support payable upon the occurrence of certain milestone events and based on the decisions of the parties to continue development.

      Once development of the IL-13 production process is completed, Biotecnol will oversee the ongoing management of the outsourcing of manufacturing and release of the finished product for a renewable five-year period beginning with the release of the first finished product batch.

      We may decide not to renew the outsourcing of IL-13 to Biotecnol after the end of the manufacturing period, upon payment of cancellation fees. The amount of cancellation fees shall be agreed upon between the parties and may not exceed the management fee of one finished product batch. This amount decreases by 20% per year thereafter.

      Either party may terminate the 2003 Agreement on the basis of a recommendation from the joint management committee if certain program specifications and targets are not met and/or before manufacturing of the first product batch is initiated. We are also entitled to terminate the 2003 Agreement at any time during the manufacturing period if the finished product stability is not satisfactory. Biotecnol is entitled to terminate the process performance at any time by providing 18 months’ prior notice. In addition, either we or Biotecnol may terminate the 2003 Agreement with immediate effect upon written notice on or at any time after the occurrence of certain events, such as breach of contract or liquidation.

License Agreement with Eli Lilly
      Through the acquisition of certain assets of Jenner Biotherapies, we obtained a co-exclusive worldwide license from Eli Lilly and Company for patent rights and biological materials relating to the development of products based on KSA. Under this agreement, we will be obligated to pay royalties on net sales if we commercialize a KSA product. In addition, we will be required to pay milestone payments upon certain clinical or regulatory events for a KSA product. Part of one of the milestone payments may be credited against our royalty obligations. Unless earlier terminated, the license agreement shall continue until the latest expiration of any patent right in its scope. In addition to certain standard termination clauses, we may terminate the license agreement with respect to any country and/or any patent right in its scope upon 60 days’ notice.

Other Agreements and Licenses
      We also have licenses to use other products we require to produce certain of our Cell Drugs. For example, we have an exclusive worldwide license from the Institut National de la Santé et de la Recherche Médicale, or INSERM, and non-exclusive worldwide licenses from the Colorado Oncology Foundation and the Sloan-Kettering Institute for the use of their melanoma cell lines to produce lysates. Lysates from the melanoma cell lines licensed to us from these third parties are already used in our Cell Drug Uvidem. Under each of our license agreements with INSERM, the Colorado Oncology Foundation and the Sloan-Kettering Institute, we have agreed to pay royalties on sales of products using the applicable technology.

      We have an Intellectual Property Licensing and Framework Agreement with Institut de Recherche Pierre Fabre and Pierre Fabre Médicament S.A., together, referred to as Pierre Fabre, under which we have a worldwide exclusive license for the use of FMKp, a certain portion of the membrane of a specific bacteria, as a maturation agent for our Dendritophages. Pierre Fabre agreed to supply us with necessary quantities of research grade FMKp and back-up compounds for our research and development activities at no additional cost, and with clinical trial supplies of FMKp at a price to be negotiated between the parties. Under this agreement, we paid Pierre Fabre up-front payments and agreed to pay an annual maintenance fee as well as

milestone payments. We further agreed to pay Pierre Fabre success fees when Cell Drugs requiring FMKp are marketed.

      We entered into a Cooperative Research and Development Agreement, or CRADA, with the Walter Reed Army Institute of Research for research and developments in the field of liposomal vaccine formulations using our liposomal KSA vaccine.

      In July 2001, we entered into a development and supply agreement with Stedim S.A., a French company specializing in the design and manufacture of flexible single-use plastic bags, medical devices and related ancillaries for the medical and pharmaceutical industries. Under this agreement, Stedim will design, manufacture and sell to us specialized sterile plastic bags and ancillary products used in manufacturing our cell-based products. In return, we agreed to purchase the products from Stedim exclusively. We have also agreed not to apply for any patents on the products or technology provided by Stedim.

Government Research Funding

      In 2003, we received a European Union research grant to conduct studies related to breast cancer, as well as a grant through a French Government sponsored program.

      A new European Union research grant related to our Dendritophage and liposomal KSA technologies was received in December 2003. We expect to receive approximately $0.7 million in total through this grant.

      In March 2004, we received a grant from the NCI to define and conduct preclinical testing of a multi-epitope, clinical vaccine candidate for ovarian and breast cancer. We are collaborating with investigators at the Mayo Clinic on the program with an objective of designing a vaccine to induce HTL responses directed against multiple tumor associated antigens in order to prevent or delay disease recurrence after surgery and chemotherapy.

      In May 2004, we received a grant from the NCI to support our continuing and detailed analysis of the immune responsiveness of patients immunized with our multi-epitope cancer vaccine candidate, EP-2101, in the Phase I/ II clinical trials we conducted with the vaccine.

Acquisition of Certain Assets from Jenner Biotherapies

      In March 2003, we entered into an Asset Purchase Agreement with Jenner Biotherapies, Inc., a biotechnology company, now dissolved, that was devoted to the development of cancer vaccines and macrophage activators. Pursuant to the terms of the agreement, we purchased certain assets of Jenner Biotherapies, including its lead product candidate, Junovan, and various agreements, patents, licenses and other intellectual property rights associated with Jenner Biotherapies’ cancer vaccine programs. The assets were acquired for shares in our subsidiary, IDM S.A., and Jenner’s successors now own shares of our common stock as a result of the Combination.

Intellectual Property

Patents
      Patents and other proprietary rights are critical to our business. We maintain a policy of filing patent applications to protect our technology and products, including our Cell Drugs and other product candidates, processes for preparing our product candidates, pharmaceutical compositions containing such products and, in the United States, methods of treatment of the human body. Some of our patent applications cover key technologies underlying the products in our developmental pipeline and are issued or pending in jurisdictions that are key to our business. We classify our patents and proprietary rights into four groups: dendritic cells, macrophages, cellular technology and immuno-designed molecules. The dendritic cell group contains patents and applications related to Dendritophages or more mature dendritic cells. The macrophage group of patents focuses on monocyte-derived macrophages and protects methods for their preparation and their use, including combinations with antibodies. The cellular technology group of patents contains patents and applications protecting different methods or kits usable for dendritic cells as well as for macrophages. The immuno-

designed molecules family of patents represents immune system stimulants and new complexes allowing for efficient modification of cells. It also includes the patents acquired from Jenner Biotherapies, in particular those covering Junovan, Jenact and certain tumor antigens, such as prostate specific antigen, or PSA, and KSA.

      Our policy is to extend patent coverage to countries that represent market opportunities for our products and/or our technology, in order to be able to sell licenses or form partnering alliances for joint development of our technologies in related fields. We also rely on trade secrets, confidentiality agreements and other measures to protect our technology and products.

