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Position(s)

Stanley C. Erck

President, Chief Executive Officer, Treasurer and Director

Gregory M. Glenn, M.D.

Senior Vice President and Chief Scientific Officer

Russell P. Wilson

Senior Vice President, Chief Financial Officer, General Counsel and Secretary

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2006
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number: 000-51709

Iomai Corporation

(exact name of registrant as specified in its charter)


Delaware		52-2049149
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

20 Firstfield Road, Suite 250, Gaithersburg, Maryland 20878

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code:

(301) 556-4500

Securities registered pursuant to Section 12(b) of the Act:


None		None
(Title of each Class)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes þ No o

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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.


Large accelerated filer o	Accelerated Filer o	Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of voting stock held by non-affiliates of the registrant as of March 14, 2007 was $79,518,299. There were 25,509,045 shares of the registrant’s Common Stock outstanding as of March 14, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the registrant’s 2007 Annual Meeting of Stockholders to be held on June 5 2007, which definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year of December 31, 2006, are incorporated by reference into Part III of this Annual Report on Form 10-K.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains forward-looking statements. All statements contained in this annual report other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “seek,” “anticipate” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:


	•	the implementation of our corporate strategy;

	•	our future financial performance and projected expenditures;

	•	our ability to enter into future collaborations with pharmaceutical, biopharmaceutical and biotechnology companies and academic institutions or to obtain funding from government agencies;

	•	our product research and development activities, including the timing and progress of our clinical trials, and projected expenditures;

	•	our technology’s potential efficacy, advantages over current approaches to vaccination and broad applicability to infectious diseases;

	•	our ability to receive regulatory approvals to develop and commercialize our product candidates;

	•	our ability to increase our manufacturing capabilities for our product candidates;

	•	our ability to develop or obtain funding for our immunostimulant patch for pandemic flu applications;

	•	our projected markets and growth in markets;

	•	our product formulations and patient needs and potential funding sources;

	•	our staffing needs; and

	•	our plans for sales and marketing.

The forward-looking statements in this annual report are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include those described in Item 1A. “Risk Factors.” In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this annual report may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this annual report. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we file from time to time with the U.S. Securities and Exchange Commission (SEC) after the date of this annual report. See “Availability of Periodic SEC Reports” in Item 1. “Business.”

Iomai^®, Transcutaneous Immunization^tm, TCI^tm, Immunity That’s More Than Skin Deep^tm and the Iomai logo are trademarks or service marks of Iomai Corporation. All other trademarks and service marks appearing in this report are the property of their respective holders.

PART I


Item 1.	*Business*

OVERVIEW

We are developing two distinct product applications for our TCI technology. The first application is an immunostimulant, or IS, patch that is applied to the skin and contains only an adjuvant, which is a compound used to enhance a vaccine’s ability to elicit a stronger immune response, thereby making the vaccine more effective. In this application, our IS patch is placed over the vaccine injection site in order to stimulate a stronger immune response to the injectable vaccine. Initially we expect to target our IS patch to extend vaccine supply in the event of an influenza pandemic and for use in patient populations with weakened or impaired immune systems, such as the elderly, for whom existing vaccines often do not elicit an adequate immune response. The second application is a needle-free vaccine patch that is applied to the skin and delivers both pathogen-specific antigens and an adjuvant. We are using this application to develop needle-free vaccines to replace currently injectable vaccines as well as novel vaccines that cannot be delivered by injection.

We currently have five product candidates in development: four targeting influenza and pandemic flu and one to prevent E. coli-related travelers’ diarrhea:


	•	IS patch for pandemic flu program. We are developing an IS patch that, when used in conjunction with an injectable flu vaccine, is designed to stimulate an immune response to even small doses of vaccine, thereby allowing public health officials to extend vaccine supply in the event of an influenza pandemic. In January 2007, we were awarded a five-year, cost-plus reimbursement contract by the Department of Health and Human Services, or DHHS, to fund our development of a dose-sparing patch for use with a pandemic flu vaccine. If the product is developed through licensure, the total cost reimbursed by DHHS, plus a fixed fee, is estimated to be $128 million. During the first 15 months of the contract, DHHS has allotted approximately $14.5 million for us to assess the safety and immunogenicity of the patch in two clinical trials and to develop plans on how we would produce 150 million IS patches in a six-month period, as required under the contract. Once we demonstrate the safety and dose-sparing capability of our IS patch, we hope to sell up to 150 million IS patches to the United States government for its stockpile of pandemic flu products.

	•	IS patch for elderly receiving flu vaccines. We are developing our IS patch to improve the immune response of the elderly to existing injectable influenza vaccines. We have completed a number of studies in the United States and Europe, including a European Phase 2 clinical trial that demonstrated the proof-of-concept with a previous patch formulation. In February 2007, we commenced a Phase 1 safety study in Australia with our current dry patch formulation, and we plan to commence a Phase 2 study in the United States in the second half of 2007 to confirm the results observed in our prior European Phase 2 study. Approximately 36,000 individuals aged 65 and over die from influenza, influenza-related pneumonia and related respiratory complications in the United States each year, making influenza one of the leading causes of death among the elderly. According to the United States Centers for Disease Control and Prevention, or CDC, over 65% of the elderly population in the United States receive influenza vaccination, and public health officials have stated the goal of achieving 90% vaccination rates by 2010.

	•	Needle-free flu vaccine patch. We are developing a needle-free flu vaccine patch that combines flu antigens with an adjuvant in a single patch. During the fall of 2006, we initiated a large, multi-center Phase 1 trial for our needle-free flu vaccine patch. This study is designed to test the safety and immunogenicity of our needle-free flu vaccine in comparison with the traditional injected vaccine. Vaccinations were completed during the first quarter of 2007, and we expect interim data from this trial to be available by the middle of


		2007. We expect this data to guide us in our design for a Phase 2 program that could potentially support licensure of a self-administered, needle-free flu vaccine patch. As we do not manufacture commercial flu antigens, we are also actively seeking to collaborate with suppliers of commercial flu antigens in order to advance further development of this program. Each flu season, approximately 15 million to 60 million people in the United States become ill with influenza. This infection rate results in approximately 36,000 deaths and approximately 200,000 hospitalizations in the United States annually. Approximately 80 million people in the United States are vaccinated against the flu annually.


	•	Needle-free pandemic flu vaccine patch. We are in preclinical development of a needle-free pandemic flu vaccine patch that combines pandemic flu antigen with an adjuvant in a single patch. This vaccine patch could solve a great many issues regarding mass vaccination in the event of an outbreak of pandemic flu. Specifically, we believe that based on data from our other programs, it might be possible to develop a needle-free pandemic flu vaccine that (1) is stable at room temperature, which could eliminate the need for refrigeration and allow for distribution through the mail, and (2) can be self-applied without the assistance of a healthcare worker. Researchers at the CDC have estimated that the possible effects of the next influenza pandemic in the United States would result in 89,000 to 207,000 deaths; 314,000 to 734,000 hospitalizations; 18 to 42 million outpatient visits; and 20 to 47 million additional illnesses, and the estimated economic impact would be US$71.3 to $166.5 billion, excluding disruptions to commerce and society. Leveraging our expertise from the needle-free seasonal flu vaccine, we are currently conducting preclinical testing of various needle-free pandemic flu formulations.

	•	Needle-free travelers’ diarrhea vaccine patch. We are also developing a needle-free travelers’ diarrhea vaccine patch. We have completed a double-blind, placebo-controlled challenge trial in the United States, the results of which demonstrated the product candidate’s ability to induce a strong immune response that diminished the severity and delayed the onset of the most common form of travelers’ diarrhea. During 2006, we completed a number of Phase 1 and 2 studies to further advance the program. These trials demonstrated, among other things, that our current dry patch formulation achieved high immune responses in those vaccinated and outperformed our earlier liquid-based patch and that our travelers’ diarrhea vaccine patch can be self-applied by individuals, not just by healthcare providers. We also have gathered data that shows that research-grade dry patches are stable for at least 12 months at room temperature. All this data could have important implications for our other programs and could form the basis for our development of vaccine patches that could be stockpiled, mailed and self-applied. We are currently completing a Phase 2 dose-ranging study, as well as a Phase 2 field study designed to evaluate the logistics around how to best conduct a larger pivotal field study. We expect data from these two trials to be available during the second and third quarters of 2007. Based on these data, we will select a dose and study the final formulation in a Phase 2 trial designed to confirm safety and immunogenicity of the final patch configuration. That trial is expected to commence in the fourth quarter of 2007. If we successfully complete these Phase 2 trials in a timely fashion, we expect to begin our Phase 3 clinical trials in late 2008. Travelers’ diarrhea usually is contracted by the ingestion of food or water contaminated with Enterotoxigenic E. coli bacteria (ETEC). The CDC estimates that 20% to 50% of international travelers contract travelers’ diarrhea. Currently, in the United States there are no approved vaccines against travelers’ diarrhea caused by ETEC.

We expect that each of our product candidates, consisting of a patch and one or more active ingredients, will be treated as a separate investigational drug by the FDA, even if any active ingredient is part of an existing approved product. None of the active ingredients in our product candidates have been approved by the FDA for commercial sale in any product.

We believe that TCI technology is broadly applicable and may provide the means to prevent or mitigate many other diseases. For example, we have compiled Phase 1 data supporting the ability of TCI-based vaccines to stimulate an immune response against anthrax exposure. On the basis of our preclinical and clinical findings to date, we believe products based on our TCI technology have the potential to address major unmet needs in preventing infectious diseases, and would represent a fundamental change in the way vaccines are administered.

OUR STRATEGY

Our goal is to become a leader in the discovery, development and commercialization of vaccines and immunostimulants delivered to the skin. The key elements of our strategy are as follows:


	•	Develop our IS patch for pandemic flu applications. Under the DHHS contract, we plan to perform preclinical and clinical testing of the patch and to develop a plan to bring the IS patch to licensure for dose-sparing of pandemic flu vaccines. Once we demonstrate the safety and dose-sparing capability of our IS patch, we hope to sell up to 150 million IS patches to the United States government for its stockpile of pandemic flu products.

