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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the Quarter ended March 31, 2005 or

For the transition period from              to             .

Commission File Number: 000-50677

IMMUNICON CORPORATION

(Exact name of registrant as specified in its charter)

3401 Masons Mill Road, Suite 100

Huntingdon Valley, Pennsylvania 19006

(Address of principal executive offices and zip code)

(215) 830-0777

(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.    Yes   x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

Include the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest possible date. As of May 5, 2005, there were 23,304,726 shares of Common Stock, $0.001 par value, outstanding.

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IMMUNICON CORPORATION

INDEX

Immunicon is a registered trademark of Immunicon Corporation. The Immunicon logo is a registered trademark of Immunicon Corporation. CellSave, CellTracks, CellSpotter, MagNest, the CellTracks AutoPrep System logo and the CellSpotter Analyzer logo are registered trademarks of Immunivest Corporation, a wholly owned subsidiary of Immunicon Corporation. CellTracks EasyCount, EasyCount, CellTracks MagNest, CellPrep, AutoPrep, CellTracks Analyzer II, the CellTracks Analyzer logo, the CellTracks MagNest logo, and the CellSave Preservative Tube logo are trademarks of Immunivest Corporation, a wholly owned subsidiary of Immunicon Corporation. CellSearch is a registered trademark of Johnson & Johnson. All other trademarks appearing in this filing are the property of their respective holders. Unless the context provides otherwise, the words “Immunicon,” “we,” “Company,” “us” and “our” appearing in this filing refer to Immunicon Corporation and its subsidiaries.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except for share and per share amounts)

See notes to condensed consolidated unaudited financial statements.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Condensed Consolidated Statements of Operations (Unaudited)

Three months ended March 31, 2005 and 2004 and for the period from August 25, 1983

(date of inception) to March 31, 2005 (in thousands, except for share and per-share amounts)

See notes to condensed consolidated unaudited financial statements.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three months ended March 31, 2005 and 2004, and for the period from

(in thousands)

See notes to condensed consolidated unaudited financial statements.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

Three months ended March 31, 2005 and 2004, and for the period from August 25, 1983 (date of inception) to March 31, 2005.

(1) Background and basis of presentation

The accompanying unaudited condensed consolidated financial statements of Immunicon Corporation and Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the Form 10-Q General Instructions and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of our management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly our financial position at March 31, 2005 and results of operations and cash flows for the three month periods ended March 31, 2005 and 2004 and for the period from inception to March 31, 2005. Certain items have been reclassified to conform to current period presentation.

Certain footnote information has been condensed or omitted from these financial statements. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Results of operations for the three months ended March 31, 2005 and 2004 are not necessarily indicative of results to be expected for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates or assumptions. The more significant estimates reflected in these financial statements include judgmentally accrued expenses and the valuation of stock-based compensation.

We have generated limited revenues from product sales and have incurred substantial losses since our inception. We anticipate incurring additional losses over at least the next several years and such losses may increase as we expand our research and development activities. Accordingly, we are considered to be in the development stage as of March 31, 2005, as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises.

We completed the initial public offering (“IPO”) of shares of our common stock on April 21, 2004. The proceeds from the IPO were $49.4 million, net of fees and expenses. In the IPO, we sold 6.9 million shares of our common stock, including the underwriters’ over allotment option, at $8.00 per share. In addition, on March 9, 2004, we completed a 2-for-3 reverse stock split of our common stock. All share and per share amounts included in these unaudited condensed consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split.

We will need substantial financing to fund our operations and to continue developing our product candidates for sale. There can be no assurance that such financing will be available when we need it. Our operations are subject to certain additional risks and uncertainties including, among others, dependence on Veridex, LLC (“Veridex”), a Johnson & Johnson company, to market our cancer diagnostic product candidates, the uncertainty of product development (including clinical trial results and completion of development of new instrument and reagent products), regulatory clearance and approval, supplier and manufacturing dependence, competition, reimbursement availability, our dependence on exclusive licenses and other relationships, uncertainties regarding patents and proprietary rights, dependence on key personnel and other risks related to governmental regulations. We believe, however, that cash and cash equivalents available at March 31, 2005 will be sufficient to maintain operations through at least March 31, 2006.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement Financial Accounting Standards, or SFAS, No. 123(R), “Share Based Payment”. SFAS No. 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share based payments transactions with employees. This statement is effective for the first fiscal year beginning after June 15, 2005. We will adopt SFAS No. 123(R) beginning with the first quarter of fiscal 2006. Adoption of the statement will require us to record compensation expense relating to the issuance of employee stock options. Currently, we follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, which does not require the recognition of compensation expense relating to the issuance of stock options so long as the quoted market price of our stock at the date of grant is less than or equal to the amount an employee must pay to acquire the stock. We are currently evaluating the impact of the adoption of this statement will have on our consolidated financial position or results of operations.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

(2) Accounting for stock-based compensation

We account for stock-based compensation based on the provisions of APB No. 25, Accounting for Stock Issued to Employees , which states that, for fixed plans, no compensation expense is recorded for stock options or other stock-based awards to employees that are granted with an exercise price equal to or above the estimated fair value per share of our common stock on the grant date. In the event that stock options are granted with an exercise price below the estimated fair value of our common stock at the grant date, the difference between the fair value of our common stock and the exercise price of the stock option is recorded as deferred compensation. Deferred compensation is amortized to compensation expense on a straight-line basis over the vesting period of the stock option. We have adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) and SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosure-an Amendment of FASB Statement No. 123 (“SFAS No. 148”), which requires compensation expense to be disclosed based on the fair value of the options granted at the date of the grant.

Had compensation cost for our stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method required by SFAS No. 123, we would have reported the pro forma net loss amounts indicated below:

The fair value of each option is estimated on the date of grant using the fair value method with the following weighted average assumptions: risk-free interest rate of 3.68% and 3.1% and volatility rate of 58.36% and 45.96% for the periods ended March 31, 2005 and 2004, respectively; an expected life of five years and a dividend yield of zero for all periods presented. Stock compensation arrangements with non-employees are accounted for in accordance with SFAS No. 123, as amended by SFAS No. 148, and EITF No. 96-18, Accounting for Equity Instruments That Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach.