      The original patents covering Junovan expired and only the patent relating specifically to liposomal formulation of Junovan will remain valid until 2007 in the United States, with a possible extension for up to five years. However, if we receive regulatory approval for Junovan and choose to commercialize it, we will have a seven-year period of marketing exclusivity for Junovan for the treatment of osteosarcoma in the United States as a result of Junovan’s designation as an orphan drug for osteosarcoma by the FDA. This seven-year period would begin on the date that our marketing application for Junovan is approved by the FDA. During this period, the FDA would be barred from approving a third-party’s marketing application for the same drug for the same application. The FDA would not, however, be barred from approving a third-party’s marketing application for Junovan for a type of cancer other than osteosarcoma or for a drug other than Junovan for the treatment of osteosarcoma, if it is shown to be more effective. Similarly, we will have a 10-year marketing exclusivity in Europe as a result of Junovan’s designation as an orphan drug for osteosarcoma by the EMEA. Furthermore, in August 2005 we filed a new patent application for an improved Junovan manufacturing process, which covers lyophilisate and product obtained by such process. The orphan drug designation in the United States and Europe for Junovan and the manufacturing process patent may not provide us with adequate protection from competitive products.

      Most issued patents granted, or deemed to be granted, by the European Patent Office, or EPO, can be validated as individual patents in eight key countries within Europe. As a result of multi-country validation of our EPO patents (coupled with our issued patents and patent applications in non-European countries), our patent portfolio comprised, as of January 2006, a total of 157 issued patents and 110 patent applications.

      In addition, we have been granted licenses to patents covering several products by our collaboration partners. We have exclusive or non-exclusive rights to 112 licensed patents (85 issued, 27 pending) covering loading and dendritic cell differentiation/maturation technologies as well as tumor antigens. We also have two licenses covering tumor epitopes, one from the National Institutes of Health, or NIH, and one from the Ludwig Institute for Cancer Research.

      With respect to our technology, know-how and data, we have chosen to protect our interests by relying on confidentiality agreements with our employees, consultants and certain contractors. In addition, we have a policy of entering into confidentiality agreements with our collaborators and licensees.

Trademarks
      As of February, 2006, we have 17 trademarks, including trademarks registered in the United States, Canada, France, Switzerland, Australia, Japan, Israel and Hungary, as well as Community Trademarks registered in all of the countries of the European Union. Our portfolio includes the following trademarks registered in the following countries:

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


      We have also filed a trademark application in the European Union covering the IDM logo, as well as trademark applications in Canada and Japan covering five names for our Cell Drugs, Uvidem, Bexidem, Collidem, Eladem and Osidem, which are registered in the United States and the European Union.

Government Regulation

      Our research and development, preclinical testing, clinical trials, facilities and manufacturing and marketing of our products are, and will be, subject to extensive regulation by numerous governmental authorities including those in the United States and the European Union. The FDA, the EMEA and regulatory authorities in other countries impose substantial requirements on the development, clinical testing, manufacturing and marketing of products such as those we propose to develop. If we do not comply with applicable requirements, we may be fined, our products may be recalled or seized, our production may be totally or partially suspended, the relevant regulatory agency may refuse to approve our marketing applications or allow us to distribute our products, and we may be criminally prosecuted. Regulatory authorities also have the authority to revoke previously granted marketing authorizations due to a failure to comply with regulatory standards.

      Although specific procedures differ in detail from country to country, the development of human therapeutic drugs follows essentially the same procedures and is subject to essentially the same regulatory system throughout much of the world. In order to obtain approval of a product, we typically must, among other requirements, submit proof of safety and efficacy as well as detailed information on the manufacture, control and composition of the product. In most cases, this proof entails extensive preclinical, clinical and laboratory tests. The path of a new drug from basic research to market includes five stages: (i) research, (ii) preclinical testing and manufacturing, (iii) human clinical trials, (iv) regulatory approval and (v) commercialization.

      Regulatory authorities may also require post-approval testing and surveillance to monitor the effects and safety of approved products or may place conditions on any approvals that could restrict the commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with the terms and conditions of any regulatory approvals granted or encounter problems following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the period during which we will have the exclusive right to exploit them.

Regulation of Clinical Trials
      Human clinical trials are usually conducted in three sequential phases that may overlap. In Phase I, the drug is typically introduced into healthy human subjects or patients with the disease to be treated to determine the initial safety profile, identify side effects and evaluate dosage tolerance, distribution and metabolism. In Phase II, the drug is studied in a limited patient population with the target disease to determine preliminary efficacy and optimal dosages and to expand the safety profile. Regulatory authorities may permit Phase II and Phase III to be combined into a single Phase II/ III trial by accepting a protocol that typically includes a planned interim analysis after an initial group of patients (Phase II) is treated to help guide a decision about continuation or modification for the Phase III portion. This is likely to occur when it would not be appropriate to conduct Phase I studies on healthy human subjects, as is the case with our cellular products. In Phase III, large-scale comparative trials are conducted in patients with the target disease to provide sufficient data for the proof of efficacy and safety required by regulatory agencies for marketing approval. Regulatory authorities may permit Phase II and Phase III to be combined into a single Phase II/ III trial by accepting a Phase III protocol in which a limited group of patients is first treated, and the results are evaluated. The total number of patients to be studied in order for the Phase III trial to be significant is determined based on these results. Post marketing clinical trials may also be needed for purposes such as to elucidate the incidence of adverse reactions, to explore a specific pharmacological effect, or to obtain more information of a circumscribed nature. In most countries, clinical trials must be conducted in accordance with the Good Clinical Practices requirements published by the International Conference on the Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use.

      Regulatory approval is required for the conduct of clinical trials. Regulatory authorities may block, suspend or require substantial modifications to clinical trial protocols proposed by companies seeking to test products. In the United States, in particular, an IND setting forth protocols for proposed clinical trials must be filed with the FDA and must become effective before human clinical trials may begin. If the FDA does not object to an IND application, the application becomes effective 30 days following its receipt by the FDA. At any time during this 30-day waiting period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials. Such a halt, called a clinical hold, continues in effect until and unless the FDA’s concerns are adequately addressed. In addition, the Institutional Review Board, or IRB, used by any clinical site may delay or may permanently or temporarily halt clinical trials should safety or regulatory concerns arise. Imposition by the FDA of a clinical hold, or a similar delay imposed by the IRB at a clinical site or by the regulatory authorities of another jurisdiction, could delay, or even prevent, the conduct of clinical trials and, therefore, product development.

Regulation of Marketing Approval
      Results of preclinical and clinical trials are submitted to the FDA in the United States or the EMEA in the European Union along with, among other things, detailed information relating to the manufacture and testing of the product candidate, in the form of a marketing authorization application. The preparation of necessary marketing applications and processing of those applications by the relevant regulatory authority are expensive and typically take several years to complete.

      In 1997, the FDA put in place a new comprehensive and risk-based system to regulate human cellular therapeutic products. The goal of the approach is to improve protection of public health without imposing unnecessary restrictions on research, development or the availability of new products. Like other human biologics, cellular products that are under development are also subject to review and approval by the Center for Biologics Evaluation and Research, or CBER, a division of the FDA, prior to the conduct of human clinical trials (as INDs) and marketing (as BLAs). The establishment of marketed human cellular products is subject to registration and listing requirements. Manufacturers for these products are expected to comply with GMPs and the requirements for donor suitability, and the proposed Good Tissue Practice. The FDA’s Center for Drug Evaluation and Research, or CDER, is responsible for reviewing and approving Junovan as an oncology drug product under a similar review and approval process as that for cellular therapeutic products. Junovan is on the track for premarketing application as a small molecule drug for marketing approval as an NDA, after it was reclassified by CDER from a biological drug.