	•	Commercialize our IS patch for elderly receiving flu vaccines. We intend to advance our IS patch for elderly receiving flu vaccines into and through Phase 3 clinical trials ourselves, and then into commercialization, possibly with a partner. To date, we have retained all of our rights to this product candidate, and we believe this will enable us to obtain advantageous terms in any potential collaboration.

	•	Seek a strategic collaboration for the development, marketing and commercialization of our needle-free flu vaccine patch. As we do not intend to manufacture the flu antigens for our needle-free flu vaccine patch, we are actively exploring collaborations with large pharmaceutical companies in the United States and Europe that would provide the flu antigens (including pandemic flu antigens) and financial resources to develop and, if approved, commercialize our needle-free flu vaccine patch. To date, we have retained all of our rights to this product, and we believe this will enable us to obtain advantageous terms in any potential collaboration.

	•	Commercialize our needle-free travelers’ diarrhea vaccine patch. We intend to advance our needle-free travelers’ diarrhea vaccine patch into and through Phase 3 clinical trials ourselves, and then into commercialization, possibly with a partner. To date, we have retained all of our rights to this product candidate, and we believe this will enable us to obtain advantageous terms in any potential collaboration.

	•	Continue to develop and expand our manufacturing capabilities to retain manufacturing rights. We intend to retain manufacturing rights for our adjuvant and patch technologies. To the extent practicable, we intend to continue to develop and expand our manufacturing capabilities to meet our expected demands. We are manufacturing all of our patches for our clinical trials in our pilot manufacturing facility, and we believe we currently have the capacity to produce anticipated needs through initial commercialization of our first product.

	•	Leverage our broad technology platform to develop additional product candidates. As our TCI technology has the potential to be useful with many different types of vaccines, other companies developing vaccines represent possible partners with which to develop new products. We intend to continue to evaluate and develop additional product candidates to expand our pipeline where we perceive a significant unmet medical need and commercial potential.

MARKET OVERVIEW

The immune system and vaccines

The immune system is the body’s natural defense mechanism for fighting disease caused by infectious pathogens, which are organisms such as bacteria, viruses and other microbes. The skin is one of the body’s first lines of defense against pathogens. In addition to presenting a barrier to entry, the skin contains specialized immune surveillance cells called Langerhans cells, a subset of the body’s main class of antigen-presenting cells, that serve an important early-warning function. The role of Langerhans cells is to detect antigens embodied in pathogens and present them to other components of the immune system, which in turn produce antibodies that bind to and destroy the invading pathogen or render it harmless. Once produced, these antibodies remain in the body to ward off future infections by the same pathogen, causing the individual to become immune for some period of time after initial exposure.

An immune response may be induced by natural exposure to a pathogen or by a controlled exposure to the antigens embodied in a pathogen by using a vaccine. A vaccine contains a dead or weakened form, or a derivative, of

an infectious pathogen, including the antigens that allow the body to recognize the pathogen. Exposure to a vaccine induces the immune system to destroy the pathogen and prevent it from subsequently infecting the body. Several doses of a vaccine may be needed for a full immune response. In addition, the immunity provided by some vaccines is not lifelong. In such cases, the immune response may decrease over time, requiring subsequent doses of a vaccine, or boosters, to restore or increase immunity.

In order to increase the effectiveness of the body’s immune response to a vaccine, vaccines are often administered in combination with an adjuvant. Adjuvants are substances that act as danger signals to the immune system and increase the ability of vaccines to stimulate the immune system. The use of adjuvants in combination with a vaccine has a variety of advantages over the use of a vaccine by itself. For instance, adjuvants may be used to help generate a meaningful immune response in groups of individuals whose immune systems may not react effectively to a vaccine alone, such as the elderly and individuals whose immune systems have been weakened by disease. Adjuvants may also be used to lower the required dose of a vaccine necessary to stimulate an effective immune response in healthy individuals.

Our initial target markets

Influenza

Influenza, commonly called the flu, is an infection of the respiratory tract caused by an influenza virus. Influenza is highly contagious and occurs mainly in the late fall, winter and early spring. Influenza affects all age groups and commonly causes moderate to severe illness that results in absences from school and work and lost productivity. Some individuals, however, develop serious complications, such as pneumonia, that require hospitalization and may even result in death. Flu-related complications can occur at any age; however, the elderly and people with weakened or impaired immune systems are much more likely to develop serious complications than are younger, healthier people.

Pandemic influenza

When a new, highly infectious and dangerous strain of the influenza virus appears, the general lack of immunity to this strain in the general population can lead to a pandemic outbreak that quickly spreads. Three influenza pandemics have occurred in the 20th century, the most recent of which occurred in 1968. By United States government estimates, pandemic flu has a greater potential to cause more deaths and illnesses than virtually any other natural health threat. Signs of a possible pandemic flu have emerged in Southeast Asia, as lethal infections of poultry and humans with avian influenza virus continue. The current virus is now endemic in bird populations, having spread to more than 40 countries and causing the deaths of hundreds of millions of birds. Furthermore, the World Health Organization, or WHO, reports that the number of avian flu cases in humans has reached more than 275 cases in 12 countries. The spread of the virus amongst birds increases the likelihood of continued human exposure and the risk of a pandemic flu outbreak.

In response, the United States government has been actively trying to address this risk through the development of pre-pandemic vaccines based on current lethal strains of pandemic flu, collaboration with industry to increase the nation’s vaccine production capacity and to expand or extend the existing supply. As part of this, DHHS announced in May 2006 the award of $1 billion in contracts to encourage companies to support the advanced development of cell-based production technologies for influenza vaccines and will help to modernize and strengthen the nation’s influenza vaccine production by creating an alternative to producing influenza vaccines in eggs. The U.S. Government’s stated goal for all of its pandemic flu programs is to expand domestic influenza vaccine surge capacity for the production of pandemic influenza vaccines for the entire U.S. population within six months of a pandemic declaration, but this expansion in domestic manufacturing capacity may take many years to accomplish.

Potentially compounding the strain on manufacturing capacity, initial clinical studies of a pandemic flu vaccine candidate have shown that two 90-microgram doses of the vaccine, which is twelve times the single 15-microgram dose of a seasonal flu vaccine, are required to stimulate a level of immune response that researchers anticipate would provide protection for an individual against the pandemic flu strains that have been spreading among birds in Asia. Because of public safety concerns, and given that there are no pandemic flu vaccines currently

approved for use in the United States, an advisory committee of vaccine experts recommended in February 2007 that the FDA approve this candidate pandemic flu vaccine, even though it is expected to protect less then half of the individuals who receive the large two-dose regimen. The FDA usually follows the recommendations of its advisory committees, although it is not bound to do so.

If there is an outbreak of pandemic flu, vaccine manufacturers using current techniques will likely not be able to rapidly scale up production to meet increased demand, as the manufacture of flu vaccine is a complex and time-consuming process and the vaccine is generally manufactured well before the relevant flu season. Because of these manufacturing limitations, governments and vaccine manufacturers are exploring dose-sparing strategies by which a smaller dose of vaccine could produce an effective immune response. With pressure on governments to develop dose-sparing strategies, we believe that there may be an important role for an IS patch, when administered in combination with injected pandemic flu vaccines being developed by different manufacturers, either to reduce the required dose of, or improve the timing or magnitude of the immune response to, a pandemic flu vaccine.

In January 2007, the DHHS awarded us a five-year, $128 million contract to develop a “dose-sparing” patch for use in the event of an influenza pandemic. Our key requirements under the contract are to assess the safety and immunogenicity of the patch, to perform preclinical and clinical testing of the patch and to develop a plan to bring the product to licensure.

Seasonal influenza

Each flu season approximately 15 million to 60 million people in the United States become ill with influenza. This infection rate results in approximately 36,000 deaths and approximately 200,000 hospitalizations in the United States annually. Approximately 80 million people in the United States are vaccinated against the flu annually. The CDC has indicated that it wants to increase this figure to 185 million annually by 2010. According to a study conducted by Kalorama Information, the worldwide market for influenza vaccines was estimated to be in excess of $1.4 billion in 2004 and is expected to grow to $1.8 billion in 2006. In addition, Kalorama estimates that the worldwide market for influenza vaccines has the potential to reach approximately $3 billion by 2010. This market growth is expected to be driven principally by expanded supply, heightened public awareness and increased advocacy for vaccination by public health organizations, particularly for the elderly and young children, as well as higher prices. We believe that this market can be further expanded by providing an alternate vaccine delivery method, such as a needle-free flu vaccine patch, that is more convenient and less painful than a hypodermic needle, and has the potential to be mailed and self-applied.

Influenza in the elderly

The CDC has highlighted the relatively low effectiveness of existing flu vaccines for persons aged 65 and over. Studies show that the efficacy of flu vaccines decreases from the 70% to 90% range observed in healthy individuals who are less than 65 years of age, down to the 30% to 40% range for individuals 65 years of age and over. Most of the elderly population receives a flu shot annually, yet in the United States influenza is one of the leading causes of death in persons 65 years of age and older, and approximately 40,000 people in this age group die from influenza, influenza-related pneumonia and related respiratory complications each year. This significant number of deaths reaffirms the need for a more efficacious vaccine. As a result, we believe there is an unmet need for immunostimulants that can be delivered in conjunction with a flu vaccine to help persons with weakened or impaired immune systems, such as the elderly, develop adequate immune responses.

Travelers’ diarrhea

Travelers’ diarrhea is a disease caused by a bacterial, viral or other microbial infection contracted by the ingestion of contaminated food or water while abroad. According to the United States Centers for Disease Control and Prevention, or CDC, travelers’ diarrhea is the most common illness affecting travelers, with an estimated 20% to 50% of international travelers contracting travelers’ diarrhea.

Enterotoxigenic E coli bacteria (ETEC) is believed to be the most common cause of travelers’ diarrhea. Ingested ETEC bacteria move to the small intestine where they grow and secrete toxins which induce massive fluid secretion from the lining of the small intestine. Common symptoms associated with ETEC-induced diarrhea include

frequent loose or watery bowel movements, nausea, vomiting, abdominal cramping, bloating and fever. A majority of affected individuals tend to have six or more loose stools per day. Severe infections that cause large fluid loss may cause dehydration and require hospitalization in order to administer intravenous fluids. ETEC secretes one or both of two different toxins: heat labile toxin (LT) and heat stabile toxin (ST). LT, either acting alone or in combination with ST, is responsible for approximately two-thirds of all cases of ETEC disease. Each year more than 50 million individuals from the United States, Western Europe and Japan/Australia visit regions where infection by ETEC is common, resulting in an estimated 10 million cases of travelers’ diarrhea caused by LT-secreting ETEC strains. Our travelers’ diarrhea program focuses on ETEC disease caused by LT-secreting strains.