(3) Net loss per share

Basic and diluted net loss per common share is calculated in accordance with SFAS No. 128, Earnings Per Share (“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 (“SAB No. 98”). Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per common share is calculated by dividing the net loss applicable to common stockholders by the weighted-average number of unrestricted common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share, since the effects of potentially dilutive securities are anti-dilutive for all periods presented. Fully diluted shares outstanding for the three months ended March 31, 2005 and 2004 would have been 25,167,839 and 17,158,581, respectively.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

The following table sets forth the computation of net income (numerator) and shares (denominator) for earnings per share:

(4) Inventory

Inventory consisted of the following:

(5) Property and equipment

Property and equipment consisted of the following:

Depreciation expense was $420,000 and $327,000 for the three months ended March 31, 2005 and 2004, respectively.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

(6) Accrued expenses

Accrued expenses consisted of the following:

(7) Debt

As of March 31, 2005 we had an aggregate of $5.8 million of bank debt outstanding with two lending institutions, $2.6 million to Silicon Valley Bank, or SVB, and $3.2 million to General Electric Capital Corporation, or GE, as described below. The carrying value of long-term debt is as follows:

As of March 31, 2005 and 2004, interest rates in effect for outstanding obligations under the credit facilities ranged from 6.25% to 9.41% and 6.75% to 9.74%, respectively.

All of the credit facilities are subject to certain covenants, including maintaining a minimum level of earnings before interest, taxes, depreciation and amortization, as defined in the loan agreement, maintaining a minimum percentage of our cash available for investing with the lending institution, and providing audited financial statements within 120 days after the close of the fiscal year. We were in compliance with all covenants for the three month periods ended March 31, 2005 and 2004. As of March 31, 2005, we had $10.3 million and $4.8 million in available credit under our SVB and GE credit agreements. The availability under our SVB credit facility expires on December 31, 2005 and availability on our GE credit facility expires July 31, 2005. We are currently in discussions with both lending institutions to extend the availability of each credit facility but there can be no assurance that we will be successful in extending the availability of either credit facility.

(8) Commitments and contingencies

In the ordinary course of our business, we make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include indemnities of clinical investigators, consultants and contract research organizations involved in the development of our clinical stage products. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. However, we accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

(9) Shareholders’ equity

On January 28, 2005, our board of directors made restricted stock grants to two of our officers. We granted 100,000 restricted shares to our Senior Vice President – Research and Development and 60,000 restricted shares to our Senior Vice President – Finance and Administration and Chief Financial Officer. The shares underlying both grants will fully vest on the third anniversary of the date of grant. If either of the officer’s employment terminates for any reason before the restricted stock is fully vested, except as provided by the officer’s Change of Control Agreement with us, the shares of restricted stock that are not then vested shall be forfeited. If the provisions of the officer’s Change of Control Agreement are triggered then the restricted stock shall vest in accordance with the officer’s Change of Control agreement. The restricted stock grant had a fair market value of $979,000 as of the close of business on January 28, 2005. Compensation related to the grant is recorded as deferred stock based compensation and recognized over the three year service period. As of March 31, 2005, we had recognized $54,000 as compensation expense in the Condensed Consolidated Statement of Operations.

(10) Related parties

In August 2000, we entered into a development, license and supply agreement (the “Development Agreement”) with Ortho Clinical Diagnostics, Inc. (“Ortho”), a subsidiary of Johnson and Johnson, Inc., whereby we licensed certain rights to our technology and assumed certain development obligations for our cancer diagnostic product candidates. In exchange, Ortho agreed to market and distribute our cancer diagnostic product candidates. On November 10, 2003, we executed an amendment to this the Development Agreement whereby all of the rights and responsibilities of Ortho were transferred to Veridex, LLC, a Johnson & Johnson company (“Veridex”). In addition, we and Veridex re-negotiated certain clinical development and regulatory milestones. The Development Agreement has a term of 20 years and may be terminated earlier by either party under certain conditions. We are not aware of any intentions by Veridex to terminate the Development Agreement.

In connection with the Development Agreement, Veridex made a $1.5 million up-front, non-refundable license fee payment to us. Under this Development Agreement, Veridex is obligated to pay us approximately 30% of their net sales from the sale of reagents, test kits, and certain other consumable products and disposable items. In addition, we will receive additional payments from Veridex if we achieve certain development and sales milestones as defined in the Development Agreement. Under the terms of the Development Agreement, we are required to invest in related research based on a percentage of sales as defined in the Development Agreement. In connection with the Development Agreement, Johnson & Johnson Development Corporation, also a wholly-owned subsidiary of Johnson and Johnson (“J&J Sub”), purchased $5 million of our Series E Preferred Stock. In December 2001 and July 2003, J&J Sub purchased $3 million and $3.3 million of additional Series F Preferred Stock, respectively.

We have earned a total of $6,167,000 in license and milestone payments under the terms of the Development Agreement from August 1, 2000 to March 31, 2005. During the period from August 1, 2000 until December 31, 2003, we received $4.0 million and recognized the entire amount as license revenue from related party during that period.

We earned and were paid a total of $1,833,000 in license and milestone payments during 2004. These payments will be recognized as revenue over the estimated product development period for the corresponding product.

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

We will recognize these milestone receipts as revenue over the estimated product development period which is estimated to end at various points through June 30, 2008.

In February 2005, we entered into an amendment to the Development Agreement. This amendment modifies two previous milestones entitled “Colorectal or Breast Cancer Adjuvant Prognosis and Recurrence Monitoring” and “Metastatic Colorectal or Prostate Cancer Therapy Monitoring.” We believe that the modifications to these milestones are beneficial to both parties and were arrived at through mutual assessment of scientific and market data available at this time.

The first milestone cited above for the adjuvant/recurrence setting previously had prospective payments to us totaling approximately $1.1 million. While the total of the milestone payments remains the same, the amendment changes the basis of the milestone and achievement requirements to the development of an assay using our proprietary technology for analysis of tumor cells in the bone marrow of cancer patients.