Fast Track and Accelerated Approval
      In the United States, Congress enacted the Food and Drug Administration Modernization Act of 1997, or FDAMA, in part to ensure the availability of safe and effective drugs, biologics and medical devices by expediting the FDA review process for new products. The FDAMA establishes a statutory program for the approval of fast track products. A fast track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for this condition. Under the fast track program, the sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a fast track product at any time during the clinical development of the product. Also, under the fast track designation, rolling applications may be allowed for the submission of certain components of the marketing application (an NDA or a BLA) before the remaining sections are completed and submitted to the FDA.

      The FDAMA specifies that the FDA must determine if the product qualifies for fast track designation within 60 days of receipt of the sponsor’s request. The FDA can base approval of a marketing application for a product on an effect, on a surrogate endpoint or on another endpoint that is reasonably likely to predict clinical benefit; this is referred to as accelerated approval. A surrogate endpoint is a laboratory finding or physical sign that may not, in itself, be a direct measurement of how a patient feels, functions or survives, but nevertheless is considered likely to predict therapeutic benefit. The FDA may subject a product that receives accelerated approval to post-approval studies to validate the surrogate endpoint and to confirm the effect on the clinical endpoint and prior review of all promotional materials. In addition, the FDA may withdraw its approval on a

number of grounds, including the sponsor’s failure to conduct any required post-approval study with due diligence. As a further safeguard, distribution of drugs that have received accelerated approval can be limited to institutions that have the capability to use them safely and to physicians with specialized training or experience. The FDA can also require that specific medical procedures, such as blood tests, be carried out if they are deemed essential for safe and effective use of the product.

Orphan Drugs
      The Orphan Drug Act of 1983 encompasses a set of laws that encourages the development of treatments for rare diseases. The FDA grants orphan drug status for any drug intended for rare diseases or conditions affecting less than 200,000 persons per year in the United States. The Orphan Drug Act also provides an opportunity to obtain grant funding from the U.S. government to defray costs of clinical trial expenses, tax credits for clinical research expenses, potential waiver of the FDA’s application user fee and seven years of marketing exclusivity in the event of market approval. In the European Union, a comparable legislative framework was established to promote the development of products for rare and serious diseases. A medicinal product will qualify for orphan drug treatment in the European Union if its sponsor shows in an application to the EMEA that the drug is intended for the treatment of a disease affecting not more than five in 10,000 persons in the European Union and that there currently exists no satisfactory method of treating the condition. Orphan drug designation in the European Union gives the possibility to benefit from a ten-year exclusive marketing period during which no directly competitive similar products could be placed on the European Union market, as well as regulatory fee exemptions and other incentives to commercialization. Our lead product candidate, Junovan, has received orphan drug designation for osteosarcoma in both the United States and the European Union.

      A centralized procedure has been created in the European Union for the regulatory approval of specified human medicinal products such as Junovan. This procedure prescribes a single application, a single evaluation and a single authorization allowing a company to market its therapeutic product in all the Member States of the European Union. Given that our Cell Drugs are novel treatments, we are not certain whether they would be able to benefit from this regulation. If they cannot, then we would have to apply for regulatory approval in individual Member States of the European Union. Should we obtain approval in a particular Member State, we may be able to benefit from a European Union mutual recognition procedure for other Member States.

      We are also subject to the ongoing regulatory requirements of the FDA and other regulatory agencies. In the United States, the FDA will inspect the manufacturing facilities for product candidates prior to approving a BLA or NDA to ensure that the facilities are in compliance with the GMPs. The FDA will continue to periodically inspect drug and biologic manufacturing facilities following approval of a BLA or NDA to ensure compliance with FDA regulations with, among other things, quality control and record keeping. The failure of manufacturers to comply with current FDA requirements may lead to legal or regulatory action, including suspension of manufacturing and the recall of products.

      If we receive regulatory approval and are successful in marketing our product candidates, including our lead product candidate, Junovan, in the United States, we will be subject to strict regulation of labeling, advertising, promotion, marketing, product distribution and postmarketing surveillance. In the United States, such regulation of drug products and biologics is monitored and enforced by the FDA and the Federal Trade Commission, or FTC. The FDA and FTC have broad enforcement powers relating to the regulation of areas including direct-to -consumer advertising, off-label promotion and industry sponsored scientific and educational activities. Violations of current regulations can result in warnings, orders to correct regulatory shortcomings, seizures of products, injunctions and criminal prosecution.

Environmental and Health and Safety Laws and Regulations

      We are also subject to environmental and health and safety laws and regulations governing, among other things, the use, storage, handling, discharge and disposal of hazardous materials, including chemicals and biological and radioactive materials in the countries in which we operate, which significantly impact our

operations. In each of these areas, federal, state and local regulatory agencies have broad powers to enforce current regulations and to invoke penalties for compliance failures.

Competition

      The biotechnology and pharmaceutical sector is characterized by rapidly evolving technology and intense competition. Many entities, including pharmaceutical and biotechnology companies, academic institutions and other research organizations, have products on the market and are actively engaged in the discovery, research and development and commercialization of immunotherapy and other novel approaches and products for the treatment of cancer. Should Junovan or any of our product candidates be approved for marketing, they would most likely directly compete, on an indication-by-indication basis, against other immunotherapy products, and to a lesser extent against more established cancer therapies, including chemotherapy and hormonal therapy.

      Several biotechnology companies have products that utilize similar technologies and/or personalized medicine techniques for the treatment of cancer. Dendreon Corporation’s most advanced cancer vaccine, Provenge, completed two Phase III clinical trials for prostate cancer and the company plans to file a BLA in 2006. AVAX Technologies Inc.’s autologous therapeutic platform vaccines are in clinical trials for melanoma and non-small cell lung cancer and commercially approved in Switzerland for melanoma. Intracel’s OncoVax, currently approved for administration in the Netherlands, Switzerland and Israel, is in a Phase III trial in the U.S. for colon cancer. Cell Genesys Inc.’ GVAX vaccine that includes genetically modified tumor cells, is currently in a Phase III trial for prostate cancer and in trials for acute myelogenous leukemia and pancreatic cancer. Antigenics Inc.s’ Oncophage, containing peptides isolated from the patient’s tumor, is currently in Phase III trials for kidney cancer and melanoma.

      Other innovative therapies either under development or recently introduced onto the market, including monoclonal antibodies, angiogenesis inhibitors and epidermal growth factor, inhibitors could also represent competition for our products, although it is likely that many of these modalities will be used in combination.