Currently, in the United States there are no approved vaccines against travelers’ diarrhea caused by ETEC infection. Travelers’ diarrhea, consequently, is generally treated with antibiotics, either prophylactically or following onset, or with over-the-counter products that alleviate symptoms but do not treat the underlying infection. Use of antibiotics either as a treatment or as a prophylaxis can be effective but has many drawbacks. Multi-drug resistance in ETEC infection is common, especially in the developing world, and prophylactic antibiotic use is implicated in causing patterns of widespread resistance. In addition, patients must take many doses over several days or weeks for antibiotics to be effective and this poses potential compliance problems. Antibiotics also destroy beneficial resident intestinal bacteria that normally keep in check any ingested disease-causing bacteria. Following antibiotic treatment, these toxic bacteria may grow rapidly leading to severe intestinal inflammation and additional episodes of diarrhea. For these reasons, health authorities generally prefer vaccination to treatment with antibiotics for diseases preventable by vaccine.

We believe a vaccine that reduces the risk of contracting travelers’ diarrhea caused by ETEC, or that reduces the severity of the symptoms associated with such an infection, would be appealing to travelers. According to a market study, approximately 25% of United States travelers already seek medications and vaccinations for other diseases, such as hepatitis A and B, prior to traveling internationally. Additional studies estimate that the worldwide market for a vaccine to combat travelers’ diarrhea caused by ETEC infection is approximately $450 million.

THE TCI SOLUTION

TCI is a proprietary technology designed to trigger an immune response by targeting Langerhans cells. After contact with an infectious pathogen and its associated antigens, Langerhans cells leave the skin and migrate to the nearest lymph node via the lymphatic system. Upon arrival, the Langerhans cells present the antigens in the lymph node, which triggers a potent and highly specific immune response that persists to combat future attacks by the invading pathogen. Because Langerhans cells are evenly distributed throughout the human skin surface, we believe that TCI-based immunizations may be delivered through a patch to a variety of locations on the body.

Our research to date suggests that the immune response to TCI-delivered vaccines may be improved by applying adjuvants along with antigens to the skin. Specifically, we are exploring the use of the LT toxin from ETEC as an adjuvant. While LT is not currently approved by the FDA for any indication nor as a component of any product approved by the FDA, LT has a long history of experimental use as an adjuvant because of its potency as a general immune system stimulant and has been used preclinically with a wide variety of vaccine formulations, including those utilizing peptides, proteins, conjugates, whole killed cells and live vectors. Other means of delivery such as injection, intranasal and oral delivery methods act systemically, preventing the use of LT as an adjuvant without the occurrence of significant side effects. TCI avoids these side effects by delivering LT to the skin, where the LT is sequestered, rather than delivered systemically.

The diagram below highlights the use of TCI in a needle-free vaccine patch.

Our needle-free vaccine patch is designed to work as follows:


	•	Following pretreatment that involves a mild abrasion of the skin at the application point to disrupt the outer dead layer of skin, known as the stratum corneum, a patch containing an adjuvant and one or more antigens from the target pathogen (the three antigens associated with the flu vaccine each year, for example) is applied.

	•	After permeating the disrupted stratum corneum, the adjuvant and antigens reach and activate the underlying Langerhans cells.

	•	The Langerhans cells take up the adjuvant and antigens and migrate through the skin and the lymphatic system to the nearest lymph node, where they stimulate a systemic immune response.

We believe that our needle-free vaccine patch offers the following potential advantages over traditional, injection-based approaches to vaccination:


	•	Increased efficacy with reduced risk of side effects. Because the adjuvant and antigens delivered by our needle-free vaccine patch cannot penetrate further than the outer layers of the skin, neither the adjuvant nor the antigens circulate systemically as they would if delivered through injection. Preventing a systemic distribution of adjuvants and antigens reduces the risk of side effects. As a result, our needle-free vaccine patch permits the use of more potent adjuvants relative to other systemic means of delivery (such as injection, intranasal and oral delivery), which increases the overall level of immune response. We and our collaborators have conducted over 30 trials, including three double-blind, placebo-controlled trials, with over 3,500 volunteers receiving the LT, and no vaccine-related serious adverse events from applying this adjuvant to the skin were observed.

	•	Stable at ambient temperatures. Most vaccines must be stored in refrigerated environments. We believe our vaccines will be stable at room temperature, making both transport and storage without refrigeration simple and inexpensive. We now have data that demonstrates research-grade patches for our needle-free travelers’ diarrhea and flu vaccine programs are stable at room temperature for at least 12 months.

	•	Self-application: All but a handful of vaccines must be administered by a healthcare worker. We believe that our patch system has the potential to be self-administered, thereby expanding the market opportunities for existing vaccines and solving many of the logistical issues associated with governmental mass vaccination programs as part of biodefense and pandemic flu preparedness. In 2006, we demonstrated in a Phase 1 needle-free travelers’ diarrhea trial that there was no difference in immune response between self-application and a patch administered by a healthcare worker.

	•	Increased compliance. We believe needle-free administration has the potential to increase acceptance by patients who dislike the use of needles and desire a more convenient and less painful means of vaccination.


	•	Safer administration and disposal. Needle-free administration eliminates the risk to the health care provider of inadvertent needle sticks and avoids the need to dispose of contaminated needles.

	•	Reduced dosages. By targeting the skin and eliciting a stronger immune response, we believe the amount of antigen required for immunization may be reduced.

Our IS patch uses TCI-administered adjuvants to boost the immune response to traditional, injectable vaccines in specific patient populations. Our IS patch would work similarly to our needle-free vaccine patch, except that a needle would be used to inject the pathogenic antigens and a patch containing only an adjuvant would be applied to the skin over the injection site. We believe our IS patch could be applied to boost the immune response in individuals who might not otherwise achieve immunity through the injected vaccine alone. In a European Phase 2 trial, elderly subjects who received an IS patch in combination with an injected flu vaccination generated antibody levels that were significantly higher than the antibody level generated with an injected flu vaccine alone. We also believe our IS patch could be used to lower the injected vaccine dosage necessary to immunize individuals with healthy immune responses.

PRODUCTS IN DEVELOPMENT

We are developing two distinct product applications for our TCI technology. The first application is a needle-free vaccine patch applied to the skin that contains both pathogen-specific antigens and an adjuvant. We are using this application to develop needle-free vaccines to replace currently injectable vaccines as well as novel vaccines that cannot be delivered by injection. The second application is an immunostimulant, or IS, patch for use in combination with an injected vaccine and through which only an adjuvant is delivered by the patch. In this second application, we expect that our IS patch would be placed over the injection site of an existing injectable vaccine in order to stimulate a stronger immune response to that vaccine. Initially we expect to target our IS patch for use in patient populations with weakened or impaired immune systems, such as the elderly, for whom existing vaccines often do not elicit an adequate immune response or in pandemic flu applications to expand the supply of vaccine. For the years ended December 31, 2006, 2005 and 2004, our research and development costs were approximately $28.0 million, $16.5 million and $14.3 million, respectively.

We are focusing our current product development efforts on the product candidates set forth in the chart below.


Product Candidates		Clinical Status in 2007

*Influenza*
IS patch for pandemic flu (under DHHS contract)		Phase 1
IS patch for elderly receiving flu vaccines		Phase 2
Needle-free flu vaccine patch		Phase 1
Needle-free pandemic flu vaccine patch		Preclinical
*Travelers’ Diarrhea*
Needle-free travelers’ diarrhea vaccine patch		Phase 2

We view our IS patches and our needle-free travelers’ diarrhea vaccine patch as distinct products. Although both patches contain the same active ingredient, they will have distinct formulations and require separate regulatory approvals.

IS patch for pandemic flu

We anticipate that the IS patch could play a role in containing pandemic flu by helping governments execute dose-sparing strategies by which a smaller dose of injected vaccine could produce an effective immune response. We believe our IS patch, when administered in combination with an injected vaccine, may be able to achieve this either by reducing the required dose of injected vaccine, or improving the timing and/or magnitude of the immune response to an injected pandemic flu vaccine. We believe that our IS patch for pandemic flu presents a particularly attractive dose-sparing alternative because it has the potential to be used with pandemic flu vaccines being developed by different manufacturers without requiring different formulations or packaging.

In January 2007, the DHHS awarded us a five-year, cost-plus reimbursement contract to fund our development of a dose-sparing patch for use with a pandemic flu vaccine. If the product is developed through licensure, the total cost reimbursed by DHHS, plus a fixed fee, is estimated to be $128 million. During the first 15 months of the contract, DHHS has allotted approximately $14.5 million for us to assess the safety and immunogenicity of the IS patch in clinical trials. To do this, we expect to initiate a Phase 1 safety trial during the third quarter of 2007 and then follow up that trial with a larger Phase 1/2 trial, which is expected to start in the fourth quarter of 2007, to test the safety and immunogenicity of the IS patch with an injectable pandemic flu vaccine. We will be testing our IS patch with an injectable pandemic flu vaccine provided by our subcontractor, Solvay Pharmaceuticals. Also, during the initial fifteen-month period, we are expected to provide DHHS with a plan on how we would build up our capacity to produce, within six months after the onset of an influenza pandemic, 150 million doses of our IS patches.