The second milestone cited above previously had prospective payments to us totaling $1 million. The total of the milestone payments as well as the overall achievement requirements remain the same, but the amendment provides for progress payments triggered by certain events in the development program. A payment of $250,000 is now payable upon accrual of an adequate number of metastatic colorectal cancer patients to support a regulatory submission to the U.S. Food and Drug Administration and an additional $250,000 is payable upon completion of a draft regulatory submission that is acceptable to the joint Immunicon Corporation and Veridex Steering Committee. The superseded milestone had provided for payment of $500,000 only on Steering Committee approval of the final regulatory submission. As noted above, we received $500,000 in June 2004 as a result of the enrollment of the first patient in this trial.

In January 2005, we completed a planned interim analysis of data from our ongoing trial for monitoring of patients with metastatic colorectal cancer. The interim analysis looked at data from the first 100 evaluable patients in the study. The results were sufficiently encouraging to warrant study continuation and indicated that expansion of the study to a total of approximately 400 patients was appropriate.

On March 1, 2005, we and Veridex agreed that we had successfully completed the criteria for another development milestone relating to the enrollment of the first patient into the bone marrow study. Veridex has paid us $334,000 for this milestone. We will recognize this receipt as revenue over the estimated life of the bone marrow study which we estimate will conclude in the second quarter of 2006.

We recognized $258,000 as milestone and other license related revenue in the three months ended March 31, 2005 and $31,000 for the three months ended March 31, 2004. As of March 31, 2005 and December 31, 2004, we had receivables from Veridex of $885,000 and $249,000, respectively and payables to Veridex of $250,000 and $229,000, respectively. These receivables are recorded in “Receivable from related party” and the payables are recorded in “Payable from related party” in the consolidated balance sheet.

We recognized revenue for the sale of four instrument sets in the first quarter of 2005, of which two instruments were for Veridex funded research centers. We sold an instrument system to Veridex in the first quarter of 2004 and recognized revenue of $103,000. This revenue is recorded in “Revenues from related party” in the consolidated statement of operations.

In August 2003, we sold 80,000 shares of Series F Preferred Stock and entered into a License and Supply Agreement (“License and Supply Agreement”) with another company. We received $400,000 in proceeds for the combined transaction. Because shares of our Series F Preferred Stock were valued at $4.00 per share in a similar transaction, the same value was applied to the shares in this

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

transaction. The amount above the $4.00 per share value of the shares of our Series F Preferred Stock was deemed attributable to the License and Supply Agreement and recorded as deferred license revenue. We recorded this $80,000 premium as deferred license revenue and are amortizing it into income over the two year period of the exclusive supply arrangement with this company. The unamortized deferred license revenue related to this arrangement amounted to $15,000, and $55,000 as of March 31, 2005 and 2004, respectively. We recognized revenue of $11,000 and $10,000 related to the arrangement for the three months ended March 31, 2005 and 2004, respectively, and recorded it as “Revenue from related party” in the consolidated statement of operations.

The following table breaks out the revenue from related parties recognized over the three month periods ended March 31, 2005 and 2004:

(11) Supplemental expense information

The supplemental expense information below provides additional information about the amounts recorded as research and development expenses and general and administrative expenses in the accompanying statements of operations:

Research and development expenses

Research and development expenses consisted of the following:

General and administrative expenses

General and administrative expenses consisted of the following:

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Immunicon Corporation and Subsidiaries (A Development Stage Company)

Notes to Condensed Consolidated Unaudited Financial Statements

(12) Subsequent events

On April 25, 2005, we issued a press release announcing that our board of directors elected Byron D. Hewett as our President and Chief Operating Officer reporting to Chairman and Chief Executive Officer Edward L. Erickson. Mr. Hewett had previously served as our Chief Operating Officer and General Manager, Cancer Products since October 2004. Mr. Hewett was granted an option to purchase 50,000 of our common shares and the option will vest evenly on an annual basis over four years.

Concurrent with this announcement, Mr. Erickson notified our board of directors of his intention to step down as Chief Executive Officer on March 31, 2006. The Nominating and Governance Committee and our board of directors as a whole continue to plan, direct and oversee our succession process.

On May 6, 2005 we filed a shelf registration statement on Form S-3 with the SEC. If and when declared effective by the SEC, the shelf registration statement would permit the offer, sale and issuance by us from time to time, in one or more offerings, of up to an aggregate of $75 million of our common stock, preferred stock, debt securities, warrants, depositary shares, stock purchase contracts and stock purchase units. The terms of any offering will be established at the time of the offering.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The information contained in this quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often preceded by words such as “hope,” “may,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “assume,” “will” and similar expressions. We caution investors not to place undue reliance on the forward-looking statements contained in this report. Forward-looking statements included in this report relate to financing and capital needs and resources, product development, our relationship with Twente University, our relationship with Veridex, research, development and sales based milestones and related payments from Veridex, expansion of research and development activities and increases in research and development costs, instrument system and platform improvement activities and costs, expansion of clinical trials and related costs, use of IPO net proceeds and other funds, and other statements regarding matters that are not historical facts. Forward-looking statements speak only as of the date of this report, reflect management’s current expectations and involve certain factors, such as risks and uncertainties, that may cause actual results to be far different from those suggested by our forward-looking statements. These factors include, but are not limited to, risks associated with our dependence on Veridex; our capital and financing needs; research and development and clinical trial expenditures; commercialization of our product candidates; our ability to use licensed products and to obtain new licenses from third parties; our ability to manage growth; obtaining necessary regulatory approvals; reliance on third party manufacturers and suppliers; reimbursement by third party payors to our customers for our products; compliance with applicable manufacturing standards; the ability to earn license and milestone payments under our agreement with Veridex; retaining key management or scientific personnel; delays in the development of new products or to planned improvements to our products; effectiveness of our products compared to competitors’ products; protection of our intellectual property and other proprietary rights; conflicts with the intellectual property of third parties; product liability lawsuits that may be brought against us; labor, contract or technical difficulties; competitive pressures in our industry; other risks and uncertainties discussed under the caption “Factors That may Affect Future Results” and elsewhere in this report; and other risks and uncertainties, as may be detailed from time to time in our public announcements and SEC filings.

