Idm Pharma (IDMI) 10-Q 2006 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the quarterly period ended September 30, 2006,

or

o Transition Period Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the Transition Period From                    to                    .

Commission file number 0-19591

IDM PHARMA, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0245076
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

9 Parker, Suite 100
Irvine, California 92618
(Address of principal executive offices and zip code)

(949) 470-4751
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filero Accelerated filero Non-accelerated filerþ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yeso Noþ

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

Common Stock: $.01 par value 13,401,071, shares outstanding as of November 10, 2006.

IDM PHARMA, INC.
QUARTERLY REPORT
FORM 10-Q

COVER PAGE	1
TABLE OF CONTENTS	2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005	3
Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2006 and 2005	4
Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2006 and 2005	5
Notes to Condensed Consolidated Financial Statements (unaudited)	6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	36
ITEM 4. Controls and Procedures	36
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	38
ITEM 1A. Risk Factors	38
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	*
ITEM 3. Defaults upon Senior Securities	*
ITEM 4. Submission of Matters to a Vote of Security Holders	*
ITEM 5. Other Information	*
ITEM 6. Exhibits	55
SIGNATURE	57
EXHIBIT 10.64
EXHIBIT 10.65
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

* No information provided due to inapplicability of item.

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

IDM PHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2006			2005
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	12,974,000		$	26,702,000
Related party accounts receivable		3,377,000			2,540,000
Accounts receivable		86,000			904,000
Research and development tax credit, current portion		197,000			526,000
Prepaid expenses and other current assets		1,702,000			2,223,000
Total current assets		18,336,000			32,895,000
Property and equipment, net		1,820,000			2,109,000
Patents, trademarks and other licenses, net		3,419,000			3,912,000
Goodwill		2,812,000			2,812,000
Research and development tax credit, less current portion		1,162,000			1,062,000
Other long-term assets		79,000			97,000
	$	27,628,000		$	42,887,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	5,301,000		$	4,887,000
Accrued payroll and related expenses		1,224,000			2,689,000
Related party deferred revenues, current portion		742,000			687,000
Other current liabilities		2,423,000			2,251,000
Total current liabilities		9,690,000			10,514,000
Long-term debt, less current portion		490,000			317,000
Related party deferred revenues, less current portion		2,678,000			2,875,000
Other non-current liabilities		510,000			437,000
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized and no shares issued and outstanding at September 30, 2006 and December 31, 2005		—			—
Common stock, $.01 par value, 55,000,000 shares authorized at September 30, 2006 and December 31, 2005 and 13,401,071 and 13,219,053 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively		134,000			132,000
Additional paid-in capital		171,156,000			170,891,000
Deferred compensation		—			(368,000	)
Accumulated other comprehensive income		15,553,000			13,165,000
Accumulated deficit		(172,583,000	)		(155,076,000	)
Total stockholders’ equity		14,260,000			28,744,000
	$	27,628,000		$	42,887,000

See accompanying notes.

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IDM PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2006			2005			2006			2005
Revenues:
Research grants and contract revenue	$	—		$	507,000		$	68,000		$	507,000
Related party revenue		3,012,000			1,470,000			8,228,000			4,611,000
License fees, milestones and other revenues		16,000			79,000			32,000			108,000
Total revenues		3,028,000			2,056,000			8,328,000			5,226,000
Costs and expenses:
Research and development		5,271,000			4,979,000			17,032,000			14,656,000
Impairment of patents and licenses		144,000			2,030,000			497,000			2,325,000
Selling and marketing		234,000			351,000			397,000			1,001,000
General and administrative		1,563,000			1,790,000			6,817,000			4,686,000
Acquired in process research and development		—			13,300,000			—			13,300,000
Total costs and expenses		7,212,000			22,450,000			24,743,000			35,968,000
Loss from operations		(4,184,000	)		(20,394,000	)		(16,415,000	)		(30,742,000	)
Interest income, net		118,000			142,000			427,000			484,000
Other income (expense), net		49,000			(2,000	)		—			(2,000	)
Foreign exchange gain (loss)		165,000			(50,000	)		(1,698,000	)		57,000
Loss before income tax benefit		(3,852,000	)		(20,304,000	)		(17,686,000	)		(30,203,000	)
Income tax benefit		—			119,000			179,000			697,000
Net loss	$	(3,852,000	)	$	(20,185,000	)	$	(17,507,000	)	$	(29,506,000	)
Weighted average number of shares outstanding		13,398,474			10,821,285			13,354,184			9,253,597
Basic and diluted loss per share	$	(0.29	)	$	(1.87	)	$	(1.31	)	$	(3.19	)
Comprehensive loss:
Net loss	$	(3,852,000	)	$	(20,185,000	)	$	(17,507,000	)	$	(29,506,000	)
Other comprehensive (loss) gain		(224,000	)		47,000			2,388,000			(3,834,000	)
	$	(4,076,000	)	$	(20,138,000	)	$	(15,119,000	)	$	(33,340,000	)

See accompanying notes.

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IDM PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	Nine months ended September 30,
	2006			2005
Operating activities
Net loss	$	(17,507,000	)	$	(29,506,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		580,000			113,000
Depreciation and amortization		998,000			1,565,000
Acquired in process research and development		—			13,300,000
Impairment of patents and licenses		491,000			2,077,000
Foreign exchange loss		1,680,000			—
Change in operating assets and liabilities:
Related party accounts receivable (Sanofi-Aventis)		(644,000	)		316,000
Accounts receivable		820,000			—
Prepaid expenses and other current assets		793,000			(846,000	)
Research and development tax credit receivable		336,000			(744,000	)
Other long-term assets		25,000			(32,000	)
Accounts payable and accrued liabilities		121,000			656,000
Accrued payroll and related expenses		(1,592,000	)		(1,498,000	)
Related party deferred revenues (Sanofi-Aventis)		(389,000	)		(221,000	)
Other liabilities		144,000			292,000
Net cash used in operating activities		(14,144,000	)		(14,528,000	)
Investing activities
Purchase of property and equipment		(188,000	)		(453,000	)
Patents, trademarks and other licenses		(183,000	)		(187,000	)
Net cash paid for acquisition		—			(1,613,000	)
Net cash used in investing activities		(371,000	)		(2,253,000	)
Financing activities
Net proceeds from issuance of common stock		49,000			—
Net cash provided by (used in) financing activities		49,000			—
Effect of exchange rate on cash and cash equivalents		738,000			(3,744,000	)
Decrease in cash and cash equivalents		(13,728,000	)		(20,525,000	)
Cash and cash equivalents at beginning of year		26,702,000			41,777,000
Cash and cash equivalents at end of period	$	12,974,000		$	21,252,000

See accompanying notes.

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IDM PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

September 30, 2006

1. Nature of Business

IDM Pharma, Inc. (“IDM” or the “Company”) is a biopharmaceutical company focused on the development of innovative products that activate the immune system to treat cancer. The Company is 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.

The Company’s lead product candidate, Junovan™, has completed a Phase III clinical trial, for the treatment of osteosarcoma, or bone cancer. In October 2006 the Company announced that it submitted a New Drug Application, or NDA, in electronic Common Technical Document (eCTD) to the U.S. Food and Drug Administration, or the FDA, for Junovan™, requesting approval for its use in the treatment of newly diagnosed resectable high grade osteosarcoma patients following surgical resection in combination with multiple agent chemotherapy. IDM requested that the FDA consider granting this NDA priority review status, which could shorten review time if granted after the NDA is accepted for filing. The FDA customarily accepts or refuses to file NDAs and designates review status within 60 days of filing. Following the submission of the NDA, the Company announced in November 2006 that it submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMEA, for Mepact™, called Junovan in the US. The Company expects that the drug regulatory agencies in the United States and Europe would make a decision regarding marketing approval for Junovan in late 2007. However, the timing of these events is subject to risks and uncertainties regarding development, regulatory matters, manufacturing and commercialization, including the timing of the drug regulatory agencies’ review of the regulatory filing, the ability of the Company to respond to questions raised by the drug regulatory agencies in a manner satisfactory to the drug regulatory agencies, the time needed to respond to any issues raised by the drug regulatory agencies with regard to regulatory submissions for Junovan, the possibility that the FDA will not grant the NDA priority review status, the possibility that the drug regulatory agencies may not consider preclinical and early clinical development work and existing efficacy data as adequate for its assessment of Junovan, the possibility that the drug regulatory agencies may require the Company to conduct additional clinical trials and the risk that it 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. IDM has four other product candidates in clinical trials for a variety of cancers including melanoma, bladder, and lung cancers.

Unless specifically noted otherwise, as used throughout these consolidated financial statements, “Epimmune Inc.” or “Epimmune” refers to the business, operations and financial results of Epimmune Inc. prior to the closing of the share exchange transaction between Epimmune and shareholders of Immuno-Designed Molecules, S.A., on August 16, 2005, at which time Epimmune’s name was changed to IDM Pharma, Inc.; “IDM S.A.” or “Immuno-Designed Molecules, S.A.” refers to Immuno-Designed Molecules S.A., a privately-held French company, prior to such transaction; and “IDM,” “IDM Pharma,” the “Company” or “we,” “our,” “us” or “its” refers to the operations and financial results of IDM Pharma, Inc. and IDM S.A. on a consolidated basis after the closing of such transaction, and IDM S.A. prior to the closing of such transactions, as the context requires.

2.	Basis of Presentation
On August 16, 2005, Epimmune Inc., a Nasdaq Global 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,

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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 Global Market to “IDMI,” and IDM S.A. became the Company’s subsidiary.

Because the former IDM S.A. shareholders held approximately 81% of the Company’s outstanding common stock after the Combination, IDM S.A.’s designees to the Company’s Board of Directors represent a majority of its Board of Directors and IDM S.A.’s senior management represents a majority of its 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 U.S generally accepted accounting principles. Accordingly, historical financial statements prior to the Combination are the financial statements of IDM S.A. The audited financial statements of IDM Pharma for each of the three years ended December 31, 2005, 2004 and 2003 are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, referred to as the SEC.

On December 30, 2005, the Company completed the sale of specific assets related to its infectious disease programs and certain other assets to Pharmexa A/S for $12.0 million in net cash. As a result, the Company’s research and development activity is now focused on its cancer programs.

The interim unaudited condensed consolidated financial statements contained herein have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management’s opinion, the unaudited information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of results to be expected for the full year. The financial statements should be read in conjunction with the audited yearly financial statements and disclosures mentioned above.

The consolidated financial statements include the accounts of the Company and its subsidiaries: Immuno-Designed Molecules, Inc. in Irvine, California, Immuno-Designed Molecules S.A. in Paris, France and IDM Biotech Ltd. in Montreal, Quebec, Canada. There are currently no operating activities at IDM Biotech Ltd. All intercompany accounts and transactions have been eliminated in the consolidation.

3. Recent Operating Results and Liquidity

We have incurred significant net losses and have generated limited revenues since inception. As of September 30, 2006, our accumulated deficit was $172.6 million and our revenues for the three and nine months ended September 30, 2006 were $3.0 million and $8.3 million, respectively. Our historical financial results reflect increasing research and development and general administrative expenses related to the maturation of our product development programs.

We expect our principal sources of revenues to be up-front fees, milestone payments and reimbursements of research and development expenses under our collaboration agreement with Sanofi-Aventis, until such time as we successfully develop one or more products for sale outside this agreement or enter into other

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collaboration agreements. However, if we do not meet further development milestones with respect to Uvidem, or if Sanofi-Aventis does not elect to develop additional product candidates, we will not receive additional payments under our agreement with Sanofi-Aventis. We expect to receive revenues from sales of our lead product candidate, Junovan, assuming that we receive regulatory approval and choose to market Junovan ourselves. However, we may not receive regulatory approval and, even if we do, any efforts by us or any future partners to commercialize Junovan may not be successful. In keeping with our overall strategy, we are seeking to enter into collaboration agreements for certain products with other strategic partners, which may provide additional sources of revenues, including other milestone payments. However, we cannot be certain that we will enter into such agreements. In addition, the timing of our milestone payments cannot be predicted with certainty, and we may not receive payments if development targets are not achieved. Also, it is unlikely that milestone payments, even if received when expected, would fully cover our total research and development expenses for all of our projects. We will therefore, need to obtain additional funding, which we may seek through collaboration and license agreements, government research grants, and equity or debt financings.

We will continue to incur significant expenses for research and development activities. In August 2006, our Board of Directors approved a restructuring and cash conservation plan. We are taking appropriate steps to contain our expenses, including focusing our research and development activities primarily on Junovan and our collaboration with Sanofi-Aventis for Uvidem, and putting on hold further development of Bexidem and other product candidates until collaborative partners can be found or other funding becomes available.