In support of our application for the DHHS contract, we conducted preclinical studies in animals that highlight the dose-sparing potential of our IS patch. The goal of these preclinical studies was to demonstrate that the use of our IS patch, if confirmed in larger scale human studies, could effectively expand the nation’s vaccine supply quickly. In one study, we examined the effects of our IS patch when used in combination with an avian flu antigen delivered either intramuscularly, into the muscle tissue, or intradermally, just below the skin surface. In this study, we immunized mice intradermally with injections of an avian flu strain isolated from Vietnam (H5N1) to look at the effect of immunizing with declining flu doses with and without our IS patch. Accordingly, the first group received 1.5 ug of vaccine and the other two groups received doses ten times lower (0.15 ug) and 100 times lower (0.015 ug), and half of each of these three groups had an IS patch placed over the injection site. After two weeks, we then measured antibody titers to the avian flu strain. As indicated in the following chart, the group receiving the 0.015 ug dose with our IS patch had an antibody response (47,491) comparable to the group receiving the 1.5 ug dose intradermally alone (20,142). This data suggests that a 100-fold reduction in vaccine may be achievable when the vaccine is delivered intradermally in conjunction with our IS patch. Data that we collected in the same study suggests that a ten-fold reduction in vaccine may be achievable when the vaccine is delivered intramuscularly, which is the current standard of care, in conjunction with our IS patch. While intramuscular administration of flu vaccines is the current standard of care, recent studies have shown that flu vaccines administered intradermally can achieve comparable immune response by using less vaccine.

This work was preceded by a two-year, $2.9 million grant in January 2005 from the National Institutes of Health, or NIH, for further development of our IS patch technology for pandemic flu applications.

Because pandemic flu vaccines and alternative strategies for “dose-sparing” are still being developed by third parties and no pandemic flu vaccines have been approved for use by the FDA, and because our IS patch for pandemic flu is in the preclinical development stage and extensive additional preclinical and clinical testing would be required before approval, this product candidate may not be available for the potential treatment of pandemic flu in the next few years, if ever.

IS patch for elderly receiving flu vaccines

We are currently investigating ways to improve the immune response in the elderly to standard influenza vaccination through the use of adjuvants. We believe that the placement of an IS patch over the injection site of an injected flu vaccine will provide a stronger immune response in elderly recipients of the flu vaccine.

In 2002, we completed a European Phase 2 clinical study in which elderly individuals who were vaccinated with an injected flu vaccine in combination with our IS patch had a higher antibody response, on average, than those receiving the standard flu vaccine without an IS patch. The following chart describes the immune response achieved in that clinical study, which had three groups of approximately 55 volunteers each vaccinated with a standard injected flu vaccine consisting of three strains of flu antigen. The first group of volunteers consisted of healthy young adults. The second and third groups consisted of elderly (over 60 years old) volunteers. In the third group, the volunteers were given both the injected vaccine and an IS patch. In this trial, elderly individuals who were vaccinated with a standard flu vaccine in combination with our IS patch had a higher antibody response, on average, than those receiving the flu vaccine without a patch. In addition, we did not observe any systemic vaccine-related side effects in this trial.

Enhanced Immune Responses In Elderly After IS Patch Application

We conducted a subsequent study in which we utilized a prior dry patch formulation and were unable to demonstrate this same effect. After analysis, we concluded that we were not able to replicate the previous results due to a change in formulation, which we believe caused the active agent, our LT adjuvant, to remain in the patch and, therefore, not to be delivered to the skin. Based on data from animal studies and data from a travelers’ diarrhea clinical trials that have indicated that our current dry patch formulation achieves high immune responses in those vaccinated and outperforms our earlier liquid-based patch, we expect our new dry patch formulations will be at least equivalent to the wet patches used in the study above; however, we will not know whether these dry patch formulations will perform adequately to boost immune response in the elderly to standard influenza vaccination until we obtain clinical data in humans.

In February 2007, we commenced a Phase 1 safety study in Australia with our current dry patch formulation, and we plan to commence a Phase 2 study in the United States in the second half of 2007 to confirm the results observed in our prior European study. Following this trial, we expect to conduct additional Phase 2 trials to evaluate dose ranging and time-of-patch-wear. We intend to request discussions with regulatory agencies in the United States prior to initiating any Phase 3 studies in order to finalize endpoints and design for our Phase 3 studies, which we expect to commence in 2008. Our IS patch, when administered in combination with existing commercially available injectable flu vaccines distributed by different flu vaccine manufacturers, will require individual testing and FDA approval with our IS patch, and is designed to improve the immune response of the elderly to these flu vaccines.

Needle-free flu vaccine patch

Our needle-free flu vaccine patch combines seasonal flu antigens and an adjuvant in a single patch. We believe this approach offers the potential for effective flu vaccination without the use of needles.

We completed a Phase 1 study of our needle-free flu vaccine patch in Europe during the fourth quarter of 2004 using our earlier liquid-based patch. The data from our Phase 1 trial demonstrated that the needle-free flu vaccine patch stimulated an immune response to antigens from all three flu strains recommended by the World Health Organization for the 2004 flu season and demonstrated a positive effect from using our adjuvant, although the observed immune response was not as great as that of existing injectable flu vaccines. During 2005 and 2006, we worked to optimize our formulation and product design in an effort to achieve an immune response equal to or greater than that of existing injectable vaccines, which is one of the requirements necessary in order to achieve regulatory approval for this product candidate. Based on preclinical studies, we believe we have reformulated this product candidate in a dry patch formulation that will result in a greater immune response than that observed in the 2004 Phase 1 study.

In the fall of 2006, we initiated a 300-person, multi-center Phase 1 trial for our needle-free flu vaccine patch with the new dry patch formulation. This study is designed to test the safety and immunogenicity of our needle-free flu vaccine in comparison with the traditional injected vaccine. Vaccinations were completed during the first quarter of 2007, and we expect interim data from this trial to be available by the middle of 2007. We expect this data to guide us in our design for a Phase 2 program that could potentially support licensure of a self-administered, needle-free flu vaccine patch.

Because we do not manufacture our own flu antigen, we conducted our clinical trials for this using flu antigen supplied to us by a flu vaccine manufacturer under a material transfer agreement. We plan to work with companies who can provide a source of vaccine antigen and complementary commercial capabilities, such as sales and marketing expertise. We expect that we will not advance our needle-free flu vaccine product candidate into additional clinical trials after the current Phase 1 trial until we enter into a long-term supply arrangement for flu antigen.

Needle-free pandemic flu vaccine patch

Our needle-free pandemic flu vaccine patch also combines pandemic flu antigens and an adjuvant in a single patch. We are in preclinical development of a needle-free pandemic flu vaccine patch that combines pandemic flu antigen with an adjuvant in a single patch. Leveraging our expertise from the needle-free seasonal flu vaccine, we are currently conducting preclinical testing of various needle-free pandemic flu formulations. We believe that this vaccine patch could solve a great many issues regarding mass vaccination in the event of an outbreak of pandemic flu. Specifically, we believe that based on data from our other programs, it might be possible to develop a needle-free pandemic flu vaccine that (1) is stable at room temperature, which could eliminate the need for refrigeration and allow for distribution through the mail, and (2) can be self-applied without the assistance of a healthcare worker.

Needle-free travelers’ diarrhea vaccine patch

Our travelers’ diarrhea program is designed to reduce the risk of contracting travelers’ diarrhea or reduce the severity of symptoms in the event of infection. Our vaccine candidate targets disease caused by LT-secreting ETEC. The LT toxin alone or in conjunction with the ST toxin is the pathogenic agent in approximately two-thirds of the cases of ETEC infection. Immunity against LT has been shown to mitigate travelers’ diarrhea caused by ETEC infection, which we believe makes LT an excellent vaccine candidate. For our needle-free travelers’ diarrhea vaccine patch, LT acts both as the antigen and the adjuvant. Because the LT toxin is sequestered in the skin, it is not delivered systemically in a way that might cause diarrhea.

We have conducted several clinical studies of our travelers’ diarrhea vaccine patch. In our initial proof-of-principle trial, a simple gauze patch containing a 500ug LT dose was applied to the skin for six hours with no pretreatment. Three such doses resulted in robust immune responses with no systemic side effects. This initial finding, robust immunity without systemic effects, for an LT-containing patch has been replicated in all of our

subsequent trials in over 3,500 healthy volunteers, including our recent trials using our current dry patch formulation, which is about the size of a U.S. quarter and contains much smaller doses of LT.

In other trials we have studied the effects of multiple doses and the durability of response. For example, in a study involving 60 volunteers where a needle-free travelers’ diarrhea vaccine patch was given on the first testing day and again 21 days later, test subjects experienced a 12-fold rise in antibody levels on the day the second patch was administered and a 23-fold rise in antibody levels 21 days after the second patch was administered (see figure, below). The subjects did not experience any vaccine-related systemic adverse events. Ninety-three percent of subjects experienced a mild rash which was limited to the skin that came in direct contact with the patch. The incidence of this mild rash decreased during the second application. Three hundred sixty days after receiving the second patch, 52 of the 53 returning test subjects retained LT antibodies in their systems, suggesting that the vaccine effects will last for at least one year.

Antibody Response to Toxin After Vaccination

During the first quarter of 2005, we completed a clinical study designed to test whether high antibody responses to LT delivered in a patch could prevent or reduce the severity of travelers’ diarrhea caused by oral ingestion of ETEC bacteria. The clinical study found that volunteers who received the vaccine before being exposed to high levels of ETEC bacteria had less severe diarrhea and were significantly less likely to require intravenous fluids than patients who were not vaccinated. We conducted the trial with the assistance of investigators at the Johns Hopkins School of Public Health. Forty-seven volunteers participated in this double-blind, placebo controlled clinical trial. Twenty-seven of the volunteers were vaccinated with a liquid-based, or “wet,” patch formulation of our needle-free travelers’ diarrhea vaccine patch and 20 were given placebos. At the end of the vaccination period, the volunteers from both vaccinated and unvaccinated groups ingested approximately one-half billion ETEC organisms. Although experts estimate that between 1,000 and 100,000 bacteria can cause an ETEC infection, we chose a considerably larger amount of ETEC organisms to ensure exposure in substantially all of our volunteers to an infectious dose. In this trial we also gave our volunteers live bacteria that secreted both the LT and ST toxins. This combination of high doses of ETEC bacteria and the introduction of two toxins resulted in a severe test of our vaccine candidate. After ingestion of the ETEC organisms, the volunteers were carefully monitored for diarrhea. Similar numbers in both vaccine and control groups met the definition of moderate to severe illness, but subjects who received the vaccine had significantly fewer loose stools (p=0.04) and lower mean weights of the loose stools (p<0.05). In addition, volunteers who did not receive the vaccine became ill more quickly and were more likely to require intravenous fluids, with 40 percent of the control group receiving fluids compared with only 14 percent of the vaccine group (p=0.03). Members of the vaccine group also saw increases in two antibodies, IgA and IgG, associated with protection against ETEC. After three doses, all patients had a four-fold increase in serum IgG antibodies and 97 percent had a four-fold increase in serum IgA antibodies.