We do not intend to update any of these factors or to publicly announce the results of any revisions to any of these forward-looking statements other than as required under the federal securities laws.

OVERVIEW

Our business principally involves the development, manufacture, marketing and sale of proprietary cell and molecular based diagnostic and research products with a primary focus on cancer. We believe that our products can provide significant clinical benefits by giving physicians better information to understand, treat, monitor and diagnose cancer. Our technologies can identify, count and characterize a small number of circulating tumor cells, or CTC, and other rare cells, such as endothelial cells, present in a blood sample from a patient.

Our collaborator, Veridex, LLC, or Veridex, a Johnson & Johnson company, received 510(k) clearance from the Food and Drug Administration, or FDA, in January 2004 for use of the Veridex CellSearch^™ Circulating Tumor Cell Kit, which incorporates our technologies, in the management of metastatic breast cancer (breast cancer that has spread beyond the primary breast tumor). In August 2000, we entered into a development, license and supply agreement with Ortho-Clinical Diagnostics, or OCD, a Johnson & Johnson company, which subsequently assigned all rights and obligations under the agreement to Veridex. Under the terms of this agreement, we granted to Veridex a worldwide exclusive license within the field of cancer to commercialize cell analysis products incorporating our technologies.

We were incorporated in 1983. Since our inception, we have focused our activities on product development and life science research. In March 1999, we obtained $10.6 million in financing from the sale of our convertible preferred stock. As a result, we substantially increased investment in our cancer-related products and technologies, hired additional key management team members and redefined our business strategy. Since 1999, we have devoted substantially all of our efforts to the development of our cell analysis platforms and diagnostic tools for application in cancer. We completed the initial public offering, or the IPO, of shares of our common stock on April 21, 2004. In the IPO, we sold 6.9 million shares of our common stock, including the underwriters’ over allotment option, at $8.00 per share and received proceeds of $49.4 million, net of fees and expenses. We are a development stage company and have incurred losses in the last five fiscal years. As of March 31, 2005, we had an accumulated deficit of $98.6 million. We expect to incur substantial losses, which may increase over the next several years as we:

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are highly dependent on our collaboration with Veridex. In addition, we expect to continue to generate substantial losses for at least the next two years. We will need to obtain additional funding to support the activities described above.

Veridex collaboration

We expect that substantially all of our revenues from product sales for at least the years 2005 and 2006 will be derived from our relationship with Veridex. Our Development Agreement with Veridex provides Veridex with exclusive worldwide rights to commercialize cell analysis products based on our technologies in the field of cancer. Veridex received 510(k) clearance from the FDA for the use of the CellSearch Circulating Tumor Cell Kit in the management of metastatic breast cancer on January 21, 2004 and for the CellSearch Circulating Tumor Cell Control Kit in September 2004. We are responsible for all cellular research and development, including the costs of clinical development. Upon any sale by Veridex of certain of our products, including reagents, test kits, consumable products and disposable items, Veridex is obligated to pay us approximately 30% of net sales.

Commercialization of the first product under this Development Agreement occurred in August 2004. Beginning therewith, we became obligated to invest at least 10% of Veridex’s net sales from these products, excluding revenues from instrument sales, in certain research and development activities. However, beginning with the first calendar year after the amount of these net sales exceeds $250 million; we are only required to invest an amount equal to at least 8.5% of these net sales. We are also responsible for manufacturing reagents for CellSearch kits in bulk and delivering them to Veridex. We are responsible for all instrument manufacturing and certain ancillary products. We believe that we have manufacturing capacity available at our existing facilities to satisfy commercial demand through 2005. Veridex is responsible for filling and packaging costs for the reagents, as well as sales, marketing, distribution, customer and technical support and field service of our cancer products, including instrumentation. We have retained worldwide commercialization rights to all non-cancer applications of our technologies.

The pace and outcome of both our commercialization efforts and clinical development programs are difficult to predict. As a result, we anticipate that our quarterly results will fluctuate for the foreseeable future. In view of this variability and of our limited operating history, we believe that period-to-period comparisons of our operating results are not meaningful and should not be relied upon as being indicative of our future performance.

Revenues

We have not generated any significant product revenues since our inception. We initiated sales activities for instrument platforms and reagent kits for research use only, RUO, in the first quarter of 2004 and for in vitro diagnostic, or IVD, use in the third quarter of 2004. As of March 31, 2005, we have shipped 26 CellTracks^® AutoPrep Systems and 25 CellSpotter^® Analyzers. We have recognized revenue for 15 complete instrument system sets, including four in the three months ended March 31, 2005. We now have instruments in the USA, Europe and Japan. The recognition of revenue related to instrument shipments is typically delayed for a period of several months due to final validation and testing of these systems at customer locations.

We have earned a total of $6,167,000 in license and milestone payments under the terms of the Development Agreement from August 2000 to March 31, 2005. During the period from August 1, 2000 until December 31, 2003, we received $4.0 million and recognized the entire amount as license revenue from related party during that period.

We earned and were paid a total of $1,833,000 in license and milestone payments during 2004. These payments will be recognized as revenue over the estimated product development period for the corresponding product.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

We will recognize these milestone receipts as revenue over the estimated product development period which is estimated to end at various points through June 30, 2008.

On March 1, 2005, we and Veridex agreed that we had successfully completed the criteria for another development milestone relating to the enrollment of the first patient into the bone marrow study. Veridex has paid us $334,000 for this achievement. We will recognize this receipt as revenue over the estimated life of the bone marrow study which we estimate will conclude in the second quarter of 2006.

We recognized $258,000 as milestone and other license related revenue in the three months ended March 31, 2005 and $31,000 for the three months ended March 31, 2004.

We recognized revenue for the sale of four instrument sets in the first quarter of 2005, of which two instruments were for Veridex funded research centers. We sold an instrument system to Veridex in the first quarter of 2004 and recognized revenue of $103,000. These instrument sets are recorded in “Revenues from related party” in the consolidated statement of operations.