As a result of the Company’s decision to put on hold further development of Bexidem, in September 2006, the Company reached an agreement with Accovion GmbH (Accovion) whereby the existing agreement with Accovion will be terminated upon the appropriate completion of certain Bexidem-related activities, including pharmacovigilance. Accovion is a German Clinical Research Organization providing patient recruitment and monitoring of clinical centers in support of the Company’s Phase II/III clinical trial of Bexidem in several European countries. As discussed in Note 8 - Commitments, in September 2006, the Company recognized approximately $0.1 million of expense relating to the early termination of this contract. Expenses for services to be received through the completion date will be expensed when incurred. In October 2006 the Company sent written notice to several European Health Authorities that it would stop Phase II of the clinical trial for Bexidem following completion of treatment of all patients, and would put on hold moving forward with a Phase III trial until a collaborative partner or further funding for the project is found.

In conjunction with the restructuring and cash conservation plan, we are currently in the process of analyzing our operations in connection with putting on hold further development of Bexidem and other product candidates. We expect this process to lead to a reduction in our workforce in France, which should be completed in the fourth quarter of 2006. The number of employees and their termination benefits will be determined after the completion of negotiations between the Company and the employee council, and approval of a plan of termination by the French labor authorities and the Company’s Board of Directors. We may incur additional costs as we put on hold further development of Bexidem and other product candidates, including additional contract breakage costs, severance and other related expenses.

These costs will be recorded in accordance with Statement of Financial Accounting Standards or SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities. Severance costs under one-time benefit arrangements will be recorded when the plan of termination meets certain criteria and has been communicated to employees, which will occur in the fourth quarter of 2006. Costs to terminate a contract before the end of its term and costs that will continue to be incurred for the contract’s remaining term without economic benefit to the entity will be recognized and measured at fair value when incurred generally at the contract termination or cease-use date. Other exit-related costs, will be recognized when incurred, generally upon receipt of the goods or services. We are currently in the process of determining the total costs related to these activities and will record these costs in the fourth quarter of 2006 when the recognition criteria are met.

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If we fail to adequately address our liquidity issues, our independent auditors may issue a qualified opinion, to the effect that there is substantial doubt about our ability to continue as a going concern. A qualified opinion could itself have a material adverse effect on our business, financial condition, results of operations and cash flows.

4. Summary of Significant Accounting Policies

IDM’s discussion and analysis of its operating and financial results and trends are based on its consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires the Company to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. The Company reviews its estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that the policies described below involve the most significant judgments and estimates used in the preparation of its consolidated financial statements.

Foreign Currency Translation

The reporting currency of the Company and its subsidiaries is the U.S. dollar.

The U.S. dollar is the functional currency for all of IDM’s businesses except for its subsidiaries in France and Canada, for which the functional currencies are the euro and the Canadian dollar, respectively. Foreign currency-denominated assets and liabilities for these units are translated into U.S. dollars based on exchange rates prevailing at the end of the period, revenues and expenses are translated at average exchange rates prevailing during the corresponding quarter, and shareholders’ equity accounts are translated at historical exchange rates. The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of those entities where the functional currency is not the U.S. dollar are included as a component of accumulated other comprehensive income.

The Company funds its operating units through intercompany loans. Among the loans outstanding is a U.S. dollar denominated loan from IDM S.A., a unit which has the euro as its functional currency, to IDM, Inc., a U.S. affiliate. Prior to the quarter ended December 31, 2005 the company’s intercompany loans were considered to be long term in nature and foreign exchange gains and losses were recognized as a component of other comprehensive loss. Beginning in the fourth quarter of 2005, as a result of planned operational changes, we expect to settle all intercompany loans in the future. As such, the foreign exchange gains and losses associated with this loan were recognized as a component of Foreign exchange (loss)/gain. During the three months and nine months ended September 30, 2006 the company recorded foreign exchange gain of $0.2 million and foreign exchange loss of $1.7 million respectively, primarily from the change in the value of the intercompany loans related to the change in the value of the dollar with respect to the euro.

Gains and losses resulting from foreign currency transactions are reflected in comprehensive net loss. The Company does not undertake hedging transactions to cover its foreign currency exposure.

Revenue Recognition

IDM recognizes revenues pursuant to Staff Accounting Bulletin No. 104,Revenue Recognition, and Emerging Issues Task Force (EITF) Issue 00-21Revenue Arrangements with Multiple Deliverables.

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License fees are earned and recognized in accordance with the provisions of each agreement. Up-front license fees for perpetual licenses where the Company conveys rights to intellectual property it owns to a licensee upon signing of a definitive agreement and it has no further delivery or performance obligations beyond the performance of those obligations, are recognized when received.

IDM generates certain revenues from a collaborative agreement with Sanofi-Aventis, a stockholder and therefore a related party to IDM. These revenues consist of up-front fees, milestone payments for advancing its drug candidates through clinical trials and regulatory approval and ongoing research and development funding.

Non-refundable up-front payments that IDM receives in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis over the research term. When the research term cannot be specifically identified from the agreement, IDM estimates the research term based upon its current development plan for the product. These estimates are continually reviewed and could result in a change in the deferral period, such as, for example, when the estimated development period for a product changes. As a result, the timing and amount of revenue recognized may change. For example, IDM’s current estimated development period for Uvidem, which is a product candidate for which the Company currently recognizes revenues, is nine years. If this estimated development period is extended or shortened, the amount of revenues recognized per period would decrease or increase correspondingly.

Revenues from milestone payments for products selected by collaborative partners are recognized in full upon achievement of the relevant milestone when a fair value can be ascribed. During the development phase of a collaborative research and development agreement, IDM considers that no fair value can be ascribed to the up-front fee and the milestone payments, given the inherent uncertainty of the technological outcome at this stage of the research and development process, which does not enable IDM to make a reliable, verifiable and objective determination of the fair value of each payment. As no fair value can reasonably be ascribed, such payments are recorded as deferred revenue and recognized over the remaining development term on a straight-line basis.

Reimbursement of ongoing research and development expenses for products selected by collaborative partners are recognized as revenues when the services have been performed and the payment is assured. Reimbursement of research and development expenses incurred prior to selection of a product by a collaborative partner are considered as additional up-front payments and are recorded as deferred revenue and are recognized on a straight-line basis over the research term. IDM believes that the value assigned to the funding of research and development costs incurred prior to the selection of a product by a collaborative partner cannot be deemed to be representative of the fair value of the corresponding research and development costs incurred prior to such product selection given the uncertainty of the technological outcome in the development stage.

Research and development expenses and related tax credit

Research and development expenses consist primarily of costs associated with the clinical trials of IDM’s products, compensation and other expenses for research and development personnel, supplies and development materials, costs for consultants and related contract research, and facility costs. These costs are expensed as incurred. Research and development expenses include amortization and depreciation of patents and licenses.

Research and development expenses incurred in France and Quebec, relating to the activities of IDM’s French subsidiary, IDM S.A., and Canadian subsidiary, IDM Biotech Ltd., form the basis for a tax credit, which is recorded as a current income tax benefit in the period in which the expenses are incurred and the credit is claimed. The credit is recoverable in cash if not used to offset taxes payable in the fourth year following its generation after a governmental evaluation in France, and in the year following its generation in Quebec. The research and development tax credit is recorded as a current asset if payable within one year, or as a long-term asset if payable beyond one year.

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Patents and licenses

IDM capitalizes the costs incurred to file patent applications when it believes there is a high likelihood that the patent will be issued, the patented technology has other specifically identified research and development uses and there will be future economic benefit associated with the patent. These costs are amortized on a straight-line basis over the estimated economic useful life which is generally ten years from the date the patent is filed and corresponds approximately to the average biotechnology product life. The Company expenses all costs related to abandoned patent applications. In addition, the Company reviews the carrying value of patents for indications of impairment on a periodic basis. If the Company elects to abandon any of its currently issued or unissued patents or it determines that the carrying value is impaired, it values the patent at fair value. The related expense could be material to its results of operations for the period of the abandonment.

Intangible assets also include licenses. Costs associated with licenses acquired in order to be able to use products from third parties prior to receipt of regulatory approval to market IDM’s products are capitalized if (i) the licenses are to be used in the scope of a research and development program in Phase III clinical development at the time the license is acquired, at which stage the absence of toxicity has been assessed and IDM has a reasonable expectation to achieve marketing approval for the program, and (ii) the licenses can be used in other specifically identified research and development programs. Our licensed technologies have alternative uses and can be the basis for multiple products that would each target a specific indication. Costs of acquisition of licenses are capitalized and amortized on a straight-line basis over the useful life of the license, which IDM considers to begin on the date of acquisition of the license and continue through the end of the estimated term during which the technology is expected to generate substantial revenues. In the case of the licenses or assets acquired from Medarex and Jenner Biotherapies, IDM estimated their useful lives to be ten years from the date of acquisition.

Impairment of long lived assets

In accordance with Statement of Financial Accounting Standards, or SFAS, No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, IDM periodically evaluates the value reflected on its balance sheet of long-lived assets, such as patents and licenses, when events and circumstances indicate that the carrying amount of an asset may not be recovered. Such events and circumstances include the use of the asset in current research and development projects, any potential alternative uses of the asset in other research and development projects in the short to medium term, clinical trial results and research and development portfolio management options. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Additionally, for those product candidates put on hold until collaborative partners can be found or other funding becomes available, if the Company has not found a collaborative partner or obtained funding to restart development of the product candidate within one year after development is put on hold, any remaining carrying value will be written off. At September 30, 2006, the remaining carrying value of intangible assets related to Bexidem and other product candidates put on hold was $0.3 million.

Goodwill

In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, IDM annually tests goodwill and other indefinite-lived intangible assets for impairment or more frequently if certain indicators are present. This analysis requires the Company first to compare the fair value of a reporting unit with its carrying amount, including goodwill. IDM has determined that it is operating as one reporting unit for

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purposes of this analysis. If the fair value of the reporting unit on the measurement date is less than the carrying amount, a second step is performed to determine the amount of the impairment loss. This involves comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill. The Company’s annual impairment test was conducted in the period ended December 31, 2005 and the Company’s analysis determined that the fair value of the reporting unit exceeded the carrying amount and thus no goodwill impairment was recognized. The Company will conduct its annual impairment test in the quarter ended December 31, 2006.

Earnings per share

Earnings per share, referred to as EPS, is computed in accordance with SFAS No. 128,Earnings per Share. SFAS No. 128 requires dual presentation of basic and diluted earnings per share. Basic EPS includes no dilution and is computed by dividing net loss by the weighted average number of common shares outstanding for the period, excluding owned but unvested shares. Diluted EPS reflects the potential dilution of securities that could share in the Company’s earnings, such as common stock equivalents that may be issuable upon exercise of outstanding common stock options or warrants as well as all shares of preferred stock, which may be converted into common stock. Prior to the application of the treasury stock method, common stock equivalents of 1,756,736 and 1,783,398 for the periods ended September 30, 2006 and 2005, respectively, have been excluded from EPS as the effect is antidilutive. In September 2006, 113,174 warrants expired.

Antidilutive Shares Outstanding

	September 30,
	2006		2005
Options outstanding		1,061,633		837,019
Restricted stock awards		42,141		138,739
Warrants outstanding		211,882		325,056
Reserved pursuant to option liquidity agreements		389,031		403,984
Reserved pursuant to put/call agreements		52,049		78,600
Total Antidilutive Outstanding Shares		1,756,736		1,783,398

Share-Based Compensation Plans

Overview

Prior to January 1, 2006, the Company accounted for share-based employee compensation plans under the measurement and recognition provisions of Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS No. 123 (SFAS 123),Accounting for Stock-Based Compensation. Accordingly, the Company recorded share-based employee compensation expense for options granted under the 1998 IDM Stock Option Plan and the 2000 IDM Stock Option Plan, referred to as the IDM S.A. Plans, during the nine months ended September 30, 2005 under APB 25.

In August 2005, in connection with the Combination, the Company assumed the outstanding options under the Epimmune 1989 Stock Plan, outstanding options under the 1997 Stock Plan, the 2000 Stock Plan and the Employee Stock Purchase Plan, and the existing IDM S.A. Plan was closed. For the plans assumed in connection with the Combination, the Company also accounted for share-based employee compensation under APB 25, and, accordingly, did not record any compensation expense.

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Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123 (revised 2004),Share –Based Payment, SFAS 123(R), using the modified prospective transition method. Under that transition method, compensation expense that the Company recognized for the nine months ended September 30, 2006 included: (a) compensation expense for all share-based payments granted prior to the Combination, but not yet vested as of, January 1, 2006, based on their intrinsic value estimated in accordance with the original provisions of APB 25 which corresponds to their original valuation method, (b) compensation expense for all other share-based payments granted or assumed since the Combination, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 and (c) compensation expense for all share-based payments granted on or after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Because the Company elected to use the modified prospective transition method, results for prior periods have not been restated. In March 2005 the SEC issued Staff Accounting Bulletin (SAB) No. 107, which provides supplemental implementation guidance for SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

Description of Share-Based Compensation Plans

1998 IDM Stock Option Plan — In August 1998, IDM S.A.’s shareholders approved the 1998 IDM Stock Option Plan, referred to as the 1998 IDM Stock Option Plan, and authorized IDM S.A.’s Board of Directors to grant, through August 2003, stock options to purchase shares such that the total number of stock options granted to employees could not exceed 5% of the fully diluted number of shares of the Company. These stock options expire ten years after the grant date, and vest ratably over five years after the grant date subject to continued employment. Upon exercise, the resale of the corresponding shares is restricted until five years after the grant date. The 1998 IDM Stock Option Plan was closed in October 2000 and replaced by the IDM 2000 Stock Option Plan.