During 2006, we completed a Phase 1/2 travelers’ diarrhea human clinical trial involving 160 subjects in the United States. In this study, we compared our new dry patch formulation with our prior wet patch. One hundred subjects were dosed using a dry formulation and 60 subjects have been dosed using the prior wet formulation. The study was designed to determine whether immune responses after wearing the dry patch formulation were equal to those obtained with wet patches. Subjects were tested weekly for immune responses to ETEC. By the second week,

the fold rise in antibodies to the ETEC antigen in the dry patch groups were significantly greater than those in the wet patch group. In addition, dry patch recipients had at least 90 percent seroconversion rates with one dose. In another Phase 1/2 trial, we demonstrated that in two groups of 20 subjects each, antibody responses to a dry LT patch self-applied were not statistically different from a dry LT patch applied by a healthcare worker. We also have gathered data that shows that research-grade dry patches are stable for at least 12 months at room temperature. All this data could also have important implications not only for our travelers’ diarrhea program, but for our other programs, particularly our influenza programs, and could form the basis for our development of vaccine patches that could be stockpiled, mailed and self-applied — all important considerations particularly in the event of a pandemic influenza outbreak.

In the second half of 2006, we also commenced two additional Phase 2 studies for our travelers’ diarrhea vaccine patch: a logistics study and a dose-ranging study. We designed the Phase 2 logistics trial in approximately 200 subjects to test our vaccine patch in volunteers traveling to sites in Mexico and Guatemala. The placebo-controlled study is designed to assess the safety of the vaccine and the frequency of ETEC infection in volunteers traveling to sites where the disease is endemic and to provide other operational information that will serve as the groundwork for designing and executing our pivotal field trial for this vaccine. The Phase 2 dose-ranging study is examining four different LT doses in approximately 400 subjects and is expected to provide us with data to determine our final dose formulation for the Phase 3 studies. We expect interim data from both of these trials to be available during the second and third quarters of 2007. Based on these data, we will select a dose and study the final formulation in a Phase 2 trial designed to confirm safety and immunogenicity of the final patch configuration. That trial is expected to commence in the fourth quarter of 2007. If we successfully complete these Phase 2 trials in a timely fashion, we expect to begin our Phase 3 clinical trials in late 2008.

Additional indications

While we are currently focusing our resources on the five programs described above, we believe that our needle-free vaccine patch and IS patch technologies may be broadly applicable. If we have adequate resources, we plan to explore application of our technology to anthrax and other infectious diseases, as well as to cancer, allergic diseases and other indications. We have compiled Phase 1 data supporting the ability of TCI-based vaccines to stimulate an immune response against anthrax exposure. Anthrax is a rare, acute infectious disease caused by bacteria that is contracted through the skin, lungs or gastrointestinal system. The anthrax bioterrorism attacks of 2001 heightened the urgency to develop a safe and effective anthrax vaccine for use in the general population. The only anthrax vaccine currently approved by the FDA requires six injections over 18 months, has limited availability and distribution, and is only indicated for at-risk individuals, such as members of the military. We intend to seek a government grant to fund the development of a vaccine patch candidate. At this time, the United States government is not offering such a grant. If we are successful, we would hope to have the vaccine developed to the stage where it would be eligible for purchase under the biodefense stockpile program.

INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY

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

Our policy is to seek US and international patent protection for technological developments that we believe will enhance the market position of our product candidates and methods of using our product candidates. As of March 8, 2007, we held exclusive rights, either through our license from the Walter Reed Army Institute of

Research (WRAIR) or on our own, to a patent portfolio consisting of 68 issued patents or patent applications as follows:


	•	4 issued US patents;

	•	13 US non-provisional patent applications;

	•	23 issued foreign patents;

	•	27 foreign patent applications that are in various national stages of prosecution; and

	•	1 foreign patent applications not at the national stage.

The issued United States patents will expire between November 2016 and February 2019. The issued foreign patents will expire between November 2016 and February 2019. Our core patents claim the composition of matter of the skin patch system as well as methods for inducing an antigen specific immune response from applying antigen and adjuvant to the skin. The first of these patents expires in November 2016, but subsequent patents provide additional coverage until February 2019. In addition, we are prosecuting patent applications relating to the use of different antigen and adjuvant combinations on the skin and other improvements to our TCI technology, such as methods for inducing an immune response by applying antigens and adjuvants to the skin in dry form.

We license substantially all of our TCI technology from WRAIR. Pursuant to a license agreement dated April 6, 2001, WRAIR has granted us an exclusive, worldwide license to use the TCI technology in all fields of use, including the right to grant sublicenses subject to WRAIR’s approval. Each of our current product candidates is dependent on TCI technology subject to this license.

The terms of the WRAIR license require us to pay WRAIR royalties equal to a percentage of:


	•	net sales of licensed products by us and by our affiliates; and

	•	revenues received by us from the licensed TCI technology and by our affiliates under any sublicenses of the licensed TCI technology.

In addition, we are required to pay to WRAIR:


	•	a minimum annual payment of $15,000 as a non-recoverable advance against royalty and milestone payments;

	•	milestone payments upon the achievement of specified regulatory approval based milestones, which may total up to $1,560,000 in the aggregate if we secure regulatory approval for six or more products; and

	•	all costs and expenses relating to prosecution of patent protection for the licensed TCI technology.

We paid WRAIR a license issue fee of $150,000, and continue to pay WRAIR minimum annual fees and milestone payments. We also issued to WRAIR 57,500 shares of our common stock valued at $34.125 per share on the date these shares were issued. The common stock issued to WRAIR was subject to a put option, which expired by its terms on February 1, 2006, the date of our initial public offering. The common shares issued to WRAIR are held in trust for WRAIR by MdBio, Inc. pursuant to a voting trust and escrow agreement dated April 6, 2001. Under the terms of this agreement, we are required to pay MdBio an annual service fee of $5,000.

Our license is subject to a non-exclusive, non-transferable, royalty-free right of the United States government to practice the TCI technology for research and other governmental purposes on behalf of the United States and on behalf of any foreign government or international organization pursuant to an existing or future treaty or agreement with the United States. Additionally, WRAIR reserves the right to require us to grant sublicenses to third parties if WRAIR determines that:


	•	such sublicenses are necessary to fulfill public health and safety needs that we are not reasonably addressing;

	•	such sublicenses are necessary to meet requirements for public use specified by applicable United States government regulations with which we are not reasonably in compliance; or

	•	we are not manufacturing our products substantially in the United States.

The license agreement with WRAIR will automatically terminate upon the expiration of the last licensed patent which, based on our current portfolio of issued patents and our assumption that such patents will not be invalidated, will occur no earlier than February 2019. WRAIR may unilaterally terminate or modify the license if we:


	•	do not expend reasonable efforts and resources to carry out the development and marketing of the licensed TCI technology and do not manufacture, use or operate products that use the TCI technology by April 2008 (subject to extension based upon a showing of reasonable diligence in developing the technology);

	•	do not continue to make our TCI-based products available to the public on commercially reasonable terms after we have developed such products;

	•	misuse the licensed TCI technology or permit any of our affiliates or sub-licensees to do so;

	•	fail to pay royalties or meet our other payment or reporting obligations under the license;

	•	become bankrupt; or

	•	otherwise materially breach our obligations under the license.

As we do not expect to have regulatory approval for any of our TCI-based product candidates by April 2008, we may need to seek an extension of the April 2008 clinical milestone.

We retain the right to terminate the WRAIR license with respect to any or all countries covered by the license at any time, and for any reason upon 60 days prior written notice. Upon termination of the WRAIR license, other than by expiration, we will be permitted to sell our existing inventory of licensed products for a period of 180 days, after which time we will no longer retain the right to make, use or sell products licensed under the WRAIR license. Our right to make, use or sell products subject to the WRAIR license will end immediately upon expiration of the WRAIR license.

In June 2005, we licensed from DowPharma, on a non-exclusive, world-wide basis, rights to the proprietary expression system that we plan to use to manufacture the LT to be used in each of our current product candidates. Pursuant to an existing letter agreement for services with DowPharma, DowPharma has provided us with technological assistance, as well as the master and working cell banks of the expression system that we plan to use to produce our LT.

In exchange for these licensed rights and such technical assistance as DowPharma has and is expected to continue to provide, the terms of the DowPharma license require us to pay DowPharma:


	•	royalties equal to a percentage of net sales of products incorporating LT produced under the license;

	•	milestone payments based upon regulatory approval of products incorporating LT produced under the license, which may total up to $500,000 for each approved product; and

	•	time-based fees for any continuing technical assistance we may request at DowPharma’s prevailing hourly rate, with fees for the first 500 hours of technical assistance due only upon the date the first milestone payment, if any, is due.

Our payment obligations under the license do not go into effect until our first product receives regulatory approval.

The DowPharma license also requires us to grant DowPharma and its affiliates an irrevocable, world-wide, non-exclusive, royalty-free license to any improvements to the expression technology that we or our permitted sublicensees may create during the term of the license.

The DowPharma license will automatically terminate upon the earlier of (i) ten years from the date we first sell a product incorporating LT produced under the license and (ii) the end of the term of the last to expire patent subject to the license which, assuming the relevant DowPharma patent applications are issued and the resulting patents are not invalidated, is expected to occur no earlier than November 19, 2024. After expiration of the DowPharma license,

we will retain an irrevocable and fully paid-up license to produce LT using DowPharma’s proprietary expression system. DowPharma may unilaterally terminate the license agreement prior to expiration if we:


	•	at any time during the term of the license agreement, reasonably agree with Dow that there are material health and safety risks associated with products produced under the license which create a material risk of liability to DowPharma;

	•	fail to meet our payment obligations under the license;

	•	become bankrupt; or

	•	otherwise materially breach our obligations under the license.