As of March 31, 2005, we can earn up to an additional $4.3 million in license revenue from Veridex for research-related milestones. We estimate that we will earn these license revenues from research milestones over the next three to five years. Therefore, we expect that the trend of license revenue will fluctuate. Also, we expect to continue to invest significant amounts in research and development, particularly in clinical trials and manufacturing development and therefore we do not believe that these expenses will correspond to the periods wherein which we expect to earn the milestone revenue referenced above.

Under the Development Agreement with Veridex, we also can earn up to $10.0 million in revenue for achieving defined sales targets. Our agreement with Veridex provides for payments to us by Veridex of $2.0 million, $3.0 million and $5.0 million in the first year that sales recognized by Veridex of the CellSearch reagent products to third parties, excluding sales of instruments, reach $250 million, $500 million and $1 billion, respectively. We do not estimate that we will reach any of these sales targets until at least 2007 and therefore do not anticipate earning any sales-based milestone revenues until then.

Research and development expenses

Our research and development expenses consist of expenses incurred in developing reagents and instrument platforms and ancillary products, as well as the clinical research and trial costs to test these kits and systems. These expenses consist primarily of:

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We are responsible for making royalty payments of 1% of sales of our reagents incorporating intellectual property licensed to us under a license agreement with the University of Texas.

We expense research and development costs as incurred. We believe that significant investment in product development is a competitive necessity and plan to continue these investments in order to realize the potential of our product candidates and proprietary technologies. We expect to continue to incur significant costs for clinical research and for trials and to make investments to improve our instrument platforms and reagents. From inception through March 31, 2005, we have incurred $83.8 million in total research and development expenses, the majority of which relate to our cell-based research and diagnostic products.

General and administrative expenses

Our general and administrative expenses consist primarily of salaries and other related costs for personnel in executive, finance, accounting, information technology, legal and human resource functions. Other costs include facility costs not otherwise included in research and development expense and professional fees for legal and accounting services. From inception through March 31, 2005, we incurred $26.5 million in general and administrative expenses.

Stock-based compensation expenses

Stock-based compensation expense, which is a non-cash charge to expenses, results from stock option grants to employees at exercise prices below the fair value of the underlying common stock resulting in our recording stock-based compensation expense associated with such grants. Stock-based compensation expense also is recorded for stock option and warrant grants to non-employees and for restricted stock grants provided to directors and advisors in lieu of cash compensation. We amortize the deferred stock-based compensation to operating expenses over the vesting periods of the options and grants, subject to adjustment for forfeiture during the vesting period. Since our inception, we recognized $6.0 million in deferred stock-based compensation expense. For the period from inception through March 31, 2005, we have recognized cumulative stock-based compensation expense of $3.1 million.

Interest income and expense

Interest income consists of interest earned on our cash, cash equivalents and investments. Investment holdings as of March 31, 2005 consist primarily of mortgage back notes, federal agency notes and investment grade debt securities. We have the intent and the ability to hold all of our debt securities until maturity and have recorded them at amortized cost. Interest expense consists of interest incurred on debt financings.

Intellectual property

Protection of our intellectual property is a strategic priority for our business, and we rely on a combination of patent, trademark, copyright and trade secret laws to protect our interests. Our ability to protect and use our intellectual property rights in the continued development and commercialization of our technologies and products, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights is crucial to our continued success. We will be able to protect our products and technologies from unauthorized use by third parties only to the extent that our products and technologies are covered by valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade secrets, know-how or other proprietary information.

In connection with the commercial distribution of our products, we also have obtained trademark registrations in the US for “Immunicon” and the Immunicon logo. Trademark registrations were also obtained for “CellSave”, “CellTracks”, “CellSpotter”, “Magnest”, and the CellTracks AutoPrep System logo, and the CellSpotter Analyzer logo by Immunivest Corporation, our wholly owned subsidiary. We have filed a number of trademark registration applications in preparation for commercial distribution activities with respect to future products. Much of the proprietary software and related information utilized in our instrument systems is protected by the copyright rights or by rights that we have licensed.

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We devote significant resources to obtaining, enforcing and defending patents and other intellectual property and protecting our other proprietary information.

We have a portfolio of issued patents and patent applications, which we believe provides patent coverage for our proprietary technologies and products. As of April 30, 2005, our intellectual property estate consisted of 56 issued patents, 136 pending patent applications, 10 registered trademarks and 17 pending trademarks registrations.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies include:

In accordance with the SEC’s Release No. 33-8040, Cautionary Advice Regarding Disclosure about Critical Accounting Policies, we have determined the critical principles by considering accounting policies that involve the most complex or subjective decisions or assessments. There were no significant changes to our critical accounting policies during the three months ended March 31, 2005.

Revenue recognition

We derive revenues from three primary sources: license revenue, instrument product sales and reagent product sales. We recognize revenue on product sales in accordance with the SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, or SAB No. 104, when persuasive evidence of an arrangement exists, the contract price is fixed or determinable, the product or accessory has been delivered, title and risk of loss have passed to the customer, and collection of the resulting receivable is reasonably assured. We recognize revenue for instrument placements at the time that all necessary conditions for the recognition of revenue have been met. Specifically, we may place instruments with customers and allow the customer a period of time for training and validation as is common in our industry. Therefore there may be a delay between the time that an instrument is placed with a customer and the point at which the revenue for the instrument placement is recognized. Also in certain instances the customer may be provided with an opportunity to return the instrument to us prior to acceptance. We therefore recognize the revenue associated with these instrument placements only at the point when it is clear that all revenue recognition criteria have been met and that no continuing right of return remains.

In accordance with SAB No.104, up-front non-refundable license fees are recorded as deferred revenue and recognized over the estimated development period. Since August 2000, we have earned and received $6.2 million in license and milestone payments from Veridex. License and milestone payments are deferred and amortized on a straight-line basis over the product development period as defined for each specific product. Amounts received as reimbursement for research and development expenses are recorded as a reduction in research and development expense as the related costs are incurred.