2000 IDM Stock Option Plan — In October 2000, IDM S.A.’s shareholders approved the 2000 IDM Stock Option Plan, referred to as the 2000 IDM Stock Option Plan, and authorized IDM S.A.’s Board of Directors to grant, through October 2005, stock options to purchase a maximum of 538,837 shares. The options expire ten years after the grant date, and vest ratably over four years after grant date subject to continued employment. Upon exercise, the resale of the corresponding shares is restricted until four years after the grant date.

In August 2005, in connection with the Combination, the 2000 IDM Stock Option Plan was closed and the Company assumed the prior Epimmune stock option plans described below. In accordance with the Share Exchange Agreement, substitute options to acquire 342,336 shares of common stock were granted from the Company’s 2000 Stock Plan to employees of the Company’s U.S. subsidiary, IDM, Inc. In addition, and also in accordance with the Share Exchange Agreement, the Company has reserved 403,984 shares of common stock for issuance in connection with the exercise of outstanding options held by employees of its French subsidiary, IDM S.A.

1989 Stock Plan — In August 2005, the Company assumed the outstanding options granted under the Epimmune 1989 Stock Plan, referred to as the 1989 Plan, under which options may be granted to employees, directors, consultants or advisors. The 1989 Plan provided for the grant of both incentive stock options and non-statutory stock options. The exercise price of an incentive stock option is not less than the fair market value of the common stock on the date of grant. The exercise price of non-statutory options is not less than 85% of the fair market value of the common stock on the date of grant. No options granted under the 1989 Plan have a term in excess of ten years from the date of grant. Shares and options issued under the 1989 Plan vest over varying periods of one to six years. Effective June 9, 2000 with the approval of the Company’s 2000 Stock Plan, the 1989 Plan was discontinued resulting in cancellation of remaining available shares, and any shares granted under the 1989 Plan that in the future are cancelled or expire will not be available for re-grant.

1997 Stock Plan — In August 2005, the Company assumed the outstanding options granted under the Epimmune 1997 Stock Plan, referred to as the 1997 Plan, under which options were granted to employees, directors, and consultants of the Company. The 1997 Plan provided for the grant of both

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incentive stock options and nonstatutory stock options. The exercise price of an incentive stock option was not less than the fair market value of the common stock on the date of grant. The exercise price of nonstatutory options was not less than 85% of the fair market value of the common stock on the date of grant. No options granted under the 1997 Plan have a term in excess of ten years from the date of grant. Options issued under the 1997 Plan vest over varying periods of one to four years. Effective June 9, 2000 with the approval of the Company’s 2000 Stock Plan, the 1997 Plan was discontinued resulting in cancellation of remaining available shares, and any shares granted under the 1997 Plan that in the future are cancelled or expire will not be available for re-grant.

2000 Stock Plan — In August 2005, the Company assumed the Epimmune 2000 Stock Plan, referred to as the 2000 Stock Plan. Options under the plan may be granted to employees, directors, consultants or advisors of the Company. The 2000 Stock Plan provides for the grant of both incentive stock options and nonstatutory stock options. The exercise price of an incentive stock option is not less than the fair market value of the common stock on the date of the grant. The exercise price of nonstatutory options is also not less than the fair market value of the common stock on the date of grant. No options granted under the 2000 Stock Plan have a term in excess of ten years from the date of grant. Options issued under the 2000 Stock Plan may vest over varying periods of up to four years. In addition to options, the Company may also grant stock awards, restricted stock awards, or other similar equity awards from the 2000 Stock Plan.

There were a total of 2,228,571 shares of common stock authorized by the Company’s shareholders under the 2000 Stock Plan at September 30, 2006. On March 23, 2006, the Company’s Board of Directors approved a 600,000 share increase in the number of shares of common stock available for issuance under the 2000 Stock Plan. The Company’s Board of Directors also approved an increase in the limitation on the total number of shares subject to stock awards under the 2000 Stock Plan that an employee is eligible to be granted during any calendar year from 71,428 to 500,000 shares in order to better reflect the increase in its outstanding capital stock resulting from the Combination. This limitation is referred to as the Section 162(m) Limitation. The Company’s stockholders approved the increase in both the shares reserved and the Section 162(m) Limitation under the 2000 Stock Plan at the Company’s annual meeting of stockholders held on June 14, 2006.

Certain of the Company’s stock options are denominated in currencies other than the U.S. dollar. It is the Company’s policy to convert the exercise prices at the current exchange rate when presenting option exercise information.

Employee Stock Purchase Plan — In August 2005, in connection with the Combination, the Company assumed the Epimmune Employee Stock Purchase Plan, referred to as the Purchase Plan, originally adopted in March 2001, and increased the shares of common stock reserved under the Purchase Plan by 26,428 shares to 69,285 shares. Under the Purchase Plan, employees, at their option, can purchase up to 714 shares of IDM Pharma common stock per offering through payroll deductions at the lower of 85% of the fair market value on the plan offering date or 85% of the fair market value of the common stock at the purchase date. The Company has not yet implemented the Employee Stock Purchase Plan as of September 30, 2006.

In August 2005, in connection with the Combination, the Company established an Employee Stock Purchase Plan for employees located in France, referred to as the French Purchase Plan, and reserved 30,714 shares of common stock for future issuance under the French Purchase Plan. Under the French Purchase Plan, employees, at their option, can purchase up to 714 shares of IDM Pharma common stock per offering through payroll deductions at the lower of 85% of the fair market value on the plan offering date or 85% of the fair market value of the common stock at the purchase date. Due to local regulations governing employee stock purchase plans in France, the Company has not yet implemented the French Purchase Plan as of September 30, 2006, and consequently no shares have been issued out of the reserve pool.

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Impact of the Adoption of SFAS 123(R)

The following table summarizes the share-based compensation expense for stock options and restricted stock awards granted under the Company’s equity plans and expense attributable from shares purchased under the Employee Stock Purchase Plan that the Company recorded for continuing operations in accordance with SFAS 123(R) for the three and nine months ended September 30, 2006.

	Three months ended		Nine months ended
	September 30, 2006		September 30, 2006
Research and development	$	48,886	$	101,460
General and administrative		115,423		489,845
Sales and marketing		1,052		2,055
Reduction in operating income	$	165,361	$	593,360

Prior to the adoption of SFAS 123(R), the Company presented deferred compensation as a separate component of stockholders’ equity. In accordance with the provisions of SFAS 123(R), on January 1, 2006 the Company reclassified the balance in deferred compensation to additional paid-in capital.

Determining Fair Value. The Company estimated the fair value of stock options granted using the Black-Scholes option valuation model and a single option award approach. For options granted both before and after January 1, 2006, the Company amortizes the fair value on a straight-line basis. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods.

Expected Term. The expected term of options granted represents the period of time that they are expected to be outstanding. During its initial period of implementation of SFAS 123(R), the Company has adopted the “simplified method” of determining the expected term for “plain vanilla” options, as allowed under SAB 107. The Company will continue to gather additional information about the exercise behavior of plan participants until December 31, 2007, at which time the Company anticipates it will make adjustments to the expected term of stock options granted to reflect actual exercise experience. The “simplified method” states that the expected term is equal to the sum of the vesting term plus the contract term, divided by 2. “Plain vanilla” options are defined as those granted at-the-money, having service time vesting as a condition to exercise, providing that non-vested options are forfeited upon termination, providing that there is a limited time to exercise the vested options after termination of service with the Company, usually 90 days, and providing the options are non-transferable and non-hedgeable. Applying this method, the expected term of the Company’s options granted to U.S. employees ranged from six to seven years.

Expected Volatility. The Company estimated the volatility of its common stock at the date of grant based on the average of the historical volatilities of a group of peer companies. As a newly public company, as of the completion of the Combination in August 2005, the Company believes there is currently not enough historical volatility data available to predict its stock’s future volatility. The Company has identified five comparable companies, including Epimmune, which was a party to the Combination in August 2005, for which it has been able to calculate historical volatility from publicly available data for sequential periods approximately equal to the expected terms of its option grants. In selecting comparable companies, the Company looked at several factors including industry, immunotherapy focus, particularly in cancer, stage of development, and size in terms of market capitalization.

Risk-Free Interest Rate. The Company based the risk-free interest rate that it used in the Black-Scholes option valuation model on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with equivalent remaining terms.

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Dividends. The Company has never paid any cash dividends on its common stock and it does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model.

Forfeitures. SFAS 123(R) requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company has used six years of historical data, including that of IDM Pharma since the Combination in August 2005 and that of Epimmune for the remainder of the six years prior to August 2005, to estimate pre-vesting option forfeitures. The Company has also segregated the six-year historical data to separately calculate expected forfeiture rates for its directors and officers as a group and the balance of its employees as a group. The Company recorded share-based compensation expense only for those awards that are expected to vest. For purposes of calculating pro forma information under SFAS 123 for periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.

The Company used the following assumptions to estimate the fair value of options granted under its option plans for the nine months ended September 30, 2006:

	Nine Months Ended
	September 30, 2006
Average expected term (years)		5.50 - 7.00
Expected volatility (range)		86% - 95	%
Risk-free interest rate		4.73% - 5.03	%
Expected dividend yield		0	%

The Company did not grant stock options to its employees during the three months ended September 30, 2006.

Stock Option Activity and Share-Based Compensation Expense

A summary of stock option activity under all share-based compensation plans during the nine months ended September 30, 2006 is as follows:

				Weighted		Weighted Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(years)		Value
Options outstanding, December 31, 2005		1,547,790		$	14.53
Granted		56,000		$	4.66
Exercised		(16,011	)	$	3.06
Cancelled, forfeited or expired		(137,115	)	$	12.15
Options outstanding, September 30, 2006		1,450,664		$	13.76		6.29	$	—
Options exercisable, September 30, 2006		904,201		$	17.34		4.73	$	—

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The following table is a summary of the options outstanding under all of the Company’s stock option plans as of September 30, 2006:

			Weighted						Weighted
			Average		Weighted				Average
			Remaining		Average				Exercise Price
	Options		Life in		Exercise		Options		of Options
Range of Exercise Prices	Outstanding		Years		Price		Exercisable		Exercisable
3.36 to $4.99		326,987		9.27	$	3.43		67,151	$	3.44
$5.00 to $9.99		286,844		8.88		5.92		80,039		5.99
$10.00 to $19.99		396,922		2.43		12.32		384,802		12.26
$20.00 to $29.99		346,143		5.75		26.48		310,114		26.23
$30.00 and above		93,768		6.21		32.03		62,095		32.91
Total		1,450,664		6.28	$	13.70		904,201	$	17.26

The weighted average fair value of options granted during the nine months ended September 30, 2006 was $4.66. The aggregate intrinsic value for stock options exercised during the nine months ended September 30, 2006 was $42,000.

The Company recorded $0.1 million and $0.4 million in share-based compensation expense for stock options in continuing operations for the three and nine months ended September 30, 2006, respectively.

As of September 30, 2006, there was $1.8 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. The weighted average term over which the compensation cost will be recognized is 1.42 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

The Company received $49,000 in cash from option exercises under all share-based payment arrangements for the nine months ended September 30, 2006, and no option exercises in the three months ended September 30, 2006 and the comparable periods in 2005.

Performance-Based Stock Options and Awards

On August 10, 2006, Sylvie Grégoire, Pharm. D. was appointed the Executive Chair of the Board of Directors and entered into a consulting agreement with the Company. Dr. Grégoire’s compensation under the terms of the agreement includes both cash compensation of $10,000 per month and 600,000 nonstatutory stock options that will vest and become exercisable upon the achievement by the Company of defined milestone events by specified dates through June 30, 2007. If a particular milestone event is not met on or before the date specified in the agreement, all options related to that particular milestone event will terminate. The agreement may be terminated by either party upon 15 day written notice.

The agreement is accounted for under EITF 96-18,Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Since the agreement does not contain an economic penalty for nonperformance, fair value of the award will be measured using the stock price at the date performance is complete. At each interim reporting period, the Company will re-measure the expense based on then-current fair value. Since there is no assurance that the milestones will be met as specified, compensation cost will be recorded upon achievement of each milestone event. Using stock prices and current assumptions at September 30, 2006, total compensation expense measured under the Black-Scholes option pricing model, assuming that all milestones are met by the specified dates, will be $1.4 million, of which $0.6 million will be recorded in the quarter ended December 31, 2006, $0.3 million in the quarter ended March 31, 2007 and $0.5 million in the quarter ended June 30, 2007.