In the event DowPharma unilaterally terminates the license as described above, we will not have any continuing right to make, use or sell LT produced using DowPharma’s proprietary expression technology.

Our contract with DHHS includes certain patent and data rights provisions governing our rights and those of the U.S. government in respect of patentable processes and inventions and works subject to copyright, including software, that we may develop under the contract and that are paid for by DHHS. While we do not believe that our performance under the DHHS contract will result in patentable processes or inventions, or works subject to copyright, including software, that we would need to market our IS patch technology in the future, our performance under the DHHS contract subjects us to the risk that the U.S. government may claim rights or interests in such patentable processes or inventions or works subject to copyright.

We also rely on trade secrets and know-how, which are not protected by patents, to maintain our competitive position. We have implemented trade secret protection policies to actively protect and secure the technology and proprietary information that we develop. We require our officers, employees and consultants to execute confidentiality agreements upon commencement of their relationships with us. These agreements also provide that all inventions developed by the individual on behalf of us must be assigned to us and that the individual will cooperate with us to secure patent protection for these inventions if we wish to pursue such protection. There can be no assurance, however, that these agreements will provide meaningful protection for our inventions, trade secrets or other proprietary information in the event of unauthorized use or disclosure of such information.

We also execute confidentiality agreements with outside collaborators. However, disputes may arise as to the ownership of proprietary rights to the extent that outside collaborators apply technological information developed independently by them or others to projects involving our technology and there can be no assurance that any such disputes would be resolved in our favor. In addition, any of these parties may breach the agreements and disclose our confidential information or our competitors might learn of the information in some other way. If any of our trade secrets, know-how or other proprietary information that is not protected by a patent were to be disclosed to or independently developed by a competitor, our business, results of operations and financial condition could be adversely affected.

MANUFACTURING AND COMMERCIAL SUPPLY

To maintain control over the manufacture of our product candidates during development and possibly into commercialization, we constructed a pilot production plant in which we currently manufacture the LT and the finished patch formulations for our clinical products. In connection with the construction of our pilot plant, we engaged DowPharma, a business unit within The Dow Chemical Company, to assist us with the development of our own LT strain and associated manufacturing process. In June 2005, we licensed from DowPharma a proprietary expression system for our LT strain. As part of the technology transfer under the license, DowPharma provided us with technological assistance, as well as the master and working cell banks of the expression system that we currently use to produce our LT in our pilot plant.

Our LT requires precise, high quality manufacturing that is subject to current Good Manufacturing Practices, or cGMP. Since the third quarter of 2005, we have been actively producing LT and investigational patch formulations for use in clinical trials in accordance with cGMP standards. We believe that our pilot plant has adequate capacity to meet our currently anticipated clinical trial needs, and we currently intend to use this facility for all future clinical production of LT adjuvant and formulated patches. To the extent practicable, we also intend to

use this facility for initial commercial launch of our needle-free travelers’ diarrhea vaccine patch, if we obtain marketing approval.

The only product components that we currently intend to manufacture at our pilot plant are our LT and formulated patches. We currently intend to rely on either a collaborator or third-party supplier to produce other product components, such as the flu antigens contained in our needle-free flu vaccine patch. A flu vaccine manufacturer is currently supplying flu antigens for our Phase 1 clinical trial for our needle-free flu vaccine patch under a material transfer agreement. As variability in product specifications and characteristics generally is not acceptable to regulatory authorities, our primary sourcing strategy will be to establish long-term, single-source relationships with suppliers of these other components. For this reason, we expect that we will need to enter into a long-term supply arrangement for flu antigen with a flu vaccine manufacturer before advancing our needle-free flu vaccine patch product candidate into additional clinical trials. If there are no existing suppliers or collaborators able or willing to meet our selection criteria, then we will consider contracting the manufacture of key components that we do not manufacture ourselves to a contract manufacturer. At this time, we have not entered into any agreements that provide us assurance of continued supply of any of these other product components.

COMPETITION

The pharmaceutical, biopharmaceutical and biotechnology industries are intensely competitive and are characterized by rapid and significant technological progress. Our competitors include large integrated pharmaceutical and biotechnology companies, universities, and public and private research institutions which currently engage in, have engaged in or may engage in efforts related to the discovery and development of new biopharmaceuticals and vaccines, some of which may be competitive. Almost all of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing and sales resources than we do, as well as more experience in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales.

If approved for marketing, our product candidates may compete with existing drugs and vaccines. For example, there are multiple influenza vaccines approved for sale in both the United States and Europe. These vaccines are marketed by companies that include Novartis AG, GlaxoSmithKline plc, MedImmune, Inc., sanofi-aventis S.A. and Solvay S.A. In addition, we know of multiple flu vaccine candidates that incorporate adjuvants to enhance immune responses, particularly in the elderly and to extend the supply of pandemic flu vaccines. Some of these flu vaccines with adjuvants are being developed by pharmaceutical companies that have substantial resources and well-established reputations among physicians and patients, such as sanofi-aventis, GlaxoSmithKline and Novartis. These adjuvanted flu vaccines would compete against our IS patch for dose-sparing of pandemic flu vaccines and improved flu vaccination in the elderly. For example, both GlaxoSmithKline and Novartis were awarded “dose-sparing” contracts by DHHS totaling $63.3 million and $54.8 million, respectively, in January 2007 to develop pandemic flu vaccines with their proprietary adjuvant systems. Both GlaxoSmithKline and Novartis have separately reported initial data indicating that low doses (3.8 ug and 7.5 ug, respectively) of their adjuvanted pandemic flu vaccines have elicited immune responses at levels considered protective by health authorities, as well as strong immune responses against “drifted” strains of pandemic flu that have changed over time.

While there are no vaccines against ETEC infection that have been approved for sale in the United States, we are aware of several companies with ETEC vaccine product candidates that are under development, which, if approved, would compete against our needle-free travelers’ diarrhea vaccine patch. Those companies with potential ETEC vaccine candidates include Avant Immunotherapeutics, Inc., Cambridge Biostability Ltd., Crucell, N.V., SBL Vaccin AB (acquired by Crucell) and Emergent BioSolutions, Inc. In the absence of vaccines, travelers’ diarrhea is generally treated, either prophylactically or following onset, with antibiotics or over-the-counter products that alleviate symptoms. Some of these antibiotics and OTC products are marketed by pharmaceutical companies, such as Bayer. In addition, Salix Pharmaceuticals, Inc. has announced that it has completed a Phase 3 study and initiated another to evaluate the efficacy and safety of an antibiotic specifically designed to be taken prophylactically for travelers’ diarrhea.

We are aware of companies that are developing alternative methods to the syringe for delivering vaccines and biopharmaceutical products. These alternative methods include microneedles, electroporation, microporation, jet injectors, nasal sprays and oral delivery. For example, 3M Drug Delivery Systems, MacroFlux Corporation and

Becton, Dickinson and Company are developing microneedles and intradermal devices to deliver drugs to the skin. PowderMed Limited, which was recently acquired by Pfizer, Inc., has developed a hand-held jet injector unit, MedImmune, Inc. has a nasal flu spray that has been approved for sale in the United States, ID Biomedical Corporation, which was acquired by GlaxoSmithKline, has a nasal flu spray under development, and sanofi-aventis has a micro-injection flu vaccine in Phase 3 clinical trials aimed at providing a superior immune response in the elderly.. There are also a number of companies developing drug delivery technologies that make microchannels in the skin, including Altea Corporation, TransPharma Medical Ltd. and Sontra Medical Corporation.

We believe that the principal competitive factors in the markets for our product candidates will include:


	•	safety and efficacy profile;

	•	product price;

	•	ease of application;

	•	length of time to receive regulatory approval;

	•	product supply;

	•	enforceability of patent and other proprietary rights; and

	•	marketing and sales capability.

Because our product candidates are in early stages of development, our relative competitive position in the future is difficult to predict precisely.

GOVERNMENT REGULATION

The testing, approval, manufacturing, labeling, advertising and marketing, post-approval safety reporting, and export, among other things, of our product candidates are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates biopharmaceutical products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and other laws, including, in the case of biologics, the Public Health Service Act. Each of our product candidates consists of a patch and one or more active ingredients, such as vaccines or adjuvants, and we expect that each product candidate will be considered a separate investigational vaccine by the FDA, even if any of its active ingredients is part of an existing approved product. None of the active ingredients in our product candidates have been approved by the FDA for commercial sale in any product. We believe that most of our product candidates will be regulated by the FDA as biologics. We cannot market a biologic until we have submitted a Biologics License Application, or BLA, to the FDA, and the FDA has approved it. Both before and after approval is obtained, violations of regulatory requirements may result in various adverse consequences, including the FDA’s suspension of clinical studies, delay in approving or refusal to approve a product, suspension or withdrawal of an approved product from the market, operating restrictions, and the imposition of civil or criminal penalties.

The steps required before the FDA may approve a product for marketing in the United States generally include:


	•	preclinical laboratory tests and animal tests;

	•	the submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which must become effective before human clinical trials may begin;

	•	adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for its specific intended use(s);

	•	the submission to the FDA of a BLA;

	•	satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is made to assess compliance with current good manufacturing practices, or cGMP; and

	•	FDA review and approval of the BLA.

Preclinical tests include laboratory evaluation of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. We must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND, which must become effective before we may commence human clinical trials. The IND will automatically become effective 30 days after its receipt by the FDA, unless the FDA before that time raises concerns or questions about the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend such trials.

Clinical trials involve the administration of the product candidate to healthy volunteers or patients under the supervision of principal investigators, generally physicians who are not employed by or under the trial sponsor’s control. An institutional review board must review and approve each clinical study. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. In Phase 1, the initial introduction of the drug into human subjects, the drug is usually tested for safety (adverse effects), dosage tolerance, and pharmacologic action. Phase 2 usually involves studies in a limited patient population to:


	•	evaluate preliminarily the efficacy of the drug for specific, targeted conditions;

	•	determine dosage tolerance and appropriate dosage; and

	•	identify possible adverse effects and safety risks.