      Many of our competitors developing cancer therapies have significantly greater financial, manufacturing, marketing and product research resources and experience than we do. Large pharmaceutical companies in particular have substantially more extensive experience in clinical testing and in obtaining regulatory approvals than we do. Accordingly, competitors may obtain regulatory approvals for and commercialize their cancer treatments faster than us.

      We must compete with other companies to acquire rights to products and technologies in the cancer treatment field, which is extremely competitive, which drives up the prices necessary to acquire products and technologies. We also compete with other pharmaceutical companies and academic institutions to recruit and retain highly qualified scientific, technical and management personnel.

Financial Information About Geographic Areas

Long-lived Assets
      Other than goodwill, which is 100% held at our U.S. parent level, during the last three years, approximately 90% of our long-lived assets, including, property, patents, trademarks and other intangible assets, and research and development tax credits, were held at our French subsidiary, IDM, S.A.

Risks Associated with Foreign Operations
      Our operations in the U.S. are conducted and reported in U.S. dollars while those of our French subsidiary our denominated in euros. When we consolidate and report results, we translate the results and balances of our subsidiary into U.S. dollars. We do not hedge currency exchange rate exposure, including against the euro, and any unfavorable currency exchange rate movements of the dollar versus the euro could negatively impact our dollar denominated cash balances.

Employees

      As of December 31, 2005, we had 34 full-time employees in the United States. Of this total, 25 were research and development staff and 9 were general and administrative staff.

      As of December 31, 2005, our French subsidiary, IDM S.A. had 73 employees in France (69 full-time and 4 part-time). Of this total, 54 were research and development staff and 19 were general and administrative staff. Employment contracts with all of our employees in France are subject to the provisions of the French Convention Collective de l’Industrie Pharmaceutique (the Collective Agreement for the Pharmaceutical Industry).

      We believe that our relations with our employees are good.

Available Information

      Our website address is www.idm-biotech.com. We make available free of charge through our website our annual report on Form  10-K, quarterly reports on Form  10-Q, current reports on Form  8-K, and all amendments to these reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

Item 1A.      Risk Factors

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

Our lead product candidate, Junovan, may never obtain regulatory approval.

      The results of a Phase III clinical trial for our lead product candidate, Junovan, for the treatment of osteosarcoma have been analyzed and were submitted to the FDA in 2004. This trial was conducted by Children’s Oncology Group under an IND held by the National Cancer Institute, prior to the purchase of Junovan from Jenner Biotherapies, Inc. in 2003. We have been in discussion with the FDA, including a pre-NDA meeting with the CDER’s Division of Drug Oncology Products in early 2006, regarding the filing requirements and the most expedient pathway for potential approval of Junovan. We may request fast track designation and, possibly, accelerated approval for Junovan. The FDA may not agree to grant fast track designation should we seek such designation, which may delay the submission or approval process in the United States. We have also completed a Protocol Assistance Request Process and a pre-submission meeting with the EMEA, on the most expedient pathway for potential approval of Junovan in the European Union. Regulatory authorities in the United States and the European Union may not consider preclinical and early clinical development work conducted by Ciba-Geigy and efficacy data from the Phase III trial conducted by Children’s Oncology Group as adequate for its assessment of Junovan and may require us to conduct additional clinical trials. We may not receive necessary approvals from the FDA, the EMEA or similar drug regulatory agencies for the marketing and commercialization of Junovan when expected or at all. Even assuming we receive regulatory approval for Junovan, we do not expect regulatory approval to occur before 2007 at the earliest.

      We have resumed manufacturing Junovan components by third-party suppliers based on the specifications and processes established during the Phase III trial. We have produced Junovan materials that meet the prior specifications for the product used in clinical trials. A proposed protocol for demonstration of comparability has been reviewed by the FDA. We have initiated comparability studies with the new materials so that the data generated under prior preclinical and clinical trials can be used to support regulatory approval. If we fail to consistently demonstrate, through extensive analytical testing and appropriate preclinical studies, that the new Junovan materials produced by subcontractors is comparable to the materials used in the Phase III clinical trial and complies with the current GMP requirement for liposomal drug products as well, additional preclinical or clinical studies may also be required by the regulatory agencies in order to complete comparability analysis; thus delayed the filing plan and approval timing in the intended geographies.

      The development of Junovan suitable for commercial distribution, the preparation of our marketing approval applications to the FDA and the EMEA and stringent manufacturing requirements have required and will continue to require significant investments of our time and money, as well as the focus and attention of our key personnel. As a result, if we fail to receive or are delayed in receiving regulatory approval for Junovan, our financial condition and results of operations will be significantly and adversely affected.

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

      We expect to depend in the medium term on the commercialization of Junovan for the majority of our revenues, assuming that Junovan receives regulatory approval. Junovan is the only product candidate for which we are preparing a marketing authorization application. Any revenues generated will be limited by the number of patients with osteosarcoma, our ability to obtain appropriate pricing and reimbursement for Junovan, and the effects of competition.

      In particular, we will face competition from existing therapies and, potentially, competition from any new future treatments. Junovan has received orphan drug designation in the United States and in Europe, which will provide us with a seven-year period of exclusive marketing in the United States commencing on the date

of FDA approval and a 10-year period of exclusive marketing in Europe commencing on the date of EMEA approval. This will apply only to osteosarcoma, the indication for which Junovan has been designated as an orphan product. However, we may lose this marketing exclusivity should a new treatment be developed which is proven to be more effective than Junovan. In addition, although our patents will protect the liposomal formulation of Junovan until 2005 in Europe and 2007 in the United States, with a possible extension until 2010 in Europe and 2012 in the United States, certain other patents covering the active ingredient in Junovan expired at the end of 2003. As a result, if a competitor develops a new formulation for Junovan, we may face generic competition following the expiration of market exclusivity under the orphan drug designation, which we expect to occur in 2014 with respect to the United States and 2017 with respect to Europe.

      If we are not able to commercialize Junovan successfully, we may not bring to market our other product candidates for several years, if ever, and our prospects will be harmed as a result.

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

      Our product candidates other than Junovan are at early stages of development, and we may fail to develop and successfully commercialize safe and effective treatments based on these products or other technology. For each product candidate, we must demonstrate safety and efficacy in humans through extensive clinical testing, which is very expensive, can take many years and has an uncertain outcome. We may experience numerous unforeseen events during or as a result of the testing process that could delay or prevent testing or commercialization of our products, including:

  •  the results of preclinical studies may be inconclusive, or they may not be indicative of results that will be obtained in human clinical trials;
 
  •  after reviewing test results, we or our collaborators may abandon projects that we might previously have believed to be promising and we would either have to bear the operating expenses and capital requirements of continued development of our therapeutic cancer vaccines or abandon the projects outright;
 
  •  we, our collaborators or government regulators may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks;
 
  •  we may have to delay clinical trials as a result of scheduling conflicts with participating clinicians and clinical institutions, or difficulties in identifying and enrolling patients who meet trial eligibility criteria;
 
  •  safety and efficacy results attained in early human clinical trials may not be indicative of results that are obtained in later clinical trials;
 
  •  the effects of our immunotherapeutic product candidates may not be the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use, if ever approved;
 
  •  enrollment in clinical trials for our product candidates may be slower than anticipated, resulting in significant delays; and
 
  •  the effects of our product candidates on patients may not have the desired effects or may include undesirable side effects or other characteristics that may delay or preclude regulatory approval or limit their commercial use, if approved.