The Company also has outstanding restricted stock awards issued in 2005 to employees that vest over a four year service period subject to acceleration if certain performance conditions are met. Compensation costs are initially recognized over the explicit service period. When the milestones become probable, the remaining unrecognized expense attributed to the milestone is recorded over the adjusted service period

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through the expected milestone achievement date. At September 30, 2006, the Company had 37,007 non-vested restricted stock awards outstanding that had a weighted average fair value of $6.31 as of the grant dates. The aggregate intrinsic value of non-vested restricted stock awards was $0.1 million at September 30, 2006. The Company recorded $0.1 million and $0.2 million in share-based compensation expense for restricted stock awards in continuing operations for the three and nine months ended September 30, 2006, respectively. During the third quarter of 2006, one of the milestones became probable, resulting in incremental compensation expense of $20,000, which is included in general and administrative expense.

Comparable Disclosures

The Company accounted for share-based employee compensation under SFAS No. 123(R)’s fair value method during the nine months ended September 30, 2006. Prior to January 1, 2006 the Company accounted for share-based employee compensation under the provisions of APB 25.

The fair value of the options granted prior to the Company becoming a public reporting entity was estimated at the date of grant using the Minimum Value option model. Under SFAS No. 123, non-public companies were permitted to use the minimum-value method to estimate compensation costs for pro-forma disclosure purposes, which effectively allowed those companies to value employee stock options using an assumed volatility of zero. The minimum-value method is not an acceptable valuation approach under SFAS No.123(R) and the minimum-value disclosures for the three and nine-month periods ended September 30, 2005 are no longer provided. The fair value of the options granted after the Company became a public reporting entity was estimated at the date of the grant using the Black-Scholes option pricing model.

5. Business Combination and Name Change

In connection with the business combination between IDM S.A. and Epimmune on August 16, 2005, IDM S.A., which is now IDM Pharma, Inc.’s French subsidiary, was deemed to be the acquiring company for accounting purposes and the share exchange was accounted for as a reverse acquisition under the purchase method of accounting for business combinations in accordance with U.S. generally accepted accounting principles. The Combination and the purchase method are described below.

As of August 15, 2005, Epimmune had 2,569,895 shares of common stock outstanding, after giving effect to the Reverse Split, including 278,468 shares after giving effect to the conversion of the preferred stock pursuant to the terms of the Amended and Restated Preferred Exchange Agreement. Based on the average of the closing prices for a range of trading days (March 14, 2005 through March 18, 2005, inclusive) around and including the announcement date of the Combination, the fair value of the outstanding shares of Epimmune’s common stock was $9.31 per share or approximately $23,890,000.

The total purchase price of approximately $29,774,000 is comprised of the following:

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

The assumptions used to calculate the estimated fair value of the outstanding Epimmune stock options and warrants were as follows: risk-free interest rate of 4%, dividend yield of 0%, stock volatility factor of 94.7%, stock price of $1.33, and a weighted average expected life of 2.9 years.

Under the purchase method of accounting, the total purchase price as shown in the table above is allocated to Epimmune’s net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the completion of the Combination. The purchase price has been allocated based on various factors including the fair market value of the assets acquired and liabilities assumed of Epimmune, and valuations associated with intangible assets, certain contracts, and property, plant, and equipment.

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The allocation of the purchase price and the estimated useful lives is as follows:

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

Epimmune evaluated projects currently under development and determined that $13.3 million was attributable to in-process research and development. The amounts allocated to IPR&D were determined through established valuation techniques used in the high technology industry and were expensed upon acquisition as it was determined that the underlying projects had not reached technological feasibility and no alternative future uses existed. In accordance with SFAS No. 2,Accounting for Research and Development Costs,as clarified by FIN No. 4,Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method,an Interpretation of SFAS No. 2, amounts assigned to IPR&D meeting the above-stated criteria are charged to expense as part of the allocation of the purchase price.

Epimmune had two products in various states of clinical trials as of the valuation date: EP HIV-1090, a therapeutic vaccine for HIV in Phase I clinical trials and EP-2101, a therapeutic vaccine for non-small cell lung cancer which entered Phase II clinical trials in December 2004. The fair value of the IPR&D was determined using the income approach. Under the income approach, the expected future cash flows for each product under development were estimated and discounted to their net present value at an appropriate risk- adjusted rate of return. Significant factors considered in the calculation of the rate of return were the weighted-average cost of capital and return on assets, as well as the risks inherent in the development process. For purposes of the analysis, EP HIV-1090 was projected to generate material revenue and cash flows beginning in 2013 and EP-2101 was projected to generate material revenue and cash flows beginning in 2014. Remaining research and development expenses for both EP HIV-1090 and EP-2101 were based on management’s best estimates to bring the drug candidates to market. A 24% risk adjusted discount rate was applied to the cash flow projected for EP HIV-1090 and a discount rate of 29% was applied to the EP-2101 projected cash flow. The application of this methodology resulted in a fair value of $7.5 million being assigned to EP HIV-1090 and $5.8 million being assigned to EP-2101. Licensing and milestone agreements represent a combination of Epimmune’s patents, trade secrets, core technology and services that it developed through years of work in the field of epitope identification. This proprietary knowledge base was leveraged by Epimmune to enter into agreements with licensing and milestone opportunities.

In accordance with SFAS No. 142,Goodwill and Other Intangible Assets,goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that management determines that the value of goodwill has become impaired, the Company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.

6. Sale of Infectious Disease Related Assets

Pursuant to an asset purchase agreement, dated November 23, 2005, as amended on December 30, 2005, with Pharmexa Inc., the Company sold specific assets related to its infectious disease programs and certain other assets to Pharmexa for $12.0 million in net cash.

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In connection with the asset sale, the Company also entered into two separate, fully paid, perpetual license agreements with Pharmexa, which guarantee the Company continuing rights to use the PADRE^(R) and Epitope Identification System (EIS^(R)) technologies, included in the assets acquired by Pharmexa, in the cancer field. In addition, the Company entered into a three-year services agreement with Pharmexa, which would provide certain services for the Company’s ongoing clinical trials of its EP-2101 therapeutic vaccine for non-small cell lung cancer, as well as access to expertise and know how related to epitope identification. The Company received a credit for the first year of the services agreement and recorded prepaid services of $0.9 million at December 31, 2005 in connection with the credit. In September 2006, the Company notified Pharmexa that it would terminate the service portion of the agreement as of December 31, 2006. The transaction included the assumption by Pharmexa of the Company’s lease at its San Diego facility and the transfer of most of its San Diego based employees to Pharmexa. The Company retained all rights to its cancer programs.

The carrying amounts of the assets and liabilities sold in connection with the Pharmexa transaction were as follows:

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

Due to the proximity of the sale of the specific assets to the original acquisition date of Epimmune by IDM S.A., the Company did not record a gain on the sale of the net assets, but instead reduced the amount of goodwill originally recorded in connection with the closing of the Combination in August 2005 by $10.5 million.

The results of operations of Epimmune are included in IDM Pharma’s condensed consolidated financial statements from the date of the closing of the Combination on August 16, 2005. The following table presents pro forma results of operations and gives effect to the sale of assets to Pharmexa as if it was consummated at the beginning of the periods presented, and excludes the direct operating results of the assets sold for all periods presented. The unaudited pro forma results of operations are not necessarily indicative of what would have occurred had the transactions been completed at the beginning of the period or of the results that may occur in the future.

	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2005			2005
Revenues	$	2,017,000		$	5,655,000
Net loss	$	(23,312,000	)	$	(38,331,000	)
Net loss per common share — basic and diluted	$	(2.15	)	$	(4.14	)

7. Research and Development and Other Agreements

Jenner Biotherapies, Inc.

In March 2003, we entered into an asset purchase agreement (“Jenner Agreement”) with Jenner Biotherapies, Inc. (“Jenner”), a biotechnology company devoted to the development of cancer vaccines

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and macrophage activators. Pursuant to the terms of the agreement, the Company purchased certain of Jenner’s assets, which included our lead product candidate, Junovan, called Mepact in Europe. This asset was acquired by issuing IDM S.A. shares. The asset purchase was consummated in April 2003.

The Junovan license was valued at fair value for an amount of $3.1 million on the date the shares were issued to Jenner by IDM S.A. The fair value of the shares was recorded as common stock and additional paid-in capital, and represented the basis for the total valuation of the license acquired. Total consideration was allocated to the Junovan license based on its estimated fair value at the date of issuance and is included in patents, trademarks and other licenses on the Company’s Condensed Consolidated Balance Sheets.

The Jenner license is being amortized over ten years, which was management’s estimate of the expected life of future products developed from the use of the license at the time the assets were acquired.

IDM’s direct research and development expenses related to Junovan amounted to approximately $3.2 million and $2.1 million for the first nine months of 2006 and 2005, respectively, and approximately $1.3 million and $0.6 million for the three months ended September 30, 2006 and 2005, respectively.

Sanofi-Aventis S.A. (Related Party)

Pursuant to the agreement signed with IDM in July 2001, Sanofi-Aventis exercised its first option on IDM’s ongoing melanoma development program Uvidem, in December 2001. Consequently, the Company received $5.4 million corresponding to: (i) an up-front payment, (ii) a completion of Phase I milestone payment because the program was already in Phase II and (iii) reimbursement of development costs incurred from 1999 through December 2001, which approximated $1.7 million. Repayment received for past development expenses incurred by IDM prior to the exercise of an option by Sanofi-Aventis are considered as a complementary up-front fee. Thus, the Company is recognizing these three payments over the remaining program development period, which is estimated to be nine years. Up-front and milestone revenues recognized were $0.2 million for the three months ended September 30, 2006 and 2005, and $0.5 million for the nine months ended September 30, 2006 and 2005.

In addition, IDM recorded $2.8 million and $1.3 million in revenues from Sanofi-Aventis for reimbursement of current research and development expenses related to the development of Uvidem, for the three months ended September 30, 2006 and 2005, respectively, and $7.7 million and $4.1 million for the nine months ended September 30, 2006 and 2005, respectively.

Direct research and development expenses related to Uvidem were approximately $1.5 million and $0.8 million in the three months ended September 30, 2006 and 2005, respectively, and $5.0 million and $2.7 million for the nine months ended September 30, 2006 and 2005, respectively.

Prior to the July 2001 agreement, IDM had entered into an agreement in July 1999, as amended in November 2001, under which Sanofi-Aventis agreed to provide the Company with a non-exclusive license to intellectual property for interleukin-13, referred to as IL-13, a compound that contributes to the transformation of white blood cells into specialized immune cells called dendritic cells, including a right to sub-license with Sanofi-Aventis’s approval. In exchange, the Company issued shares and warrants to Sanofi-Aventis. On August 12, 2005, and in connection with the Combination, Sanofi-Aventis exercised its warrants, received 404,660 shares of IDM common stock, and provided IDM with the license to IL-13. This exercise was recorded as an increase of the Company’s stockholders’ equity for $2.0 million, corresponding to the value of the stock received by Sanofi-Aventis calculated using the fair value of the shares of the Company in the Combination. The license to IL-13, which was valued at the same amount, was written off as an impairment charge in the third quarter of 2005 in accordance with IDM’s established policies since it was not used in a clinical phase III development program.

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Medarex, Inc. (Related Party)

In 2000, we entered into an agreement with Medarex, Inc. under which we were granted licenses to manufacture and commercialize antibodies developed by Medarex. One such antibody was included in Osidem, a product that we were developing for the treatment of ovarian cancer. Direct research and development expenses related to Osidem were negligible in the three months and nine months ended September 30, 2006 and 2005.

Cambridge Laboratories Ltd

On May 10, 2005, IDM entered into a license and distribution agreement with Cambridge Laboratories Ltd, a privately held British pharmaceutical company, for the distribution of Junovan in the United Kingdom and the Republic of Ireland.

Pursuant to this agreement, IDM received an up-front payment, half of which is refundable if Junovan does not receive marketing approval in the United Kingdom and the Republic of Ireland, and will receive a milestone payment upon achieving such marketing approval. In addition, IDM will receive royalties based on net sales of Junovan in the United Kingdom and the Republic of Ireland, and a performance royalty upon reaching a cumulative net sales threshold.

IDM is recognizing half of the up-front payment over the period of continuing involvement which includes the estimated development period through marketing approval and the subsequent contractual commercialization period of ten years after initial sales. The other half has been recorded as a long term liability until Junovan receives marketing approval in the United Kingdom and the Republic of Ireland at which time we will begin to recognize it as revenue over the remaining product life.

Up-front and milestone revenues recognized were negligible in the three months and nine months ended September 30, 2006.

8. Commitments

Biotecnol S.A.