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Inventory capitalization

In August 2004, we initiated sales for in vitro diagnostic use of our initial cancer diagnostic products which had received FDA clearance in January 2004. We determined that this represented the initiation of the commercialization of our products. We completed our first instrument sale to a third party laboratory customer during the fourth quarter of 2004. Therefore, effective October 1, 2004 we adopted a policy for capitalizing inventory and recognizing cost of sales. Prior to October 1, 2004, all costs associated with manufacturing were included in research and development expenses. In the fourth quarter of 2004, we began to capitalize in inventory the cost of manufactured products for commercial sale and to expense such costs as cost of products sold at the time of sale. However, as we sell that portion of our existing inventory that had previously been expensed as part of research and development expenses, there will be a period of time where we will recognize manufacturing revenue with minimum corresponding cost. Therefore, we anticipate that our gross margin on sales of our instruments and reagents will fluctuate from quarter to quarter during 2005.

We believe that our gross margins will be distorted for comparative purposes through at least the end of 2005 and depending on market demand for our products.

Inventories are stated at the lower of cost or market with cost determined under the first-in/first-out, or FIFO method. We include in inventory the raw materials that can be used in both production and clinical products. These clinical product costs are expensed as part of research and development costs when consumed.

The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the demand for our products. If our estimates for specific products is less than actual demand of products and we fail to reduce manufacturing output accordingly, we could be required to write down additional inventory, which would have a negative impact on our gross margin. The write-down for estimated obsolete and excess inventory is therefore based on our collective judgment regarding the realistic and potential future demand for each product and is inherently subjective.

Accounting for research and development expenses

Our research and development expenses consist primarily of costs associated with product development for our cancer diagnostic tests. These expenses include the development costs for instrument platforms, clinical trial and development costs and the costs associated with non-clinical support activities such as manufacturing process development and regulatory services. Clinical development costs represent internal costs for personnel; external costs incurred at clinical sites and contracted payments to third party clinical research organizations to perform certain clinical trials. We have a discovery research effort, which is conducted in part on our premises by our scientists and in part through collaborative agreements with academic laboratories. Most of our research and development expenses are the result of the internal costs related directly to our employees. We accrue external costs for clinical trials based on the progress of the clinical trials, including patient enrollment, progress by the enrolled patients through the trial, and contracted costs with clinical research organizations and clinical sites. We record internal costs primarily related to personnel in clinical development and external costs related to non-clinical trials and basic research when incurred. Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period. Actual costs incurred may or may not match the estimated costs for a given accounting period. We expect that expenses in the research and development category will increase for the foreseeable future as we add personnel, expand our clinical trial activities and increase our discovery research capabilities. The amount of the increase is difficult to predict due to the uncertainty inherent in the timing of clinical trial initiations, progress in our discovery research program, the rate of patient enrollment and the detailed design of future trials. In addition, the results from each of our trials will influence the number, size and duration of both planned and unplanned trials.

Estimating the value of our equity instruments for use in deferred stock-based compensation calculations

We record compensation expense related to options issued to consultants and options issued to employees at less than the fair value. These expenses are based on the fair value of the options and common stock. Because, prior to our IPO, there was no public market for our common stock, we have estimated the fair value of equity instruments, issued prior to our IPO, using various valuation methods, including the minimum value and the Black-Scholes methods. When stock options are granted with an exercise price below the estimated fair value of our common stock at the grant date, the difference between the fair value of our common stock and the exercise price of the stock option is recorded as deferred compensation. Deferred compensation is amortized to compensation expense on a straight-line basis over the vesting period of the stock option.

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Accounting for income taxes

We must make significant management judgments when determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. At March 31, 2005, we recorded a full valuation allowance of $39.8 million against our net deferred tax asset balance, due to uncertainties related to our deferred tax assets as a result of our history of operating losses. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or if we adjust these estimates in future periods we may need to change the valuation allowance, which could materially impact our financial position and results of operations.

Development Stage Enterprise

Although we initiated sales of our first cancer diagnostic products in August 2004, we have generated no significant product revenue to date. Our activities have consisted primarily of developing and licensing products, raising capital and recruiting personnel. Accordingly, we are considered to be in the development stage as of March 31, 2005, as defined by Statement of Financial Accounting Standards, or SFAS No. 7, Accounting and Reporting by Development Stage Enterprises.

RESULTS OF OPERATIONS

Three months ended March 31, 2005 and 2004

Revenue

We segregate revenue into product revenue, revenue from related party and other revenue. Revenue from related party is composed of license and milestone revenue, instrument and reagent product revenue and other revenue.

We earned $560,000 in product revenue in the three months ended March 31, 2005 of which $301,000 earned from Veridex, a related party. Instrument revenue was $463,000 and reagent revenue was $97,000. We earned $103,000 in product revenue in the three month period ended March 31, 2004, all of which was instrument-related revenue. Our instrument revenue increased because we sold four instrument systems in the three months ended March 31, 2005 compared to one instrument system in the corresponding period in 2004. Included in the 2005 revenue is approximately $373,000 of product revenue with no corresponding cost of goods sold recognized in this period. These product revenues relate to materials purchased prior to October 1, 2004 and were previously expensed as research and development expense.

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License and milestone revenue from related party increased by $228,000 to $269,000 for the three months ended March 31, 2005 from $41,000 for the three months ended March 31, 2004. From August 1, 2000 to March 31, 2005, we earned $6.2 million in license and milestone receipts under our Development Agreement with Veridex and have received $5.9 million as of March 31, 2005. License and milestone receipts have been deferred and are amortized on a straight-line basis over the product development period as defined for each specific product.

During the first quarter of 2004, we received $500,000 in milestone receipts as a partial receipt of the milestone for commercial readiness for breast cancer monitoring. We will recognize this as revenue over the estimated life of the related product development period, which we estimate will end on December 31, 2007.

On March 1, 2005, we and Veridex agreed that we had successfully completed the criteria for another development milestone relating to the enrollment of the first patient into the bone marrow study and Veridex paid us $334,000. We will recognize this receipt as revenue over the estimated life of the bone marrow study which we estimate will be completed in the second quarter of 2006.