Phase 3 trials generally further evaluate clinical efficacy and test further for safety within an expanded patient population. We or the FDA may suspend clinical trials at any time on various grounds, including a finding that subjects are being exposed to an unacceptable health risk.

The results of the preclinical and clinical studies, together with other detailed information, including information on the manufacture and composition of the product candidate, are submitted to the FDA in the form of a BLA requesting approval to market the product. If the BLA contains all pertinent information and data, the FDA will “file” the application and begin review. The FDA may “refuse to file” the BLA if it does not contain all pertinent information and data. In that case, the applicant may resubmit the BLA when it contains the missing information and data. Before approving a BLA, the FDA will inspect the facilities at which the product candidate is manufactured, and will not approve the product candidate unless cGMP compliance is satisfactory. The FDA may refuse to approve a BLA if applicable regulatory criteria are not satisfied, require additional testing or information, limit the indications for use and/or require postmarketing testing and surveillance to monitor the safety or efficacy of a product.

The testing and approval process requires substantial time, effort and financial resources, and we cannot be sure that any of our product candidates will be approved on a timely basis, if at all. The results of preclinical studies and initial clinical trials are not necessarily predictive of the results from large-scale clinical trials, and clinical trials may be subject to additional costs, delays or modifications due to a number of factors, including difficulty in obtaining enough patients, investigators or product candidate supply. Failure by us or our collaborators, licensors or licensees to obtain, or any delay in obtaining, regulatory approvals or in complying with requirements could adversely affect the commercialization of product candidates and our ability to receive product or royalty revenues. Also, if regulatory approval is granted, it is granted for use of the product in a specific dosage form for a specific indication. If a BLA holder wishes to market a product for a different dosage form or indication, it is generally required to submit and have approved a supplementary application.

Once the FDA approves a product, the BLA holder and product’s manufacturers are required to comply with a number of post-approval requirements. For example, we may be required to conduct postmarketing testing to monitor the safety and the efficacy of the marketed product, and we will be required to report certain adverse reactions to the FDA and to comply with certain requirements concerning advertising and promotional labeling for our products. Also, quality control and manufacturing procedures must continue to conform to cGMP regulations after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, the manufacturer must continue to expend time, monies and effort in the area of production and quality control to maintain cGMP compliance. We expect to rely on third parties to manufacture some of our product candidates after FDA approval, which will also be required to comply with cGMP. In addition, discovery of

problems may result in marketing restrictions on a product. Also, new federal, state or local government requirements may be established that could delay or prevent regulatory approval of our product candidates or impose other additional restrictions on our business.

Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to commencement of marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. In those countries, we also are subject to foreign regulatory requirements governing clinical trials, labeling, promotion and marketing, post-approval safety reporting, export, pricing and reimbursement, which also vary greatly from country to country.

We are also subject to various federal, state and local laws, rules, regulations and policies relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with our research work. Although we have developed safety procedures for handling and disposing of such materials, the risk of accidental injury or contamination from these materials cannot be entirely eliminated.

SALES AND MARKETING

We currently have no sales, marketing or distribution capability. In order to commercialize any of our product candidates, we must either internally develop sales, marketing and distribution capabilities or make arrangements with a third party to perform these services. We believe that by presenting a distinctive route of administration, TCI technology offers marketing and branding opportunities for us and our potential strategic partners. We intend to sell, market and distribute some products directly and rely on relationships with third parties to sell, market and distribute other products. To market any of our products directly, we must develop a marketing and sales force with technical and regulatory expertise and with supporting distribution capabilities.

EMPLOYEES

As of December 31, 2006, we directly employed 101 people full-time, of whom one has an M.D. degree, 19 have Ph.D. degrees, and two have DVM degrees. Of our workforce, 86 employees are engaged in research and development and 15 are engaged in business development, finance and administration. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

CORPORATE INFORMATION

We were incorporated in Delaware on May 14, 1997. Our address is 20 Firstfield Road, Suite 250, Gaithersburg, Maryland 20878, U.S.A. Our telephone number is (301) 556-4500.

AVAILABILITY OF PERIODIC SEC REPORTS

Our Internet website address is www.iomai.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. The contents of our website are not part of, or incorporated into, this document. The reports and other information we file with the SEC can be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. Copies of these materials can be obtained at prescribed rates from the SEC’s Public Reference Room at such address. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.


Item 1A.	*Risk Factors*

Our future operating results may differ materially from the results described in this annual report due to the risks and uncertainties related to our business and our industry, including those discussed below. In addition, these factors represent risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements in this report. We refer you to our “Cautionary Statement Regarding Forward-Looking Statements,” at the beginning of this report, which identifies forward-looking statements in this report. The risks described below are not the only risks we face. Additional risk and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or results of operations.

Risks Relating to Our Business

We are a biopharmaceutical company with a limited operating history and have generated no revenue from product sales. As a development stage company, we face many risks inherent in our business. If we do not overcome these risks, our business will not succeed.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We commenced operations in May 1997, and since that time we have been engaged in research and development activities in connection with our product candidates. We have never generated any revenue from product sales. All of our current product candidates are at an early stage of development, and we do not expect to realize revenue from product sales for several more years, if at all. In addition, we are not currently receiving any significant funding for our research and development programs from third parties through collaborations or grants, except for our DHHS contract to develop a “dose-sparing” IS patch in the event of a pandemic flu outbreak. We are seeking to create a business based upon new technology that is intended to change existing practices of vaccine delivery. As such, we are subject to all the risks incident to the creation of new products and may encounter unforeseen expenses, difficulties, complications and delays and other unknown factors. You also should consider that we will need to:


	•	obtain sufficient capital to support our efforts to develop our technology and commercialize our product candidates;

	•	complete and continue to enhance the product characteristics and development of our product candidates; and

	•	attempt to transition from a development stage company to a company capable of supporting commercial activities.

We have a history of operating losses and may never be profitable.

We have incurred substantial losses since our inception, and we expect to continue to incur substantial losses for the foreseeable future. Our net loss for the twelve months ended December 31, 2006 was $31.8 million. As of December 31, 2006, we had an accumulated deficit of approximately $100.8 million. These losses have resulted principally from costs incurred in our research and development programs and from our general and administrative costs. We expect to incur additional operating losses in the future, and we expect these losses to increase significantly, whether or not we generate revenue, as we expand our product development and clinical trial efforts. These losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets and stockholders’ equity.

To date, we have generated no revenue from product sales or royalties. We do not expect to achieve any revenue from product sales or royalties unless and until we receive regulatory approval and begin commercialization of our product candidates. We are not certain of when, if ever, that will occur.

Even if the regulatory authorities approve any of our product candidates and we commercialize these candidates, we may never be profitable. Even if we achieve profitability for a particular period, we may not be able to sustain or increase profitability.

We will need additional funding, and we cannot guarantee that we will find adequate sources of capital in the future.

As of December 31, 2006, we had approximately $15.3 million in unrestricted cash, cash equivalents and marketable securities. We have incurred negative cash flows from operations since inception and have expended, and expect to continue to expend, substantial funds to conduct our research and development programs. On January 17, 2007, we were awarded a five-year, $128 million contract by DHHS to fund our development of a dose-sparing patch for use with a pandemic flu vaccine. During the first 15 months of the contract, DHHS has allotted approximately $14.5 million to reimburse us for our activities under that contract. Also, on March 2, 2007, we closed a private placement in which we raised approximately $30.3 million in net proceeds after expenses. We believe that our current working capital and reimbursement of expenses under our existing government grants and contracts will be sufficient to fund our operating expenses and capital requirements through the second quarter of 2008, although we cannot assure you that we will not require additional funds before then. We have based this estimate on assumptions that may prove to be wrong. Our future capital requirements will depend on many factors, including:


	•	the number, size and complexity of our clinical trials;

	•	our progress in developing our product candidates;

	•	the timing of and costs involved in obtaining regulatory approvals;

	•	costs of manufacturing our product candidates;

	•	costs to maintain, expand and protect our intellectual property portfolio; and

	•	costs to develop our sales and marketing capability.

We expect to seek to raise additional funds in advance of when we exhaust our cash resources, which, if we raise additional funds by issuing equity securities, will result in further dilution to our stockholders. Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technology, product candidates or products that we would otherwise seek to develop or commercialize ourselves, or to grant licenses on terms that are not favorable to us.

We do not know whether additional financing will be available on commercially acceptable terms when needed. If adequate funds are not available or are not available on commercially acceptable terms, we may need to downsize or halt our operations and may be unable to continue developing our products.

The success of some programs, such as our needle-free flu vaccine patch, may depend on licensing biologics from, and entering into collaboration arrangements with, third parties. We cannot be certain that our licensing or collaboration efforts will succeed or that we will realize any revenue from them.

The success of our business strategy is, in part, dependent on our ability to enter into multiple licensing and collaboration arrangements and to manage effectively the numerous relationships that will result. For example, we currently do not intend to manufacture any product components other than heat labile toxin (LT) adjuvant and formulated patches. Therefore, we will need to negotiate agreements to acquire biologics, such as the flu antigens contained in our needle-free flu vaccine patch, and other product components from third parties in order to develop some of our vaccine candidates (other than our needle-free travelers’ diarrhea vaccine patch and IS patch). We are seeking a collaboration with respect to our needle-free flu patch. A failure to enter into a collaboration could delay development of this product candidate. Also, we may not establish a direct sales force for our products and, therefore, may need to establish marketing arrangements with third parties or major pharmaceutical companies.

Our ability to enter into agreements with commercial partners depends in part on convincing them that our TCI technology can help achieve and accelerate their goals or efforts. This may require substantial time and effort on our

part. While we anticipate expending substantial funds and management effort, we cannot assure you that a strategic relationship will result or that we will be able to negotiate additional strategic agreements in the future on acceptable terms, if at all. Furthermore, we may incur significant financial commitments to collaborators in connection with potential licenses and sponsored research agreements. Generally, we will not be able to directly control the areas of responsibility undertaken by our strategic partners and will be adversely affected should these partners prove unable to carry the product candidates forward to full commercialization or should they lose interest in dedicating the necessary resources toward developing such products quickly.