On March 8, 2001 IDM entered into a Prototype Production Contract with Biotecnol S.A., a Portuguese company to enable IDM to obtain a preliminary process for the production of IL-13. The Company has been pursuing development in collaboration with Biotecnol since April 1, 2003, based on a letter of intent executed by IDM and Biotecnol. In December 2003, IDM and Biotecnol entered into a Development and Manufacturing Agreement, which aims to expand upon the Prototype Production Contract. Under the terms of the agreement, for the three months ended September 30, 2006 and 2005, expenses related to Biotecnol were negligible. For the nine months ended September 30, 2006 and 2005, IDM recorded expenses of approximately $0.3 million and $0.4 million, respectively, following the successful completion of studies performed by Biotecnol.

Accovion GmbH

On December 28, 2004 IDM entered into an agreement with Accovion, a German Clinical Research Organization, in relation to its Phase II/III clinical trial of Bexidem. This agreement which expires in March 2007 covers patient recruitment and monitoring of clinical centers in several European countries. The Company agreed to pay an estimated total of $1.8 million over the life of the

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trial and reimburses specific pass-through costs. On December 22, 2005, the Company executed an amendment to the agreement to expand the scope of activities undertaken by Accovion, and agreed to increase the estimated total amount to be paid over the life of the trial to $2.0 million. IDM recorded $0.2 million and $0.3 million of expenses related to Accovion in the three months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, IDM recorded approximately $1.0 million and $0.8 million of expenses, respectively. Expenses for services to be received through the completion date will be expensed as incurred.

As a result of the Company’s decision to put on hold further development of Bexidem until collaborative partners can be found or other financing becomes available, in September 2006 the Company reached an agreement with Accovion whereby the existing agreement will be terminated upon the appropriate completion of agreed upon Bexidem related activities, including pharmacovigilance. In September 2006, the Company recognized approximately $0.1 million of expense relating to the early termination of this contract.

PEA Shares

Certain stockholders of IDM S.A. held their shares in a plan d’épargne en action, referred to as a PEA which is a tax efficient vehicle under French law whereby a holder of securities may receive preferential tax treatment provided the securities are held in a separate account for a certain period of time. In connection with the Combination, all holders of shares held in a PEA have entered into a Put/Call Agreement with the Company. Pursuant to the terms of the Put/Call Agreement, holders of PEA shares will have the right to require the Company to purchase, and the Company will have the right to require such holders to sell, the PEA shares for a period of 30 days after the closing of its first offering of equity securities completed after the Combination with net aggregate proceeds of at least ten times the U.S. dollar amount payable to the holders of all PEA shares, excluding any issuance of equity securities in a strategic partnering, licensing, merger or acquisition transaction. The aggregate purchase price for PEA shares, payable in cash, will be equal to 78,600 shares multiplied by the price per share of the Company’s common stock sold in the first equity financing, less underwriters’ discounts or commissions. If the first equity financing does not close within two years following the closing of the share exchange, the remaining PEA shares subject to the Put/Call Agreements will be exchanged for 52,049 shares of the Company’s common stock. The Company is accounting for the PEA shares in accordance with the provisions of SFAS 150,Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. In the event the financing becomes probable, the Company will be required to reclassify the fair value of the PEA shares from stockholders equity to a liability. Subsequent adjustments to fair value would be recorded in the statement of operations.

9. Recent Accounting Pronouncements

On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes,an interpretation of SFAS No. 109,Accounting for Income Taxes (FIN 48) to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006, with early adoption permitted. The Company will adopt FIN 48 as of January 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings. The Company is currently evaluating whether the adoption of Interpretation 48 will have a material effect on our consolidated financial position, results of operations or cash flows.

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10. Subsequent Events

In October 2006 the Company announced that it submitted an NDA in eCTD format to the FDA for Junovan, requesting approval for its use in the treatment of newly diagnosed resectable high grade osteosarcoma patients following surgical resection in combination with multiple agent chemotherapy. IDM requested that the FDA consider granting this NDA priority review status, which could shorten review time if granted after the NDA is accepted for filing. The FDA customarily accepts or refuses to file NDAs and designates review status within 60 days of filing.

In November 2006 the Company also announced that it submitted an MAA in eCTD format to the EMEA for Mepact, called Junovan in the US.

In October 2006 the Company sent written notice to several European Health Authorities that it would stop Phase II of the clinical trial for Bexidem following completion of treatment of all patients, and would put on hold moving forward with a Phase III trial until a collaborative partner or further funding for the project is found.

In October 2006 IDM Pharma’s European affiliate, IDM SA, was granted the status of “Pharmaceutical Establishment” by the French Health Agency (AFSSAPS). This status allows IDM SA to submit a MAA to EMEA and, more generally, to import and sell approved pharmaceutical products under the centralized procedure in all the Member States of the European Union, Norway, Iceland and Liechtenstein.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this report and our 2005 audited financial statements and notes thereto included in our Form 10-K filed on March 31, 2006.

Operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of results that may occur in future periods.

Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. When used herein, the words “believe,” “anticipate,” “expect,” “estimate” and similar expressions are intended to identify such forward-looking statements. There can be no assurance that these statements will prove to be correct. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report. We undertake no obligation to update any of the forward-looking statements contained herein to reflect any future events or developments.

Overview

IDM Pharma is a biopharmaceutical company focused on the development of innovative products that activate the immune system to treat cancer. We are currently developing two lines of products designed to stimulate the patient’s immune response:

• to destroy cancer cells remaining after conventional therapies,

• to prevent tumor recurrence.

Our lead product candidate, Junovan™, called Mepact in Europe, activates immune system cells in order to increase their capacity to destroy cancer cells. It is being developed for the treatment of osteosarcoma, a bone cancer that primarily affects adolescents. We received orphan drug status for Junovan in this indication in the United States and the European Union. A Phase III clinical trial in almost 800 patients was completed and on October 26, 2006 we submitted an NDA in eCTD format to the FDA for Junovan^TM, requesting approval for its use in the treatment of newly diagnosed resectable high grade osteosarcoma patients in combination with multiple agent chemotherapy. Following the submission of the NDA, the Company announced in November 2006 that it submitted a MAA to the EMEA for Mepact, called Junovan in the US. A decision regarding the commercialization of Junovan (Mepact) is expected by the end of 2007. Our second product candidate intended to destroy remaining cancer cells after conventional therapies is Bexidem®, which is in Phase II clinical development to treat bladder cancer.

Our second line of product candidates designed to prevent tumor recurrence, includes:

• two products based on Dendritophages, which are dendritic cells, or specialized immune cells, derived from the patient’s own white blood cells: Uvidem®, in Phase II for the treatment of melanoma, jointly developed with Sanofi-Aventis; and Collidem®, in Phase I/II for the treatment of colorectal cancer; and

• EP-2101, a synthetic peptide-based vaccine that is being evaluated in a Phase II clinical trial for the treatment of non-small cell lung cancer.

We are taking appropriate steps to contain our expenses, including focusing our research and development activities primarily on Junovan and our collaboration with Sanofi-Aventis for Uvidem and putting on hold further development of Bexidem and other product candidates until collaborative partners can be found or other funding becomes available.

As a result of the Company’s decision to put on hold further development of Bexidem, in September 2006, the Company reached an agreement with Accovion whereby the existing agreement with Accovion will be terminated upon the appropriate completion of agreed upon Bexidem related activities, including pharmacovigilance. Accovion is a German Clinical Research Organization providing patient recruitment and monitoring of clinical centers in support of the Company’s Phase II/III clinical trial of Bexidem in several European countries. In September 2006, the Company recognized approximately $0.1 million of expense relating to the early termination of this contract. Expenses for services to be received through the completion date will be expensed as incurred. In October 2006 the Company sent written notice to

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several European Health Authorities that it would stop Phase II of the clinical trial for Bexidem following completion of treatment of all patients, and would put on hold moving forward with a Phase III trial until a collaborative partner or further funding for the project is found.

Currently we are in the process of analyzing our operations in connection with putting on hold further development of Bexidem and other product candidates. We expect this process to lead to a reduction in our workforce in France, which should be completed in the fourth quarter of 2006. The number of employees and their termination benefits will be determined after the completion of negotiations between the Company and the employee council, and approval of a plan of termination by the French labor authorities and the Company’s Board of Directors. We may incur additional costs as we put on hold further development of Bexidem and other product candidates, including additional contract breakage costs, lease termination costs, severance and other related expenses. These costs will be recorded in accordance with SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities.

Severance costs under one-time benefit arrangements will be recorded when the plan of termination meets certain criteria and has been communicated to employees, which will occur in the fourth quarter of 2006. Costs to terminate a contract before the end of its term and costs that will continue to be incurred for the contract’s remaining term without economic benefit to the entity will be recognized and measured at fair value when incurred, generally at the contract termination or cease-use date. Other exit-related costs, will be recognized when incurred, generally upon receipt of the goods or services. We are currently in the process of determining the total costs related to these activities and will record these costs in the fourth quarter of 2006 when the recognition criteria are met.

On August 16, 2005, Epimmune 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 Global Market to “IDMI,” and IDM S.A. became a 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 U.S. generally accepted accounting principles. Accordingly, historical financial statements prior to the Combination reflect those of IDM S.A. Our audited financial statements for each of the three years ended December 31, 2005 are included in the IDM Pharma Inc. Annual Report on Form 10-K filed with the SEC.

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

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We have incurred significant net losses and have generated limited revenues since inception. As of September 30, 2006, our accumulated deficit was $172.6 million and our revenues for the three and nine months ended September 30, 2006 were $3.0 million and $8.3 million, respectively. Our historical financial results reflect increasing research and development and general administrative expenses related to the maturation of our product development programs.

Our research and development expenses mainly include costs associated with preclinical development and clinical trials of our product candidates, salaries and other expenses for personnel, laboratory supplies and materials, consulting and contract research costs, facility costs, amortization of intangible assets such as patents and licenses, and depreciation of laboratory and office equipment. From inception through September 30, 2006, we have incurred costs of approximately $145.9 million associated with research and development in all program areas, including patent and license impairment charges, while we have only recorded approximately $33.4 million in research and development revenues, of which $32.2 million has been recorded since 2001. Following our acquisition of Junovan and certain other assets from Jenner Biotherapies in early 2003, our research and development expenses related to Junovan have amounted to approximately $8.6 million, consisting mainly of external consultant fees, manufacturing and personnel related costs. We charge all research and development expenses to operations as they are incurred. Since 2001, our research and development expenses have represented approximately 73% of total operating expenses. We expect our research and development expenses related to Junovan and Uvidem to increase over the next several years, primarily due to costs related to manufacturing, clinical trials, regulatory compliance and the regulatory approval process.

Clinical development timelines, likelihood of success and total costs vary widely. Our potential product candidates are subject to a lengthy and uncertain regulatory process that may not result in the necessary regulatory approvals, which could adversely affect our ability to commercialize the product candidates. In addition, clinical trials of our potential product candidates may fail to demonstrate safety and/or efficacy, which could prevent regulatory approval. We anticipate that we will make determinations as to which research and development projects to pursue and how much funding to direct to each project on an on-going basis in response to the scientific and clinical success of each product candidate. Availability of funding will impact our ability to pursue our research and development projects. We may not be able to obtain additional funding on terms favorable to us or at all. If we are not able to obtain sufficient funding, we will have to delay or discontinue some of our research and development activities.

The lengthy process of seeking regulatory approvals, and the subsequent compliance with applicable regulations, requires the expenditure of substantial resources. Our failure to obtain, or any delay in our obtaining, regulatory approvals would cause our research and development expenditures to increase and, in turn, have a material adverse effect on our results of operations and cash flows. We cannot be certain whether or when any net cash inflow from Junovan or any of our other development projects will commence.

We expect to continue to incur net losses for the next several years while we pursue our strategy of advancing the development of certain products to commercialization, broadening our development pipeline and in-licensing new biological compounds and complementary technologies. The amount of future net losses and the time we will require to reach profitability, if at all, are highly uncertain.

Our historical revenues have principally been derived from up-front fees, milestone payments and reimbursement of expenses under our collaboration agreement with Sanofi-Aventis, as well as from certain government grants. Since these revenues fluctuate significantly, our financial results for any single period may not be directly comparable to those for any other period. In addition, results in any one period may not be an indication of future results.

In addition to the revenues described above, our financial requirements have been met to date through private placements of equity securities. We have received a total of $100.8 million in gross proceeds from private placements of equity securities, including $20.0 million from Sanofi-Aventis in 2002 and $17.8 million from various existing investors in 2004, as well as $6.9 million from Medarex in 2000.

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We have entered into a number of collaborations with academic and non-academic institutions and pharmaceutical companies. In July 2001, we entered into a significant collaboration agreement with Sanofi-Aventis under which we have generated revenue. We expect one of our principal sources of revenues over the next several years to be milestone payments and reimbursement of research and development expenses from our collaboration with Sanofi-Aventis, although these payments are contingent upon meeting certain development goals. We are also seeking to enter into other collaborative agreements for certain products with other partners, which may provide additional sources of revenues. Consequently, our financial statements have been prepared as if we were an operating company.