      The data collected from clinical trials may not be sufficient to support regulatory approval of any of our products, and the regulatory agencies may not ultimately approve any of our products for commercial sale, which will adversely affect our business and prospects. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our operating income, stock price and ability to conduct business as currently planned could be materially and adversely affected.

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

      The principal source of revenues and cash receipts for us is the July 2001 collaboration agreement between our subsidiary, IDM S.A., and Sanofi-Aventis. For 2005, on a consolidated basis, Sanofi-Aventis represented approximately 80% of our revenue. Although Sanofi-Aventis has the option to jointly develop and commercialize up to 20 of our therapeutic products derived from the patient’s own white blood cells, referred to as cell drugs, over a 10-year period, to date, Sanofi-Aventis has exercised an option for only one product candidate, Uvidem. Under the collaboration agreement, Sanofi-Aventis has no obligation to participate in the development of additional cell drugs. If we are not successful in developing commercially viable product candidates, Sanofi-Aventis may not elect to exercise additional options. If we fail to meet further milestones in the clinical development of Uvidem, Sanofi-Aventis will have no further milestone obligations with respect to Uvidem. Additionally, Sanofi-Aventis may terminate its participation in any given development program at any time without penalty and without affecting its unexercised options for other product candidates. If Sanofi-Aventis does not exercise additional options, or if we are not successful in achieving additional development milestones for Uvidem, we will not receive additional payments from Sanofi-Aventis and our prospects, revenues and operating cash flows will be significantly and negatively affected.

Our revenues and operating results are likely to fluctuate.

      Our revenues and operating results have fluctuated in the past, and our revenues and operating results are likely to continue to do so in the future. This is due to the non-recurring nature of these revenues, which are derived principally from payments made under the collaboration agreement with Sanofi-Aventis and from government grants and contracts. We expect that our only sources of revenues until commercialization of our first immunotherapy product will be:

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

      These revenues have varied considerably from one period to another and may continue to do so, since they depend on the terms of the particular agreement or grant, or the performance of the particular investment. In addition, termination of any of these arrangements would have a significant impact on our prospects, revenues and results of operations. As a result, we believe that revenues in any period may not be a reliable indicator of our future performance. Deviations in our results of operations from those expected by securities analysts or investors also could have a material adverse effect on the market price of our common stock.

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

      We have experienced significant operating losses since our inception. Our cumulative net loss was $155.1 million as of December 31, 2005. It is likely that we will continue to incur substantial net operating losses for the foreseeable future, which may adversely affect our ability to continue operations. 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. Substantially all of our revenues for the foreseeable future are expected to result from similar sources. To achieve profitable operations, we, alone or with collaborators, must successfully identify, develop, register and market proprietary products. We do not expect to generate revenues from the commercialization of any product until 2007 at the earliest, assuming that one or more regulatory agencies approve Junovan’s commercialization, which may not occur when expected or at all. We may not be able to generate sufficient product revenue to become profitable. Even if we do achieve profitability, we may not be able to sustain or increase our profitability on a quarterly or yearly basis.

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

      We will continue to spend substantial amounts on research and development, including amounts spent for manufacturing clinical supplies, conducting clinical trials for our product candidates, advancing development of certain sponsored and partnered programs and the commercialization of Junovan once it has received regulatory approval. Therefore, we will need to raise additional funding. We do not have committed external sources of funding and may not be able to obtain any additional funding, especially if volatile market conditions persist for biotechnology companies. If we are unable to obtain additional funding, we may be required to delay, reduce the scope of or eliminate one or more of our research and development projects, sell certain of our assets (including one or more of our drug programs or technologies), sell our company, or dissolve and liquidate all of our assets. Our future operational and capital requirements will depend on many factors, including:

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

      We will likely seek additional funding through collaboration and license agreements, government research grants and/or equity or debt financings. In the event we are able to obtain financing, it may not be on favorable terms. In addition, we may not be able to enter into additional collaborations to reduce our funding requirements. If we acquire funds by issuing securities, dilution to existing stockholders will result. If we raise funds through additional collaborations and license agreements, we will likely have to relinquish some or all of the rights to our product candidates or technologies that we may have otherwise developed ourselves.

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

      We are dependent on the principal members of our scientific and management staff, including Dr. Jean-Loup Romet-Lemonne, Chief Executive Officer, Dr. Bonnie Mills, Vice President, Clinical Operation and

General Manager, U.S., Mr. Guy Charles Fanneau de la Horie, Vice President, General Manager, Europe, and Mr. Hervé Duchesne de Lamotte, Vice President Finance, Europe. We have previously entered into employment contracts with the aforementioned scientific and management staff which we believe provide them incentives to remain as employees with us, although there can be no assurance they will do so. We recently announced that Mr. De Vaere, our Chief Financial Officer will be leaving us at the end of March 2006 and we are presently engaged in a search to find a replacement for him. We do not maintain key person life insurance on the life of any employee. Our ability to develop immunotherapeutic products and vaccines, identify epitopes, and achieve our other business objectives also 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. We do not have employment agreements with our non-management scientific personnel. There is intense competition for qualified personnel in biochemistry, molecular biology, immunology and other areas of our proposed activities, and we may not be able to continue to attract and retain such personnel necessary for the development of our business. Because of the intense competition for qualified personnel among technology-based businesses, particularly in the Southern California area, we may not 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 delay or be significantly detrimental to our product development programs and could cause our stock price to decline.

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

      Certain immunotherapy products may produce serious side effects. Many antibody-based therapies have shown toxicity in clinical trials. If our immunotherapy product candidates prove to be ineffective, or if they result in unacceptable side effects, we will not be able to successfully commercialize them and our prospects will be significantly and adversely affected. In addition, there may be side effects in our current or future clinical trials that may be discovered only after long-term exposure, even though our safety tests may indicate favorable results. We may also encounter technological challenges relating to these technologies and applications in our research and development programs that we may not be able to resolve. Any such unexpected side effects or technological challenges may delay or otherwise adversely affect the development, regulatory approval or commercialization of our drug candidates.

      Our business will expose us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. While we currently have product liability insurance for early stage clinical trials, we cannot be sure that we will be able to maintain such insurance on acceptable terms or obtain acceptable insurance as we progress through product development and commercialization, or that our insurance will provide adequate coverage against potential liabilities, either in human clinical trials or following commercialization of any products we may develop.

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

      Despite any favorable safety tests that may be completed with respect to our product candidates, adverse publicity regarding immunotherapeutic products or other products being developed or marketed by others could negatively affect us. If other researchers’ studies raise or substantiate concerns over the safety or side effects of our technology approach or product development efforts generally, our reputation and public support for our clinical trials or products could be harmed, which would adversely impact our business and could cause the price of our common stock to decline.