We recognized $258,000 as milestone and other license related revenue in the three months ended March 31, 2005 and $31,000 for the three months ended March 31, 2004.

In August 2003, we sold 80,000 shares of Series F Preferred Stock and entered into a License and Supply Agreement (“License and Supply Agreement”) with another company. We received $400,000 in proceeds for the combined transaction. Because shares of our Series F Preferred Stock were valued at $4.00 per share in a similar transaction, the same value was applied to the shares in this transaction. The amount above the $4.00 per share value of the shares of our Series F Preferred Stock was deemed attributable to the License and Supply Agreement and recorded as deferred license revenue. We recorded this $80,000 premium as deferred license revenue and we are amortizing it into income over the two year period of the exclusive supply arrangement with this company. We recognized revenue of $11,000 and $10,000 related to the arrangement and recorded it as “Revenue from related party” in the consolidated statement of operations for the three month periods ended March 31, 2005 and 2004, respectively.

As a result of the above, total revenue increased by $722,000 to $879,000 in the three months ended March 31, 2005 as compared to $157,000 in the corresponding period in 2004.

Costs of goods sold

Costs of goods sold increased to $392,000 in the three months ended March 31, 2005 from zero in the corresponding period in 2004. We initiated the practice of recording costs of goods sold and capitalizing inventory in October 2004 after the launch of our initial in vitro diagnostic products.

Instrument costs of goods sold was $299,000 and reagent costs of goods was $93,000 for the three months ended March 31, 2005.

Research and development expenses

Research and development expenses increased by $745,000, or 15.0%, to $5.7 million in the first quarter of 2005 from $5.0 million in the corresponding quarter in 2004. Salary and salary-related costs were $3.0 million in the first quarter of 2005 compared to $2.3 million in the corresponding quarter in 2004. This increase of $0.7 million or 28.4% is due principally to higher staff levels necessary to complete the development of certain instrument platforms and complete the development of our initial cancer monitoring test. We hired additional personnel during the second half of 2004 to support the commercial launch of our initial products, to support clinical development to expand applications of our cancer diagnostic technology and to expand uses of our technology beyond cancer to other disease states. The portion of stock-based compensation expenses recognized as part of research and development salaries was $274,000 in the first quarter of 2005 versus $282,000 in the first quarter of 2004.

Laboratory supplies and expenses were $110,000, or $1.0 million lower, in the first quarter of 2005 than in 2004. As of October 1, 2004 we began capitalizing inventory. Prior thereto we had recorded all inventory related costs as part of laboratory supplies and expenses. The costs incurred in the first quarter of 2004 were initial inventory purchases made in preparation for product launch but recorded as laboratory supplies and expenses. These purchases in 2005 were capitalized as inventory.

Our instrument development costs increased by $64,000 to $256,000 in the first quarter of 2005 from $192,000 in the previous year’s corresponding quarter. This increase was a result of additional development expense related to the upcoming launch of the CellTracks

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Analyzer II which is planned for the second quarter of 2005. We anticipate that we will continue to engage in instrument system improvement activities for the remainder of 2005 and beyond. Therefore, it is likely that instrument development costs will fluctuate in future periods.

Clinical trial expenses increased in the first quarter of 2005 by $522,000 to $921,000 from $399,000 in the first quarter of 2004. In the second quarter of 2004, we initiated a clinical trial for the monitoring of metastatic colorectal cancer. In January 2005 based on encouraging interim data we decided to increase the number of patients to be included in the trial from the original trial size of 200 patients up to 400. We increased our enrollment efforts in order to attempt to complete our patient accrual by December 31, 2005. Also, in October 2004 we initiated a pivotal clinical trial for the monitoring of metastatic prostate cancer, which we believe, if it is successful, should result in a regulatory submission to the FDA. We anticipate increasing our clinical trial expenditures in the remainder of 2005 and beyond in order to expand the uses of our technology to other cancers, to earlier stages of the cancer disease state and to other disease states where our technology may represent an improvement over current diagnostic techniques.

Contracted research costs were $29,000 lower in the first quarter of 2005 than in the first quarter of 2004. We incurred higher costs associated with manufacturing validation efforts in the first quarter of 2004 as we prepared for the launch of our initial in vitro diagnostic products in August 2004. Therefore, these expenses were not as high in the first quarter of 2005.

Depreciation expense increased in the first quarter of 2005 by $74,000 to $336,000 from $262,000 in the first quarter of 2004. This increase is primarily related to capital expenditures for equipment and facilities related costs incurred in preparation for the launch of our initial commercial products.

Insurance expenses increased by $150,000 in the first quarter of 2005 over the same period in 2004 related principally to allocated costs of directors and officers liability insurance which increased as a result our completion of our IPO in April 2004.

A summary of the principal components of our research and development costs for the three months ended March 31, 2005 and 2004 are shown below:

We expect salary related expenses to increase in future years as we hire additional personnel and continue to invest in research and clinical trial activities. We believe that costs related to laboratory supplies and expenses will be higher in future periods as we develop:

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We expect clinical development expenses to be higher in future years as we expand our clinical trials to investigate the effectiveness of our cancer diagnostic products on cancers other than breast cancer and in earlier stages of the disease in breast and other cancers, and as we develop other diagnostic tools for use in diseases such as cardiovascular, inflammatory and infectious diseases and for use in tools for drug development.

Each of our research and development programs is subject to risks and uncertainties, including the requirement to obtain regulatory approval, that are outside of our control. As a result of these risks and uncertainties, we are unable to predict the period in which we will achieve profitability. For example, our clinical trials may be subject to delays or rejections for a variety of reasons, such as our inability to obtain applicable clearances from the FDA or institutional or ethical review boards or to enroll patients at the rate that we expect. Moreover, the product candidates we are developing must overcome significant technological and marketing challenges before they can be successfully commercialized.