Results of Operations for the Three Months Ended September 30, 2006 and 2005

Revenues. We had total revenues of $3.0 million for the three months ended September 30, 2006, compared to total revenues of $2.1 million for the three months ended September 30, 2005.

Our revenues were primarily generated from our research and development activities and derived from reimbursement of current and past research and development expenses and up-front fees and milestone payments received from Sanofi-Aventis under the terms of our collaboration agreement, which amounted to $3.0 million and $1.5 million for the three months ended September 30, 2006 and 2005, respectively. We also received $16,000 and $79,000 for license fees, milestones and other revenues for the three months ended September 30, 2006 and 2005, respectively and $0.5 million from National Institutes of Health (NIH) research grants for the three months ended September 30, 2005.

On December 21, 2001, Sanofi-Aventis exercised its first option to initiate product development on the on-going melanoma development program for Uvidem. Between January and June 2002, Sanofi-Aventis paid us a total of $5.4 million in relation to Uvidem as a combination of up-front fees, milestone payments and reimbursement of expenses we had incurred in prior years while developing Uvidem. The revenue corresponding to these payments is being recognized on a straight-line basis over the estimated nine-year development period for Uvidem. Accordingly, we recognized $0.2 million in the three months ended September 30, 2006 and the three months ended September 30, 2005 from these payments. Additional milestone payments by Sanofi-Aventis under our collaboration agreement are contingent upon the success of several on-going Phase II clinical trials. There can be no assurance that the on-going Phase II clinical trials will be successful and, if they are not successful, we will not receive the related milestone payments.

Approximately $2.8 million and $1.3 million in revenues from Sanofi-Aventis in the three months ended September 30, 2006 and 2005, respectively, were for the reimbursement of current expenses related to the development of Uvidem. The increase in revenue was due to the increase in expenses associated with Uvidem clinical trials.

Research and Development Expenses and Impairment of Patents and Licenses. Total research and development expenses and impairment of patents and licenses were $5.4 million and $7.0 million for the three months ended September 30, 2006 and 2005, respectively.

We regularly undertake detailed reviews of our patents and licenses in order to check the development stage and the viability of associated products. When certain product development projects remain at an early stage or are abandoned, we write down in full the remaining value of licenses, patents or trademarks associated with those projects, if they are found to have no alternative future use. We recorded $0.1 million of impairment charges during the three months ended September 30, 2006, compared to a $2.0 million charge for the three months ended September 30, 2005. During the three months ended September 30, 2005, we wrote off the license to IL-13 received from Sanofi-Aventis upon the exercise of certain warrants by Sanofi-Aventis in connection with the Combination, and recorded a corresponding $2.0 million impairment charge in accordance with our established policies since the acquired license was not in a clinical phase III development program.

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Research and development expenses increased to $5.3 million for the three months ended September 30, 2006 from $5.0 million for the three months ended September 30, 2005. This increase was primarily due to higher expenditures for Phase II clinical trials of the Uvidem product and expenditures made in connection with preparation for regulatory filing and manufacturing of Junovan. These expenditures were partially offset by reduced spending from activities not related to Junovan or Uvidem.

Direct research and development expenses related to our product candidates to destroy residual cancer cells were approximately $1.6 million and $1.5 million for the three months ended September 30, 2006 and 2005, respectively, and $20.9 million for the period from January 1, 2001, the earliest date for which relevant cumulated cost information is available, through September 30, 2006. Direct research and development expenses related to our product candidates to prevent tumor recurrence were approximately $2.0 million and $1.3 million for the three months ended September 30, 2006 and 2005, respectively, and $27.2 million for the period from January 1, 2001, the earliest date for which relevant cumulated cost information is available, through September 30, 2006.

Selling and Marketing Expenses. Selling and marketing expenses were $0.2 million for the three months ended September 30, 2006, compared to $0.4 million for the three months ended September 30, 2005. Lower expenses in 2006 were the result of fewer company-sponsored symposiums.

General and Administrative Expenses. General and administrative expenses were $1.6 million and $1.8 million for the three months ended September 30, 2006 and 2005, respectively. Higher expenses for the three months ended September 2005 was primarily due to incremental expenses following the Combination, offset by $0.1 million in stock-based compensation expense related to stock options under SFAS No. 123(R) in the 2006 period.

Acquired in Process Research and Development. In the three months ended September 30, 2005, we took a non-cash $13.3 million charge to write-off acquired in process research and development related to the Combination.

Interest Income. Net interest income was $0.1 million for both the three months ended September 30, 2006 and 2005.

Foreign Exchange Gain or Loss.The Company has an intercompany loan between its subsidiary in France and its subsidiary in the United States. Prior to the quarter ending December 31, 2005, this loan was considered to be long term and all related foreign exchange gains or losses were recognized as a component of other comprehensive loss and excluded from earnings. Beginning in the quarter ending December 31, 2005, as a result of planned operational changes, we expect to settle this intercompany loan in the future. As a result, this loan was revalued each quarter based on changes in the value of the dollar versus the euro and all related changes were recognized in earnings. For the three months ended September 30, 2006 and 2005 the company recorded a foreign exchange gain of $0.2 million, primarily the result of the revaluation of this intercompany loan, and a loss of $0.1 million, respectively.

Income Tax Benefit. Research tax credit recorded for research and development expenses in France was negligible for the three months ended September 30, 2006. We recorded a research tax credit in the amount of $0.1 million for the three months ended September 30, 2005.

As of September 30, 2006, we had research and development tax credits receivable of $1.4 million, which represents an account receivable corresponding to our accumulated income tax benefit from the French government of which $0.2 million is recoverable during the next twelve months.

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Net Loss. Our net loss decreased to $3.9 million for the three months ended September 30, 2006, compared to $20.2 million for the three months ended September 30, 2005, as a result of the factors described above.

Results of Operations for the Nine Months Ended September 30, 2006 and 2005

Revenues. We had total revenues of $8.3 million for the nine months ended September 30, 2006, compared to total revenues of $5.2 million for the nine months ended September 30, 2005.

Our revenues were primarily generated from our research and development activities and derived from reimbursement of current and past research and development expenses and up-front fees and milestone payments received from Sanofi-Aventis under the terms of our collaboration agreement, which amounted to $8.2 million and $4.6 million for the nine months ended September 30, 2006 and 2005, respectively. We also received $0.1 million and $0.6 million from NIH research grants, license fees and other contract revenues for the nine months ended September 30, 2006 and 2005, respectively.

On December 21, 2001, Sanofi-Aventis exercised its first option to initiate product development on the on-going melanoma development program for Uvidem. Between January and June 2002, Sanofi-Aventis paid us a total of $5.4 million in relation to Uvidem as a combination of up-front fees, milestone payments and reimbursement of expenses we had incurred in prior years while developing Uvidem. The revenue corresponding to these payments is being recognized on a straight-line basis over the estimated nine-year development period for Uvidem. Accordingly, we recognized $0.5 million in the nine months ended September 30, 2006 and $0.5 million in revenues in the nine months ended September 30, 2005 from these payments. Additional milestone payments by Sanofi-Aventis under our collaboration agreement are contingent upon the success of several on-going Phase II clinical trials. There can be no assurance that the on-going Phase II clinical trials will be successful and, if they are not successful, we will not receive the related milestone payments.

We recorded $7.7 million and $4.1 million in revenues from Sanofi-Aventis in the nine months ended September 30, 2006 and 2005, respectively, were for the reimbursement of current expenses related to the development of Uvidem. The increase in revenue was due to the increase in Uvidem expenses associated with Uvidem clinical trials in the 2006 period.

Research and Development Expenses and Impairment of Patents and Licenses. Total research and development expenses and impairment of patents and licenses were $17.5 million and $17.0 million for the nine months ended September 30, 2006 and 2005, respectively.

We regularly undertake detailed reviews of our patents and licenses in order to check the development stage and the viability of associated products. When certain product development projects remain at an early stage or are abandoned, we write down in full the remaining value of licenses, patents or trademarks associated with those projects, if they are found to have no alternative future use. We recorded $0.5 million and $2.3 million in impairment charges during the nine months ended September 30, 2006 and 2005, respectively. During the nine months ended September 30, 2005, we wrote off the license to IL-13 received from Sanofi-Aventis upon the exercise of certain warrants by Sanofi-Aventis in connection with the Combination, and recorded a corresponding $2.0 million impairment charge in accordance with our established policies since the acquired license was not in a clinical phase III development program.

Research and development expenses increased to $17.0 million for the nine months ended September 30, 2006 from $14.7 million for the nine months ended September 30, 2005. This increase was primarily due to higher expenditures for Phase II clinical trials of the Uvidem product and expenditures made in connection with preparation for regulatory filing and manufacturing of Junovan. These expenditures were partially offset by reduced spending from activities not related to Junovan or Uvidem.

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Direct research and development expenses related to our product candidates to destroy residual cancer cells were approximately $5.1 million and $4.9 million for the nine months ended September 30, 2006 and 2005, respectively, and $20.9 million for the period from January 1, 2001, the earliest date for which relevant cumulated cost information is available, through September 30, 2006. Direct research and development expenses related to our product candidates to prevent tumor recurrence were approximately $6.7 million and $3.7 million for the nine months ended September 30, 2006 and 2005, respectively, and $27.2 million for the period from January 1, 2001, the earliest date for which relevant cumulated cost information is available, through September 30, 2006.

Selling and Marketing Expenses. Selling and marketing expenses were $0.4 million for the nine months ended September 30, 2006, compared to $1.0 million for the nine months ended September 30, 2005. Lower expenses in 2006 were the result of fewer company-sponsored symposiums.

General and Administrative Expenses. General and administrative expenses were $6.8 million and $4.7 million for the nine months ended September 30, 2006 and 2005, respectively. The increase in expenses included $1.0 million, corresponding to new expenses associated with being a public company, including board of directors fees, accounting, and legal expenses, and $0.6 million of increased compensation, as well as $0.5 million resulting from the adoption of SFAS 123(R).

Acquired in Process Research and Development. For the nine months ended September 30, 2005, we took a non-cash $13.3 million charge to write-off acquired in process research and development related to the Combination on August 16, 2005.

Interest Income. Net interest income was $0.4 million and $0.5 million for the nine months ended September 30, 2006 and 2005, respectively.

Foreign Exchange Gain or Loss .The Company has an intercompany loan between its subsidiary in France and its subsidiary in the United States. Prior to the quarter ending December 31, 2005, this loan was considered to be long term and all related foreign exchange gains or losses were recognized as a component of other comprehensive loss and excluded from earnings. Beginning in the quarter ending December 31, 2005, as a result of planned operational changes, we expect to settle this intercompany loan in the future. As a result, this loan was revalued each quarter based on changes in the value of the dollar versus the euro and all related changes were recognized in earnings. For the nine months ended September 30, 2006 and 2005 the company recorded a foreign exchange loss of $1.7 million, primarily the result of the revaluation of this intercompany loan, and a gain of $0.1 million, respectively.

Income Tax Benefit. We recorded a research tax credit for research and development expenses in France in the amount of $0.2 million for the nine months ended September 30, 2006 compared to $0.7 million in the nine months ended September 30, 2005. Excluding a $0.4 million adjustment made in 2005, as a result of a change in tax law, to recognize additional tax credits attributable to the year ended December 31, 2004, tax credit for both quarters is comparable.

As of September 30, 2006, we had research and development tax credits receivable of $1.4 million, which represents an account receivable corresponding to our accumulated income tax benefit from the French government of which $0.2 million is recoverable during the next twelve months.

Net Loss. Our net loss decreased to $17.5 million for the nine months ended September 30, 2006, compared to $29.5 million for the nine months ended September 30, 2005, as a result of the factors described above.

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Liquidity and Capital Resources

As of September 30, 2006, our cash and cash equivalents totaled $13.0 million, compared to $26.7 million as of December 31, 2005. Cash and cash equivalents include principally cash, money-market funds and certificates of deposit with maturity of 90 days or less and are denominated in both euros and U.S. dollars. We use our cash and cash equivalents to cover research and development expenses and corporate expenses related to selling and marketing and general and administrative activities. If we enter into collaborations for certain of our products, we expect that our strategic partners would assume most, if not all, of the costs of further product development. Unless we find a strategic partner for a product, we bear all costs related to its development. We expect our expenses to increase as we pursue our strategy of continued clinical development and commercialization of Junovan, while also seeking strategic partners for the development and commercialization of other products.

Net cash used in operating activities decreased to $14.1 million for the nine months ended September 30, 2006, compared to $14.5 million for the nine months ended September 30, 2005. This decrease in cash used by operating activities was primarily the result of an increase in operating expenses, excluding acquired in process research and development and impairment charges of $15.4 million in the 2005 period and $0.5 million in the 2006 period, offset by an increase in foreign exchange loss and a reduction in income tax benefit of $1.8 million and $0.5 million, respectively.