Our treatment approach may not prove effective.

      Our immunotherapeutic treatment approach is largely untested. To date, only a limited number of immunotherapeutic antibody-based and vaccine-based products designed to fight cancer have been approved for commercialization, and for only a few specific types of cancer. The basis for most immunotherapeutic treatment approaches being developed for the treatment of cancer is the discovery that cancer cells express

more of certain proteins, known as antigens, on their surfaces, which may allow them to be distinguished from normal cells. Immunotherapy is designed either to manipulate the body’s immune cells to target antigens and destroy the cancer cells that over express them or to activate the body’s immune system generally. However, immunotherapy has failed in the past for a number of reasons, including:

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

      Our strategy involves identifying multiple epitopes in order to create our vaccines. Unless we identify the correct epitopes and combine them in the correct manner to stimulate desired immune responses, we may never develop a vaccine that is safe or effective in any of the indications that we are pursuing.

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

      We will need to enter into and maintain collaborative arrangements with pharmaceutical and biotechnology companies or other strategic partners both for development and for commercialization of potential products in markets where it would be too costly or complex to do so on our own. Currently, our only collaboration is with Sanofi-Aventis. If we are not able to maintain our existing strategic collaboration and enter into and maintain additional research and development collaborations or other collaborations in the future on acceptable terms, we may be forced to abandon development and commercialization of some product candidates and our business will be harmed.

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

      Our collaborations and license arrangements generally pose the following risks:

  •  collaborators and licensees may not pursue further development and commercialization of potential products resulting from our collaborations or may elect not to renew research and development programs;
 
  •  collaborators and licensees may delay clinical trials, underfund a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require new formulation of a product candidate for clinical testing;
 
  •  expected revenue might not be generated because milestones may not be achieved and product candidates may not be developed;
 
  •  collaborators and licensees could independently develop, or develop with third parties, products that could compete with our future products;
 
  •  the terms of our contracts with current or future collaborators and licensees may not be favorable to us in the future;
 
  •  a collaborator or licensee with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product;
 
  •  disputes may arise delaying or terminating the research, development or commercialization of our product candidates, or result in significant and costly litigation or arbitration; and


  •  collaborations and licensee arrangements may be terminated, in which case we will experience increased operating expenses and capital requirements if we elect to pursue further development of the product candidate.
We may not be able to license technology necessary to develop products.

      We may be required to enter into licenses or other collaborations with third parties in order to access technology that is necessary to successfully develop certain of our products. We may not successfully negotiate acceptable licenses or other collaborative arrangements that will allow us to access such technologies. If we cannot obtain and maintain license rights on acceptable terms to access necessary technologies, we may be prevented from developing some product candidates. In addition, any technologies accessed through such licenses or other collaborations may not help us achieve our product development goals.

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

      We have entered into several arrangements for the supply of various materials, chemical compounds, antibodies and antigens that are necessary to manufacture our product candidates. For example, we rely on external suppliers for the production of IL-13, which is used in the manufacturing of our Dendritophage product candidates. IL-13 is an inherently scarce raw material. We believe that we currently possess enough IL-13 for our short- to medium-term needs. However, once our Dendritophage product candidates enter into Phase III clinical trials, we will require a supply of IL-13 that conforms to GMP. In 2003, we entered into an IL-13 Development and Manufacturing Agreement with Biotecnol aimed at developing a clinical grade IL-13 manufacturing process. Under the agreement, Biotecnol has agreed to complete development of clinical grade IL-13 according to a program of GMP manufacturing, control, testing and release, as defined with advice from Sanofi-Aventis, and we have agreed to provide financial support payable upon the occurrence of certain milestone events and based on the decisions of the parties to continue development. Once development of the IL-13 production process is completed, Biotecnol will oversee the ongoing management of the outsourcing of manufacturing and release of the finished product for a renewable five-year period beginning with the release of the first finished product batch. Either party may terminate the IL-13 Development and Manufacturing Agreement on the basis of a recommendation from a joint management committee if certain program specifications and targets are not met and/or before manufacturing of the first product batch is initiated. We are also entitled to terminate the IL-13 Development and Manufacturing Agreement at any time during the manufacturing period if the finished product stability does not reach two years. Biotecnol is entitled to terminate the process performance at any time by providing 18 months’ prior notice. In addition, either we or Biotecnol may terminate the agreement with immediate effect upon written notice on or at any time after the occurrence of certain events, such as breach of contract or liquidation. There are no assurances that Biotecnol will successfully manufacture clinical grade IL-13, or that it will be able to produce sufficient quantities of clinical grade IL-13 if it is successful. Without a sufficient supply of clinical grade IL-13, we would not be able to conduct Phase III clinical trials of our Dendritophage product candidates.

      We have one sole source supplier for a component of our EP-2101 non-small cell lung cancer vaccine. This material is not supplied under a long-term contract but we have not had difficulties obtaining the material in a timely manner in the past. The supplier also provides the same material to other customers and we do not believe we are at risk of losing this supplier. We have several other suppliers which are currently our sole sources for the materials they supply, though we believe alternate suppliers could be developed in a reasonable period of time. We are not aware of any scarcity of raw materials used in any of our products.

      Supply of any of these products could be limited, interrupted or restricted in certain geographic regions. In such a case, we may not be able to obtain from other manufacturers alternative materials, chemical compounds, components, antibodies or antigens of acceptable quality, in commercial quantities and at an acceptable cost. If our key suppliers or manufacturers fail to perform, or if the supply of products or materials is limited or interrupted, we may not be able to produce or market our products on a timely and competitive basis.

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

      We have not commercialized any products, and we will not have the experience, resources or facilities to manufacture therapeutic vaccines and other products on a commercial scale. We will not be able to commercialize any products and earn product revenues unless we or our collaborators demonstrate the ability to manufacture commercial quantities in accordance with regulatory requirements. Among the other requirements for regulatory approval is the requirement that prospective manufacturers conform to the GMP requirements of the respective regulatory agencies specifically for biological drugs, as well as for other drugs. In complying with 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.

      We are currently dependent on third parties for the production and testing of our lead product candidate, Junovan and Junovan components. We may not be able to enter into future subcontracting agreements for the commercial supply of Junovan or any of our other products, or to do so on terms that are acceptable to us. If we are unable to enter into acceptable subcontracting agreements, we will not be able to successfully commercialize Junovan or any of our other products. In addition, reliance on third-party manufacturers poses additional risks which we would not face if we produced Junovan or any of our other products ourselves, including:

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

      If products manufactured by third-party suppliers fail to comply with regulatory standards, sanctions could be imposed on us. These sanctions could include fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. If we change manufacturers for Junovan, we will be required to undergo revalidation of the manufacturing process and procedures in accordance with GMP. This revalidation could be costly and time-consuming and require the attention of our key personnel. If revalidation is not successful, we may be forced to look for an alternative supplier, which could delay the marketing of Junovan or increase our manufacturing costs. We will also need to demonstrate through preclinical studies that Junovan as produced by the new manufacturers is comparable to the materials used in the Phase III clinical trial. New clinical studies may also be required if comparability cannot be fully demonstrated by preclinical studies.