General and administrative expenses

General and administrative expenses increased by $540,000, or 37.4%, to $2.0 million in the first quarter of 2005 from $1.4 million in 2004. Salary-related costs increased by $425,000 in the first quarter of 2005, due principally to increases in personnel throughout the period from April 2004 through March 2005. We hired additional accounting and administrative personnel in order to prepare for the additional administrative and reporting activities resulting from our transition to a publicly-held company and in preparation for the commercial launch of our initial products, including hiring our Chief Counsel in April 2004 and our Chief Operating Officer in October 2004 after our commercial launch of our products. Legal, accounting and other professional fees increased by $134,000, or 45.6% to $428,000 in the first quarter of 2005 as a result of additional expenses associated with public company compliance and reporting requirements. We became a public company in April 2004. Insurance expenses increased to $44,000 as a result of the allocated portion of the higher directors and officers liability insurance which increased as a result our completion of our IPO in April 2004. Depreciation expense increased by $19,000 to $84,000 in the first quarter of 2005 from $65,000 in the first quarter of 2004. This increase was attributable to the expansion of our office facilities to support personnel additions related to our transition to a publicly held company.

Interest income

Interest income increased by $226,000, or 364.5%, to $288,000 in the quarter ended March 31, 2005 from $62,000 in the quarter ended March 31, 2004. The increase in interest income was primarily a result of an increase in average invested cash balances in 2005. Our increase in invested cash balances resulted from our IPO which provided net cash proceeds of $49.4 million and which was completed on April 21, 2004.

Interest expense

Interest expense decreased by $38,000, or 23.3%, to $125,000 for the first quarter of 2005 from $163,000 for first quarter of 2004. The decrease was due to lower average debt outstanding in the first quarter of 2005 compared to 2004.

Stock-based compensation expenses

Stock-based compensation expenses were $350,000 and $401,000 for the three months ended March 31, 2005 and 2004, respectively. This decrease was principally due to lower amount of options granted to consultants in the periods following the three months ended March 31, 2004. We recognized these expenses as part of research and development expenses and general and administrative expenses as shown below.

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Income Taxes

We have incurred net operating losses since our inception and have consequently not paid any federal, state or foreign taxes. As of March 31, 2005, we had approximately $34.7 million of net operating loss carryforwards and approximately $3.6 million in research and development tax credit carryforwards available to offset future regular and alternative taxable income. If not utilized, these net operating loss carryforwards and tax credits will begin to expire in 2018. If we do not achieve profitability, we may lose our net operating loss carryforwards. In addition, the Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards that can be utilized if certain changes in our ownership occur. We are currently not subject to these limitations.

Net loss and net loss per common share

The net loss of $7.1 million in the first quarter of 2005 was $0.7 million, or 10.9%, higher than the loss of $6.4 million in the first quarter of 2004.

At the completion of our IPO on April 21, 2004 approximately 52.1 million preferred shares were converted into 15.5 million shares of common stock. As the result, the net loss per common share of $0.30 in the first quarter of 2005 was $12.80 per share lower than the loss per common share of $13.10 in the first quarter of 2004. Weighted average common shares outstanding during the three months ended March 31, 2005 were approximately 23.2 million compared to 486,000 for the same period in 2004.

LIQUIDITY AND CAPITAL RESOURCES

We are a development stage company. We have financed our operations since inception through private equity and debt financings, license and milestone revenues from corporate collaborations, capital equipment and leasehold financing, government grants and interest earned on cash and investments. Since our inception, we have generated net losses of $98.6 million from operations.

Cash and short-term investments decreased by $5.7 million in the three month period ended March 31, 2005 to $47.4 million from $53.1 million as of December 31, 2004, principally due to the stage of development and early commercialization period.

We used $5.1 million in our operating activities in the three months ended March 31, 2005 compared to $4.9 million in same period in 2004 and $83.9 million from inception through March 31, 2005. Our operating activities during these periods consisted principally of research and development efforts and the conduct of clinical trials.

Our investing activities provided cash of $44,000 in the three months ended March 31, 2005. We received net proceeds from maturities of our investments of $1.5 million and spent $1.4 million on capital expenditures. We used approximately $700,000 in investing activities in the three months ended March 31, 2004 as a result of purchases for capital. We have used $36.5 million in investing activities from inception, resulting principally from the net investment maturities of $25.0 million in short term investments and by purchases of $11.5 million of property and equipment.

We generated cash of $342,000 from our financing activities in the three months ended March 31, 2005, used $325,000 in the same period in 2004 and from inception we have generated cash from financing activities of $143.3 million. We had proceeds from new borrowings of $1.3 million and made principal payments of $1.1 million in the three months ended March 31, 2005 as compared to proceeds from new borrowings of $795,000 and principal payments of $808,000 in the three months ended March 31, 2004 and $19.0 borrowings and payments of $12.2 million since inception. On April 21, 2004, we completed our IPO. In the IPO, we sold 6.9 million shares of our common stock at $8.00 per share. We raised a total of $49.4 million, net of fees and expenses. In connection with the IPO, we incurred costs totaling $1.9 million and paid these expenses in the current year. All of the shares were sold by us. The net proceeds from the IPO will be used for product commercialization, including manufacturing, and for clinical trials, research and development, capital expenditures, and working capital and other general corporate purposes. Our common stock trades on The Nasdaq National Market System under the symbol “IMMC.” From inception to March 31, 2005 we have raised $51.0 million from the sale of our common stock, including our IPO, $1.5 million from the sale of 10,000 shares of our common stock to three investors in 1984 and $85.1 million, net of issuance costs of $2.1 million, from the sale of our preferred stock.

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Since March 1999, we have also borrowed $19.0 million through equipment lines of credit and have received $6.2 million in milestone receipts from Veridex. Our liquidity requirements are the result primarily of research and development and other operating expenditures, capital equipment expenditures and payments on outstanding indebtedness. Sales of our common and preferred stock, including the IPO, were as follows:

As of March 31, 2005, we did not have any off balance sheet financing arrangements.

The following table summarizes our contractual obligations and related interest charges on lines of credit at March 31, 2005 and the effects such obligations are expected to have on our liquidity and cash flows in future periods.