Net cash used in investing activities decreased to $0.4 million during the nine months ended September 30, 2006, compared to $2.3 million for the nine months ended September 30, 2005. This decrease resulted from the net costs of $1.6 million related to the Combination, which included legal, investment banking and accounting fees net of cash acquired in the Combination, and $0.3 million in increased purchases of laboratory equipment during the nine months ended September 30, 2005.

As of September 30, 2006, our current liabilities amounted to $9.7 million. Our current liabilities included $5.3 million in accounts payable to suppliers, $0.7 million in the current portion of deferred revenues from the collaboration agreements with Sanofi-Aventis and Cambridge Laboratories, which are recognized as revenue on a straight-line basis over the remaining term of each agreement, $1.2 million in accrued compensation for employees and $2.4 million in accrued taxes including value-added tax and advances on grants. Our long-term liabilities as of September 30, 2006 were composed primarily of $2.7 million in deferred revenues from Sanofi-Aventis and Cambridge Laboratories, an interest-free loan of $0.5 million from the French government that provides support to French companies for research and development, and $0.5 million of which $0.3 million corresponds to half of the up-front payment received from Cambridge Laboratories for Junovan marketing rights in the United Kingdom and the Republic of Ireland that is recorded as a long term liability until Junovan receives marketing approval in these countries. We must repay the principal amount of the French government loan in installments of $0.2 million in 2008 and $0.3 million in 2010.

Our financial requirements to date have been met primarily through private placements of equity securities, payments received under our agreement with Sanofi-Aventis and our agreement with Medarex, together with grants received from governmental agencies. We have received a total of $100.8 million in gross proceeds from private placements of equity securities since our inception, including: in 1996, $4.1 million, including $0.4 million from the conversion of convertible bonds; in 1998, $21.1 million, including $3.3 million from the conversion of convertible bonds; in 2000, $36.8 million; in 2002, $19.5 million; and in 2004, $17.8 million.

We expect our principal sources of revenues to be up-front fees, milestone payments and reimbursements of research and development expenses under our collaboration agreement with Sanofi-Aventis, until such time as we successfully develop one or more products for sale outside this agreement or enter into other collaboration agreements. However, if we do not meet further development milestones with respect to Uvidem, or if Sanofi-Aventis does not elect to develop additional product candidates, we will not receive additional payments under our agreement with Sanofi-Aventis. We expect to receive revenues from sales of our lead product candidate, Junovan, assuming that we receive regulatory approval and choose to market Junovan ourselves. However, we may not receive regulatory approval and, even if we do, any efforts by us or any future partners to commercialize Junovan may not be successful. In keeping with our overall strategy, we are seeking to enter into collaboration agreements for certain products with other

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strategic partners, which may provide additional sources of revenues, including other milestone payments. However, we cannot be certain that we will enter into such agreements. In addition, the timing of our milestone payments cannot be predicted with certainty, and we may not receive payments if development targets are not achieved. Also, it is unlikely that milestone payments, even if received when expected, would fully cover our total research and development expenses for all of our projects. Royalties, if any, on commercial sales of products under development with strategic partners will not be received until at least such time as such products receive the required regulatory approvals and are launched on the market. We do not expect any of our products to receive regulatory approval before the second half of 2007, and we cannot be sure of the timing of any such approval or successful commercialization following such approval. The timing for receipt of regulatory approval of products is subject to risks and uncertainties regarding development, regulatory matters, manufacturing and commercialization described in more detail in the section entitled “Risk Factors” below, including the possibility that the FDA or the EMEA may require that we conduct additional clinical trials and the risk that 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.

We will need to obtain additional funding, which we may seek through collaboration and license agreements, government research grants, and equity or debt financings. Additional funding may not be available on terms acceptable to us, or at all. Raising capital through a licensing arrangement or another transaction involving our intellectual property could require us to relinquish valuable intellectual property rights and thereby sacrifice long term value for short term liquidity. Additional equity financing may cause our existing stockholders to experience substantial dilution and negatively affect our stock price. We do not have committed sources of additional funding and may not be able to obtain additional funding, particularly if volatile conditions in the market for biotechnology company stocks persist. If we are unable to obtain additional funding, we may be required to delay, further reduce the scope of or discontinue one or more of our research and development projects, sell the Company or certain of its assets or technologies, or dissolve and liquidate its assets.

We will continue to incur significant expenses for research and development activities. We are taking appropriate steps to contain our expenses, including focusing our research and development activities primarily on Junovan and our collaboration with Sanofi-Aventis for Uvidem and putting on hold further development of Bexidem and other product candidates until collaborative partners can be found or other funding becomes available.

If we fail to adequately address our liquidity issues, our independent auditors may issue a qualified opinion, to the effect that there is substantial doubt about our ability to continue as a going concern. A qualified opinion could itself have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our capital expenditures include purchase of property and equipment, including research and development laboratory equipment and product manufacturing facilities. Capital expenditures also include purchase of intangible assets, including payment of patent development costs, acquisition of third party licenses and patents, such as from Medarex and Jenner Biotherapies, and acquisition of other intangibles. Capital expenditures amounted to $0.4 million and $0.6 million for the nine months ended September 30, 2006 and 2005.

Our major outstanding contractual obligations relate to our long-term debt, operating lease obligations, and obligations under a number of our collaboration, licensing and consulting agreements. At September 30, 2006, we had $30,000 of outstanding capital lease obligations.

We incurred approximately $3.9 million in costs related to the Combination, consisting primarily of legal and accounting fees, fees paid to our financial advisor in connection with the transaction and internal personnel related costs. We capitalized approximately $3.3 million of the total costs we have incurred in accordance with Statement of Financial Accounting Standards, referred to as SFAS, No. 141, “Business Combinations.”

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We believe that our existing cash resources are sufficient to meet our cash requirements, based on our current development and operating plan, through the second quarter of 2007. Our future capital requirements, the timing and amount of expenditures and the adequacy of available capital will depend upon a number of factors. These factors include the scope and progress of our research and development programs, our ability to sign new collaboration agreements and maintain our current collaboration agreement with Sanofi-Aventis and whether Sanofi-Aventis elects to develop additional product candidates, our progress in developing and commercializing new products resulting from our development programs and collaborations including the achievement of milestones, the cost of launching, marketing and sales of products if we choose to commercialize products ourselves, our plans to expand or construct manufacturing or other facilities, technological developments, our preparation and filing of patent applications, our securing and maintaining patents and other intellectual property rights and our dealings with the regulatory process. See the section entitled “Trends” below.

Off-Balance Sheet Arrangements

As of September 30, 2006, we were not a party to any transactions, agreements or contractual arrangements to which an entity that is not consolidated with IDM was a party, under which we had:

• any obligation under a guarantee contract;

• a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support for such assets;

• any obligation under a derivative instrument that is both indexed to our stock and classified in shareholders’ equity, or not reflected, in our statement of financial position; or

• any obligation, including a contingent obligation, arising out of a variable interest, in an unconsolidated entity that is held by, and material to, us, where such entity provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

Trends

The level of our research and development spending will depend on numerous factors including the number of products in development, the number of products partnered, the results and progress of preclinical and clinical testing, our financial condition and ability to raise additional capital as well as general market conditions.

We expect our quarterly research and development expenses to continue to decrease in the last quarter of 2006 as a result of our focus on a smaller number of later stage programs and the sale of our infectious disease programs. However, due to the maturation of the development stage for certain of our products, we expect our expenses associated with them to increase because clinical trial expenses increase significantly when moving from Phase I to Phase II and from Phase II to Phase III. As products successfully mature, we also expect to pay filing fees in connection with the regulatory submission process and incur expenses related to the maintenance and potential expansion of our product manufacturing facilities. Our strategy is to prioritize expenditures on our portfolio of products in development in order to maintain research and development expenses in line with available financial resources. We are taking appropriate steps to contain our expenses, including focusing our research and development activities primarily on Junovan and our collaboration with Sanofi-Aventis for Uvidem and

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putting on hold further development of Bexidem and other product candidates until collaborative partners can be found or other funding becomes available. As a result of the Company’s decision to put on hold further development of Bexidem, in September 2006 the Company reached an agreement with Accovion whereby the existing agreement with Accovion will be terminated upon the appropriate completion of agreed upon Bexidem related activities, including pharmacovigilance. Accovion is a German Clinical Research Organization providing patient recruitment and monitoring of clinical centers in support of the Company’s Phase II/III clinical trial of Bexidem in several European countries. In September 2006, the Company recognized approximately $0.1 million of expense relating to the early termination of this contract. In October 2006 the Company sent written notice to several European Health Authorities that it would stop Phase II of the clinical trial for Bexidem following completion of treatment of all patients, and would put on hold moving forward with a Phase III trial until a collaborative partner or further funding for the project is found.

Currently we are in the process of analyzing our operations in connection with putting on hold further development of Bexidem and other product candidates. We expect this process to lead to a reduction in our workforce in France, which should be effective in the fourth quarter of 2006. The number of employees and their termination benefits will be determined after the completion of negotiations between the Company and the employee council, and approval of a plan of termination by the French labor authorities and the Company’s Board of Directors. We may incur additional costs as we put on hold further development of Bexidem and other product candidates, including additional contract breakage costs, severance and other related expenses.

If we succeed in gaining regulatory approval for Junovan and proceed with commercialization of Junovan ourselves, we expect our selling and marketing expenses to increase correspondingly with our activities to commercialize Junovan. In addition, we would expect to incur significant costs related to manufacturing Junovan, which would be recorded as cost of goods sold. Furthermore, depending on the outcome of the NDA filing with the FDA for Junovan, we may owe milestone payments as well as royalties in the event of its commercialization, under a licensing agreement with Ciba Geigy, now Novartis AG, which was transferred to us as part of the Jenner Agreement entered into in 2003. However, our obligations to make milestone payments will be deferred until profitability of the Junovan product line.

We expect our general and administrative expenses to be higher in 2006 compared to 2005 levels because of the additional costs we continue to incur in connection with operating as a public company.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2006, our investment portfolio included cash, money market accounts and fixed-income securities. We are exposed to limited market risk through our investment of cash in money market accounts and high grade securities, generally with maturities of less than three months. The securities contained in our cash and cash equivalents are typically debt instruments purchased at inception and held until maturity. Due to their very short-term nature, such securities are subject to minimal interest rate risk. We currently do not hedge interest rate exposure, and any decline in interest rates over time will reduce our interest income, while increases in interest rates over time will increase our interest income. We also do not hedge currency exchange rate exposure.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of September 30, 2006, the end of the period covered by this report. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the evaluation date.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. It should be noted that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. As a result, there can be no assurance that our disclosure controls and procedures or internal control system will prevent all possible instances of error and fraud. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the conclusions of our principal executive officer and the principal financial officer are made at the reasonable assurance level.
We went through significant changes in our corporate and financial reporting structure in 2005 as a result of the Combination in August 2005 and the sale of our infectious disease assets in December 2005. As a result of these transactions, we now have a multi-location, multi-tier reporting and consolidation process with related currency translations. These transactions and the operations of our company involve complex accounting issues. Following the Combination, we have expended significant efforts on financial reporting activities and integration of operations, including expansion of our disclosure controls and procedures and internal control systems to address, among other things, operations at multiple sites and in multiple countries.

While we are in the process of implementing corrective actions as further discussed below, as of September 30, 2006, there continues to be deficiencies relating to monitoring and oversight of the work performed by our accounting personnel, and of the work performed by accounting consultants working on our behalf, to assure that transactions receive adequate review by accounting personnel with sufficient technical accounting expertise. We also noted a lack of sufficiently skilled personnel within our accounting and financial reporting functions to ensure that all transactions are accounted for in accordance with U.S. generally accepted accounting principles, and deficiencies in our controls over certain non-routine, complex transactions such as the Combination and the sale of our infectious disease assets in 2005. These deficiencies resulted in errors in the preparation and review of financial statements and related disclosures, and resulted in adjustments to our audited, consolidated financial statements for the year ended December 31, 2005. The impact of these adjustments did not require the restatement of any of our financial statements.