      We prepare our Cell Drugs in our own facilities for purposes of our research and development programs, preclinical testing and clinical trials. We currently have one clinical scale facility for Cell Drug manufacturing in Paris, France and a second one in Irvine, California. However, we lack experience in manufacturing our Cell Drugs on a large scale. We expect to construct commercial scale manufacturing plants in Europe and the United States in the future, but we may not be able to successfully carry out such construction. As a result, we may not be able to manufacture our Cell Drugs on acceptable economic terms or on a sufficient scale for our needs.

      We cannot be sure that we can manufacture, either on our own or through contracts with outside parties, our immunotherapeutic product candidates at a cost or in quantities that are commercially viable.

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

      To date, none of our potential products have been approved for marketing by any regulatory agencies. We cannot be sure that we will receive the regulatory approvals necessary to commercialize any of our potential

products. Our product candidates will be subject to extensive governmental regulation, and the applicable regulatory requirements are uncertain and subject to change. The FDA and the EMEA maintain rigorous requirements for, among other things, the research and development, preclinical testing and clinical trials, manufacture, safety, efficacy, record keeping, labeling, marketing, sale and distribution of therapeutic products. Failure to meet ongoing regulatory requirements or obtain and maintain regulatory approval of our products could harm our business. In particular, the United States is the world’s largest pharmaceutical market. Without FDA approval, we would be unable to access the U.S. market. In addition, noncompliance with initial or continuing requirements can result in, among other things:

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

      The regulatory process for new drug products, including the required preclinical studies and clinical testing, is lengthy, uncertain and expensive. We will be required to submit extensive product characterization, manufacturing and control, and preclinical and clinical data and supportive information for each indication in order to establish the potential product’s safety and effectiveness. The approval process may also involve ongoing requirements for post-marketing studies, as well as manufacturing and quality control requirements on a continuous basis.

      To market any drug products outside of the United States and the European Union, we and our collaborators will also be 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 for biologics or other drug products. 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 or EMEA approval. The foreign regulatory approval processes usually include all of the risks associated with obtaining FDA or EMEA approval, and approval by the FDA does not ensure approval by the health authorities of any other country, nor does the approval by the EMEA or the foreign health authorities ensure approval by the FDA. Even if we obtain commercial regulatory approvals, the approvals may significantly limit the indicated uses for which we may market our products.

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

      If we or others identify adverse side effects after any of our products are on the market, or if manufacturing problems occur:

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


      Any of the above occurrences could halt or reduce sales of the affected products or could increase the costs and expenses of commercializing and marketing these products, which would materially and adversely affect our business, operations, financial results and prospects.

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

      As is typical in the biotechnology industry, our commercial success will depend in part on our ability to avoid infringing patents issued to others or breaching the technology licenses upon which we might base our products. We are aware of patents issued to others that contain claims that may cover certain aspects of our technologies or those of our collaborators, including cancer vaccine epitopes and peptide vaccines. If we are required to obtain a license under one or more of these patents to practice certain aspects of our immunotherapy technologies in Europe and in the United States, such a license may not be available on commercially reasonable terms, if at all. If we fail to obtain a license on acceptable terms to any technology that we need in order to develop or commercialize our products, or to develop an alternative product or technology that does not infringe on the patent rights of others, we would be prevented from commercializing our products and our business and prospects would be harmed.

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

      Our success depends in part on our ability to obtain and enforce claims in our patents directed to our products, technologies and processes, both in the United States and in other countries. Although we have issued patents and have filed various patent applications, our patent position is highly uncertain and involves complex legal and factual questions. Legal standards relating to patentability, validity and scope of patent claims in epitope identification, immunotherapy and other aspects of our technology field are still evolving. Patents issued, or which may be issued, to us may not be sufficiently broad to protect our immunotherapy technologies and processes and patents may issue from any of our patent applications. For example, even though our patent portfolio includes patent applications with claims directed to peptide epitopes and methods of utilizing sequence motifs to identify peptide epitopes and also includes patent applications with claims directed to vaccines derived from blood monocytes, we cannot assure you of the breadth of claims that will be allowed or that may issue in future patents. Other risks and uncertainties that we will face with respect to our patents and patent applications include the following:

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

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

      The market for cancer therapeutics is characterized by rapidly evolving technology, an emphasis on proprietary products and intense competition. Many entities, including pharmaceutical and biotechnology companies, academic institutions and other research organizations, are actively engaged in the discovery, research and development of immunotherapy and other products for the treatment of cancer. Should any of

our product candidates be approved for marketing and launched, they would compete against a range of established therapies.

      Our vaccines under development address a range of cancer markets. The competition in these markets is extremely formidable. Our potential products would also compete with a range of novel therapies either under development or recently introduced onto the market, including monoclonal antibodies, cancer vaccines and cell therapy, gene therapy, angiogenesis inhibitors and signal transduction inhibitors. The strongest competition is likely to come from other immunotherapies (such as monoclonal antibodies) and, to a lesser extent, from chemotherapeutic agents and hormonal therapy.

      An important factor in competition may be the timing of market introduction of our vaccines and competitive products. Accordingly, the relative speed with which we can develop vaccines, complete the clinical trials and approval processes and supply commercial quantities of the vaccines to the market is expected to be an important competitive factor. 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. We cannot predict whether our products will compare favorably with competitive products in any one or more of these categories.

      Many of the companies developing competing technologies and products have significantly greater financial resources and expertise in research and development, manufacturing, preclinical and clinical development, obtaining regulatory approvals and marketing than we have, and we may not be able to compete effectively against them. Large pharmaceutical companies in particular, such as Bristol-Myers Squibb, Roche, Novartis and AstraZeneca, have substantially more extensive experience in clinical testing and in obtaining regulatory approvals than us. Smaller or early-stage companies, most importantly those in the immunotherapy field such as Dendreon or CancerVax, may also prove to be significant competitors. These companies may become even stronger competitors through collaborative arrangements with large companies. All of these companies may compete with us to acquire rights to promising antibodies, antigens and other complementary technologies.

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

      Litigation may be necessary to enforce the claims in any patents issued to us or to defend against any claims of infringement of patents owned by third parties that are asserted against us. In addition, we may have to participate in one or more interference proceedings declared by the United States Patent and Trademark Office or other foreign patent governing authorities, which could result in substantial costs to determine the priority of inventions.

      If we become involved in litigation or interference proceedings, we may incur substantial expense, and the proceedings may divert the attention of our technical and management personnel, even if we ultimately prevail. An adverse determination in proceedings of this type could subject us to significant liabilities, allow our competitors to market competitive products without obtaining a license from us, prohibit us from marketing our products or require us to seek licenses from third parties that may not be available on commercially reasonable terms, if at all. If we cannot obtain such licenses, we may be restricted or prevented from developing and commercializing our product candidates.

      The enforcement, defense and prosecution of intellectual property rights, including the United States Patent and Trademark Office’s and related foreign patent offices’ interference proceedings, and related legal and administrative proceedings in the United States and elsewhere involve complex legal and factual questions. As a result, these proceedings are costly and time-consuming, and their outcome is uncertain. Litigation may be necessary to:

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


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

      Our competitive position will depend in part on our ability to protect trade secrets that are not patentable or for which we have elected not to seek patent protection. To protect our trade secrets, we rely primarily on confidentiality agreements with our collaborative partners, employees and consultants. Nevertheless, our collaborative partners, employees and consultants may breach these agreements and we may be unable to enforce these agreements. In addition, other companies may develop similar or alternative technologies, methods or products or duplicate our technologies, methods, vaccines or immunotherapy products that are not protected by our patents or otherwise obtain and use information that we regard as proprietary, and we may not have adequate remedies in such event. Any material leak of our confidential information into the public domain or to third parties could harm our competitive position.

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

      We have licensed to third parties some of our technology in markets that we are not pursuing ourselves or with our collaborators. Our revenues from these licenses will be limited if the licensees are not successful in developing and commercializing products using our technology. Our licensees may pursue alternative technologies or develop alternative products either on their own or in collaboration with others in competition with products developed by us or under licenses or collaborations with us.

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

      We expect to fund, certain of our research and development related to our cancer programs pursuant to grants and contracts from the U.S. government. As a result of these grants and contracts, the U.S. government has certain rights in the inventions, including a non-inclusive, non-transferable, irrevocable license to practice the invention throughout the world. Our failure to disclose, file, prosecute patent applications or elect to retain title to such inventions may result in conveyance of title to the United States. In addition, the U.S. government may require us to grant to a third party an exclusive license to any inventions resulting from the grant if the U.S. government determines that we have not taken adequate steps to commercialize inventions, or for public health or safety needs.

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

      If we succeed in receiving regulatory approval and launching our product candidates based on our immunotherapeutic technology, it will take time to gain acceptance in the medical community, including health care providers, patients and third-party payers. The degree of market acceptance will depend on several factors, including:

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


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

      If our products are not accepted by the market or only receive limited market acceptance, our business and prospects will be adversely affected.

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

      If our stockholders are to realize the anticipated benefits of the Combination, our operations must be integrated and combined efficiently. We cannot assure you that the integration will be successful or that the anticipated benefits of the Combination will be fully realized. The dedication of our management resources to integration activities relating to the Combination may divert attention from our day-to -day business. The difficulties of integrating our operations following the Combination include, among others:

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

      It is possible that we will be unable to integrate our businesses so as to realize all of the benefits that we expect to result from the Combination. Integration of operations may be difficult and may have unintended consequences. The diversion of attention of management from its current operations to integration efforts and any difficulties encountered in combining the operations could harm our ability to execute our strategy of commercializing our lead drug candidate and advancing the clinical development of our pipeline of immunotherapeutic products.

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

      It is expected that we will grow in certain areas of our operations as we develop and, assuming receipt of the necessary regulatory approvals, market our products. In particular, we will need to expand our sales and marketing capabilities to support our plans to market Junovan. We will therefore need to recruit personnel, particularly sales and marketing personnel, and expand our capabilities, which may strain our managerial, operational, financial and other resources. To compete effectively and manage our growth, we must:

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

      Our failure to manage these challenges effectively could harm our business.

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 regulations governing the use, manufacture, storage, handling and disposal of these materials and some waste products. 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. Compliance with environmental laws and regulations in the future may entail significant costs and our ability to conduct research and development activities may be harmed by current or future environmental laws or regulations. We carry certain liability insurance for contamination or injury resulting from the use of hazardous materials.

      Examples of hazardous materials we use in our business include flammable liquids and solids, Chromium-51, a radioactive material, carcinogens and reproductive toxins such as Chloroform and Formaldehyde and biological products and waste such as blood products from clinical samples. Personal injury resulting from the use of hazardous materials is covered up to the limit of our workers’ compensation insurance. Contamination clean-up resulting from an accident involving hazardous materials would be covered to the limit of our property insurance, with certain exclusions. Our liability for personal injury or hazardous waste clean up and remediation may not be covered by these insurance policies or the costs may exceed policy limits.

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

      We will be exposed to currency exchange risk with respect to the U.S. dollar in relation to the euro, because a significant portion of our operating expenses will be incurred in euros. This exposure may increase if we expand our operations in Europe. We have not entered into any hedging arrangements to protect our business against currency fluctuations. We will monitor changes in our exposure to exchange rate risk that result from changes in our situation. If we do not enter into effective hedging arrangements in the future, our results of operations and prospects could be materially and adversely affected by fluctuations in foreign currency exchange rates.

The volatility of the price of our common stock may adversely affect 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 not necessarily related to the operating performance of such companies. From August 16, 2005, when we began trading on the Nasdaq National Market under our new trading symbol “IDMI” through March 29, 2006, the closing stock price of our common stock ranged from $2.60 to $6.99 and has been and will continue to be influenced by general market and industry conditions. In addition, the following factors may have a significant effect on the market price of our common stock:

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

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

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

      Our executive officers and directors (excluding, with respect to Dr. Drakeman, the shares owned by Medarex, Inc., a New Jersey corporation, referred to as Medarex, and with respect to Dr. Deleage, the shares owned by Alta BioPharma Partners, L.P., IDM Chase Partners (Alta Bio), LLC and Alta Embarcadero BioPharma Partners, LLC.), in the aggregate, beneficially own approximately 6.3% of the shares of our common stock. Moreover, Medarex and Sanofi-Aventis own approximately 19.7% and approximately 14.9%, respectively, of the total shares of our common stock outstanding. As a result, Sanofi-Aventis, Medarex and our other principal stockholders, executive officers and directors, should they decide to act together, have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors, distribution of dividends, changes to our bylaws and other important decisions, such as future equity issuances. Sanofi-Aventis and Medarex have not entered into any voting agreements or formed a group as defined under the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act.

      This significant concentration of share ownership in a limited number of investors may adversely affect the trading price of our common stock because investors often perceive such a concentration as a disadvantage. It could also have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other transactions that could be otherwise favorable to you.

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

      The sale of a large number of shares of our common stock, including through the exercise of outstanding warrants and stock options, following the Combination, or the perception that such sales could occur, could adversely affect the market price of our common stock. In connection with the Combination each of the principal company shareholders and certain executive officers and directors of Epimmune, respectively, who now own in the aggregate approximately 81% of the outstanding shares of our common stock agreed to restrictions on their ability to dispose of their shares of our common stock and related securities for a period of six months following the Combination. Following this lock-up period that expired on February 16, 2006, the principal company shareholders and such executive officers and directors of Epimmune will be free to sell their shares of our common stock (subject to applicable U.S. securities laws), which could cause the market price of such shares of our common stock to decline. Subject to volume restrictions for a further six-month period, 10,658,470 shares including underlying derivative securities, will be eligible for sale in the public markets following the lock-up periods.

Item 1B. Unresolved Staff Comments
      None

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