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Based on findings of material weaknesses in our internal control over financial reporting as described above, we have taken steps to strengthen our internal control over our financial statement closing, consolidation and reporting process, and our processes for accounting for non-routine, complex transactions such as acquisitions. However, the conclusions of management as of September 30, 2006, that material weaknesses in our internal control over financial reporting process continue to exist, indicates that we need to take additional steps to remediate these situations. We intend to address the remaining actions required to remediate our existing weaknesses as part of our ongoing efforts to improve our control environment. As discussed below, we have been and continue to be engaged in efforts to improve our internal control over financial reporting. Measures we have taken or are planning on taking to remediate our identified material weaknesses include:

• Consolidate operating and financial reporting locations and structure;

• Implement additional review and approval procedures over accruals;

• Formalize process and documentation related to financial statement close and consolidation review, including face-to-face meeting of all members of our financial staff involved in preparation of financial statements and a review of those financial statements by the entire staff as a group;

• Formalize and enhance documentation, oversight and review procedures related to accounting records of our foreign subsidiary to ensure compliance with U.S. generally accepted accounting principles;

• Supplement internal staff expertise by consulting with independent, third-party experts regarding accounting treatment of unusual or non-routine transactions, and the impact of the adoption of new accounting pronouncements, when and if necessary;

• Review and make appropriate staffing adjustments at all company locations to enhance accounting expertise;

• Revise and enhance the review process for unusual and acquisition related transactions; and

• Improve training for, and integration and communication among, accounting and financial staff.

(b) Changes in Internal Control Over Financial Reporting

Our principal executive officer and principal financial officer also evaluated whether any change in our internal control over financial reporting, as such term is defined under Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, occurred during our most recent fiscal quarter covered by this report that has materially affected, or is likely to materially affect, our internal control over financial reporting. Based on their evaluation, our principal executive officer and principal financial officer concluded that there has been no change in our internal control over financial reporting during our most recent fiscal quarter covered by this report that has materially affected, or is likely to materially affect, our internal control over financial reporting. We are in the process of reviewing our control procedures in connection with account consolidation in order to determine additional steps necessary to strengthen our consolidation process.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we are involved in certain litigation arising out of our operations. We are not currently engaged in any legal proceedings.

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 a rapidly changing and competitive market and involves a high degree of risk, and accuracy with respect to forward-looking projections is difficult.

The Company has marked with an asterisk those risk factors that reflect changes from the risk factors included in the Company’s Annual Report onForm 10-K filed with the SEC.

*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 pre-NDA meetings with the CDER’s Office of Oncology Drug Products in 2006, regarding the filing requirements and the most expedient pathway for potential approval of Junovan. We recently submitted an electronic NDA to the FDA for Junovan, requesting approval for its use in the treatment of newly diagnosed resectable high grade osteosarcoma patients following surgical resection in combination with multiple agent chemotherapy. We requested that the FDA consider granting this NDA priority review status, which could shorten review time if granted after the NDA is accepted for filing. The FDA may not agree to accept the NDA file or grant priority review status, which may delay the 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 pre-clinical or clinical studies. Other risks relating to the timing of regulatory approval of Junovan include our ability to respond to questions raised by the FDA in a manner satisfactory to the FDA, the time needed to respond to any issues raised by the FDA with regard to regulatory submissions for Junovan and the risk that 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 approval for filing and priority review, we do not expect any regulatory approval of Junovan to occur before the second half of 2007.

Third-party suppliers have initiated manufacturing of Junovan and Junovan components for us based on the specifications and processes established during the Phase III trial. We have produced Junovan materials that meet the same specifications as the product used in clinical trials. The FDA has reviewed a proposed protocol for demonstration of comparability. We have initiated studies with the old and new materials to demonstrate comparability, so that the data generated during preclinical and clinical development can be used to support regulatory approval. If we fail to demonstrate, through extensive analytical testing and appropriate preclinical studies, that the new Junovan materials produced by IDM subcontractors are comparable to the materials used in the preclinical and clinical development and comply with the current Good Manufacturing Practice Regulations promulgated by the FDA, or cGMP, requirement for drug products, additional preclinical or clinical studies may be required by the regulatory agencies, thus delaying the approval in the intended geographies.

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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 time and money, as well as the focus and attention of key personnel. 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 commercialize it immediately or 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 have submitted a marketing authorization application. Any revenues generated will be limited by our ability to, in time, develop our own commercial organization or find a partner for the commercialization of the product. In addition, the number of patients with osteosarcoma, the ability to obtain appropriate pricing and reimbursement for Junovan, and the rate of adoption of the products are risks associated with the commercialization of Junovan. We may also face competition from new treatment or new investigational approaches with existing therapies.

We currently do not have operational sales and marketing infrastructure for Junovan and may not have secured this capabability immediately following receipt of any regulatory approval for Junovan. In order to commercialize Junovan, we need to find a partner who has EU and US operational commercial abilities or otherwise arrange for the commercialization ourselves. If we are unable to commercialize Junovan promptly after receipt of any regulatory approval for Junovan, any delay may materially adversely effect our business and financial position due to reduced or delayed revenues from Junovan sales during the period prior to commercialization.

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 protected the liposomal formulation of Junovan until 2005 in Europe and protect the same until 2007 in the United States, with a possible extension until 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 may abandon projects that we might previously have believed to be promising;

• after reviewing test results, our collaborators may abandon projects that we might believe are still 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;

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• 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;

• clinical trials may be delayed as a result of difficulties in identifying and enrolling patients who meet trial eligibility criteria;

• safety and efficacy results attained in early human clinical trials may not be indicative of results that are obtained in later clinical trials; and

• the effects of our product candidates may not be the desired effects or may include undesirable side effects that 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 the nine months ended September 30, 2006 and 2005, on a consolidated basis, Sanofi-Aventis represented approximately 99% and 88%, respectively, of our revenue. As of July 2006, Sanofi-Aventis has the option to jointly develop and commercialize up to ten of our therapeutic products derived from the patient’s own white blood cells, referred to as cell drugs, over a five-year period. To date Sanofi-Aventis has exercised an option for 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.

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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 $172.4 million as of September 30, 2006. 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, and if we do not obtain additional funding we may be required to sell our assets or our company, or dissolve and liquidate all of our assets.

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. While we are taking appropriate steps aimed to contain such expenses, we cannot be certain that we will succeed in such efforts and we will nonetheless 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. We believe our existing cash resources are sufficient to meet our cash requirements through the second quarter of 2007. Our failure to obtain additional funding may also require us 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;

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• 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;

• 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 fail to adequately address our liquidity concerns, then our independent auditors may issue a qualified opinion, to the effect that there is substantial doubt about our ability to continue as a going concern. A qualified opinion could itself have a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, our failure to raise adequate capital would have a material adverse effect on our business, financial condition, results of operations and cash flows, and could cause us to discontinue operations or declare bankruptcy.

*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 Operations and General Manager, U.S., and Mr. Hervé Duchesne de Lamotte, Acting Principal Financial and Accounting Officer and General Manager and 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 currently do not have a Chief Financial Officer and Mr. Hervé Duchesne de Lamotte is serving as our principal financial and accounting officer on an interim basis until we hire a Chief Financial Officer. We are currently engaged in a search for a new Chief Financial Officer. We do not maintain key person life insurance on the life of any employee. Our ability to develop immunotherapeutic products and vaccines and achieve our other business objectives also depends 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 chemistry, biochemistry, molecular biology, immunology and other areas of our proposed activities, and we may not be able to

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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 our 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;

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• the tumor cells do not express the targeted antigen or other target structures at all or in sufficient quantities to be recognized by immune system cells, such as T cells or macrophages;

• the immune response stimulated by the immunotherapeutic agent is not strong enough to destroy all of the cancer cells ; 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 most significant collaboration is with Sanofi-Aventis. If we are not able to maintain our existing strategic collaborations and enter into new collaborations 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.

     Collaborations and license arrangements generally pose the following risks:

• 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;

• collaborators and licensees may delay clinical trials and prolong clinical development, underfund a clinical trial program, stop a clinical trial or abandon a product candidate;

• 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; and

• disputes may arise delaying or terminating the research, development or commercialization of our product candidates, or result in significant and costly litigation or arbitration

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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 of desired quantity and quality may be difficult to obtain.

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.

Currently IDM has contracts with two third-party suppliers for the manufacture of the active ingredient (MTP-PE) and final product for Junovan. We have another agreement with a third supplier for performing the key tests necessary for the release of Junovan. We have not identified other vendors that might provide these products and services should the ability of our current contractors to manufacture and test MTP-PE and/or Junovan be impaired. Delays or impairment of our ability to continue manufacturing or testing could be caused by physical damage or impairment of our supplier facilities, departure of key staff, failure to renew manufacturing agreements with them or other unforeseen circumstances. Such impairment could significantly impact our ability to commercialize Junovan should we receive regulatory approval to do so. Even if we were able to identify potential alternative suppliers, it would take a significant amount of time and resources to initiate and validate all of the required processes and activities to bring the new supplier on-line, resulting in interruptions in the availability of Junovan.

We also rely on external suppliers for the production of IL-13, which is used in the manufacturing of our Dendritophage product candidates. 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 GMP compliant IL-13 manufacturing process. Under the agreement, Biotecnol has agreed to complete development of GMP 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 GMP IL-13, or that it will be able to produce sufficient quantities of GMP IL-13 if it is successful. Without a sufficient supply of GMP 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 that are currently our sole sources for the materials they supply, though we believe alternate suppliers could be developed in a reasonable period of time.

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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 do 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. 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 certain 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 our 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 that produce investigational drugs

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for a limited number of patients in our clinical trials. 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 marketing authorization;

• 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 result in long-term commitments for post-marketing studies.

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

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

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-certifications 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 and/or to avoid breaching the technology licenses upon which we might base our products. There may be 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.

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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 not 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 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.

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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, 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.

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

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.

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;

• 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; 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.

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

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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 Global Market under our new trading symbol “IDMI” through September 30, 2006, the closing stock price of our common stock ranged from

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$2.25 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 stockholders 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 3.2% of the shares of our common stock as of September 30, 2006. Moreover, Medarex and Sanofi-Aventis own approximately 19.6% and approximately 14.8%, respectively, of the total shares of our common stock outstanding as of September 30, 2006. 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.

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*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 own in the aggregate approximately 81% of the outstanding shares of our common stock as of September 30, 2006 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 are free to sell half of their shares of our common stock subject to volume restrictions for a further six-month period.

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ITEM 6. EXHIBITS

Exhibit
Number	Document Description
3.1	Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on December 2, 1991.(1)
3.2	Certificate of Designation of Series A Junior Participating Preferred Stock filed with the Secretary of State of Delaware on April 2, 1993.(2)
3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on July 5, 1995.(3)
3.4	Certificate of Increase of Series A Junior Participating Preferred Stock filed with the Secretary of State of Delaware on July 5, 1995.
3.5	Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on July 2, 1998.(4)
3.6	Certificate of Increase of Series A Junior Participating Preferred Stock filed with the Secretary of State of Delaware on July 2, 1998.(4)
3.7	Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on November 12, 1998.(5)
3.8	Certificate of Designations of the Series S and Series S-1 Preferred Stock filed with the Secretary of State of Delaware on June 29, 1999.(6)
3.9	Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on July 1, 1999.(7)
3.10	Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on September 23, 1999.(8)
3.11	Certificate of Decrease of Series A Junior Participating Preferred Stock filed with the Secretary of State of Delaware on September 23, 1999.(8)
3.12	Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on June 17, 2004.(9)
3.13	Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on August 15, 2005.(10)
3.14	Certificate of Ownership and Merger, filed with the Secretary of State of Delaware on August 15, 2005.(10)
3.15	Amended and Restated Bylaws of the Company.(11)
4.1	Reference is made to Exhibits 3.1 through 3.15.
4.2	Specimen certificate of the Common Stock.(12)
10.64	First Amendment to Employment Agreement with Robert De Vaere dated January 26, 2006.
10.65	Consulting Agreement with Sylvie Grégoire, Pharm.D. dated August 10, 2006.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350).

(1)	Incorporated by reference to the Company’s Form S-1 Registration Statement and Amendments thereto filed with Securities and Exchange Commission (the “SEC”) (File No. 33-43356).
(2)	Incorporated by reference to the Company’s Form 8-K, filed with the SEC on March 22, 1993.

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(3)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed with the SEC on March 31, 1995.
(4)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998, filed with the SEC on August 14, 1998.
(5)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, filed with the SEC on November 16, 1998.
(6)	Incorporated by reference to the Company’s Form 8-K, filed with the SEC on July 16, 1999.
(7)	Incorporated by reference to the Company’s Definitive Proxy Statement, filed with the SEC on Form DEF 14A on July 28, 1999.
(8)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, filed with the SEC on November 15, 1999.
(9)	Incorporated by reference to the Company’s Registration Statement on Form S-8, filed with the SEC on July 2, 2004.
(10)	Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2005.
(11)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed with the SEC on March 29, 2002.
(12)	Incorporated by reference to the Company’s Registration Statement on Form S-8, filed with the SEC on September 8, 2005.

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IDM PHARMA, INC.

SIGNATURES

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

	IDM PHARMA, INC.
Dated: November 14, 2006	By:	/s/ Jean-Loup Romet-Lemonne
		Jean-Loup Romet-Lemonne, M.D.
		Chief Executive Officer (Principal Executive Officer)

Dated: November 14, 2006	By:	/s/ Hervé Duchesne de Lamotte
		Hervé Duchesne de Lamotte
		Acting Principal Financial and Accounting Officer (Principal Financial and Accounting Officer)

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