Third parties may terminate our licensing and other strategic arrangements if we do not perform as required under these arrangements. Generally, we expect that agreements for rights to develop technologies will require us to exercise diligence in bringing product candidates to market and will require us to make milestone and royalty payments that, in some instances, are substantial. Our failure to exercise the required diligence or make any required milestone or royalty payment could result in the termination of the relevant license agreement, which could have a material adverse effect on us and our operations. In addition, these third parties may also breach or terminate their agreements with us or otherwise fail to conduct their activities in connection with our relationships in a timely manner. If we or our partners terminate or breach any of our licenses or relationships, we:


	•	may lose our rights to develop and market our product candidates;

	•	may lose patent and/or trade secret protection for our product candidates;

	•	may experience significant delays in the development or commercialization of our product candidates;

	•	may not be able to obtain any other licenses on acceptable terms, if at all; and

	•	may incur liability for damages.

Licensing arrangements and strategic relationships in our industry can be very complex, particularly with respect to intellectual property rights. Disputes may arise in the future regarding ownership rights to technology developed by or with other parties. These and other possible disagreements between us and third parties with respect to our licenses or our strategic relationships could lead to delays in the research, development, manufacture and commercialization of our product candidates. These disputes could also result in litigation or arbitration, both of which are time-consuming and expensive. These third parties also may pursue alternative technologies or product candidates either on their own or in strategic relationships with others in direct competition with us.

Our IS patch for pandemic flu program relies on government health organizations for funding clinical development and for ultimately procuring the product, if approved.

We are currently relying upon the United States government to fund our IS patch for pandemic flu. In January 2007, we entered into a five-year, $128 million cost-reimbursement contract with the DHHS to develop a “dose-sparing” patch for use in the event of an influenza pandemic where the DHHS will fund our costs for research, development and capital and will pay a fixed fee. Currently, DHHS has allocated $14.5 million through the first 15 months of the contract for us to assess the safety and immunogenicity of the patch in two clinical trials and to develop plans on how we would produce 150 million IS patches in a six-month period, as required under the contract. If the results for either of these clinical trials are not deemed adequate by DHHS or we fail to satisfy, from DHHS’s perspective, the requirements regarding our product development and manufacturing plans, DHHS may not extend the contract through its full term, in which event we may not be able to proceed with the balance of the contract.

In the performance under the DHHS contract, we are highly dependent on timely and adequate performance of our subcontractors, including Solvay Pharmaceuticals, which is supplying us with injectable pandemic flu vaccine for our clinical trials, and our architectural design and engineering firm. If the performance of our subcontractors is not adequate or timely, our performance under our DHHS contract may be delayed, and we therefore may not be able to satisfy the contract’s requirements, which could cause us to be in breach under those contracts and cause those contracts to be terminated. We cannot assure you that one or more of these subcontractors will not be delayed in performing, or fail to perform their obligations under these contracts in compliance with applicable legal requirements.

Although we have been awarded the DHHS contract, government funding is subject to annual appropriations and other political risks. As a result, the receipt by us of funds from the United States government to fund our research and development of our IS patch for pandemic flu beyond the $14.5 million already allotted cannot be assured. In addition, we expect that United States and foreign governments would be the entities procuring any pandemic flu products, if approved, and not individual consumers. While there has recently been increased public awareness of the risks of pandemic flu, government health organizations may not devote significant resources to the prevention of an outbreak and may not seek to procure pandemic flu products from us. The acceptance of our product candidate for pandemic flu may depend on whether government health organizations adopt a dose-sparing strategy to prevent pandemic flu and whether a competing technology for dose sparing is adopted. If a dose-sparing strategy is not endorsed or a competing technology for dose sparing is adopted, our product candidate will not yield any revenues.

The development and clinical testing of our IS patch for pandemic flu product candidate will likely take several years. Even if our IS patch for pandemic flu obtains regulatory approval, by that time the threat of a pandemic flu outbreak may be reduced or government health organizations may have adequate stockpiles of flu vaccine or have adopted other technologies or strategies to prevent or limit outbreaks.

Even if our IS patch for pandemic flu gains regulatory approval and governmental health organizations choose to stockpile the product, we may be not be able to produce enough of the product to fulfill public health and safety needs.

U.S. government agencies have special contracting requirements, which create additional risks.

We have entered into a contract with DHHS, which is a U.S. government agency. Currently, DHHS has allocated $14.5 million through the first 15 months of the contract for us to assess the safety and immunogenicity of the patch in two clinical trials and to develop plans on how we would produce 150 million IS patches in a six-month period, as required under the contract. In contracting with government agencies, we are subject to various U.S. government agency contract requirements. Future revenues from DHHS and other U.S. government agencies will depend, in part, on our ability to meet U.S. government agency contract requirements, certain of which we may not be able to satisfy.

U.S. government contracts typically contain unfavorable termination provisions allowing the U.S. government to terminate the contract at any time and are subject to audit and modification by the government at its sole discretion, which subjects us to additional risks. These risks include the ability of the U.S. government to unilaterally:


	•	suspend or prevent us for a set period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations;

	•	terminate our existing contracts;

	•	reduce the scope and value of our existing contracts;

	•	audit and object to our contract-related costs and fees, including allocated indirect costs;

	•	control and potentially prohibit the export of our products; and

	•	change certain terms and conditions in our contracts.

The U.S. government may terminate any of its contracts with us either for its convenience or if we default by failing to perform in accordance with the contract schedule and terms. Termination for convenience provisions generally enable us to recover only our costs incurred or committed and profit on the work completed prior to termination, and settlement expenses incurred in the termination for convenience process. Termination for default provisions do not permit these recoveries and may make us liable for excess costs incurred by the U.S. government in procuring undelivered items from another source.

As a U.S. government contractor, we are required to comply with applicable laws, regulations and standards relating to our accounting practices and are subject to periodic audits and reviews. As part of any such audit or review, the U.S. government may review the adequacy of, and our compliance with, our internal control systems and

policies, including those relating to our purchasing, property, estimating, compensation and management information systems. Based on the results of its audits, the U.S. government may adjust our contract-related costs and fees, including allocated indirect costs. In addition, if an audit or review uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. We could also suffer serious harm to our reputation if allegations of impropriety were made against us. Although adjustments arising from government audits and reviews have not seriously harmed our business in the past, future audits and reviews could cause adverse effects. In addition, under U.S. government purchasing regulations, some of our costs, including most financing costs, amortization of intangible assets, portions of our research and development costs, and some marketing expenses, may not be reimbursable or allowed under our contracts. Further, as a U.S. government contractor, we are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities to which purely private sector companies are not.

Our technology is unproven and presents challenges for our product development efforts.

Our TCI technology represents a novel approach to stimulating the body’s immune system. There is no precedent for the successful commercialization of product candidates based on our technology. Developing biopharmaceuticals based on new technologies presents inherent risks of failure, including:


	•	research could demonstrate that the scientific basis of our technology is incorrect or less sound than we had believed;

	•	unexpected research results could reveal side effects or other unsatisfactory conditions that either will add cost to development of our product candidates or jeopardize our ability to complete the necessary clinical trials; and

	•	time and effort required to solve technical problems could sufficiently delay the development of product candidates such that any competitive advantage that we may enjoy is lost.

All of our product candidates currently in development rely on LT, a naturally occurring bacterial toxin, as an adjuvant. LT has been shown to cause undesirable side effects when delivered through conventional mechanisms such as injection, intranasal and oral delivery methods. LT cannot be administered orally as an adjuvant and was linked to an increase in the risk of Bell’s palsy, a temporary paralysis of the facial muscles, when used in a nasal flu vaccine that was on the market in Europe during the 2000/2001 flu season. If we find that LT is not safe when administered to patients through the skin using our TCI technology, we will not be able to use LT as an adjuvant in our products. This would have a material adverse effect on our product development efforts.

Successful commercialization of our TCI technology will require integration of multiple dynamic and evolving components, such as antigens, adjuvants and a delivery mechanism, into finished product candidates. This complexity will likely increase the number of technical problems that we can expect to confront in the clinical and product development processes and, therefore, add to the cost and time required to commercialize each product candidate.

As part of our product development efforts, we may make significant changes to our product candidates. These changes may not yield the benefits that we expect.

We have made changes in the design or application of our product candidates in response to preclinical and clinical trial results and technological changes, and we may make additional changes in the future before we are able to commercialize our products. These and other changes to our product candidates may not yield the benefits that we expect and may result in complications and additional expenses that delay the development of our product candidates. In addition, changes to our product candidates may not be covered by our existing patents and patent applications, and may not qualify for patent protection, which could have a material adverse effect on our ability to commercialize our product candidates. See the risk factor entitled “If we are unable to protect our intellectual property, we may not be able to operate our business profitably.”

We may not be able to manufacture our product candidates in commercial quantities, which would prevent us from initiating Phase 3 trials and commercializing our product candidates.

To date, our product candidates have been manufactured in small quantities by us and third party manufacturers for preclinical and clinical trials. As we prepare our facility for Phase 3 and commercial manufacturing, this will require scale up of our fermentation, downstream processing and patch manufacturing as compared to our current levels. For example, we have recently installed manufacturing equipment capable of producing initial commercial quantities of our vaccine patches. These projects may result in unanticipated delays and cost more than expected due to a number of factors, including complying with cGMP regulations, such as qualification and validation of these equipment, and this could result in the delay of initiation of our planned Phase 3 trials and commercial launch of products.

If any of our product candidates is approved by the FDA or other regulatory agencies for commercial sale, we will need to manufacture it in larger quantities. We or our third party manufacturers may not be able to successfully increase the manufacturing capacity for any of our product candidates in a timely or economic manner, or at all. If we are unable to successfully increase the manufacturing capacity for a product candidate, the regulatory approval or commercial launch of that product candidate may be delayed or there may be a shortage in the supply of the product candidate. Our product candidates require precise, high quality manufacturing that is subject to cGMP. Our failure or the failure of our third party manufacturers to achieve and maintain these high manufacturing standards and comply with the cGMP, including the incidence of manufacturing errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. In addition, our manufacturing facilities will be subject to unannounced inspections by the FDA, and significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve.

We rely on third parties to conduct our clinical trials, and those third-parties may not perform satisfactorily, including failing to meet established deadlines for the completion of such trials.

We do not have the ability to independently conduct clinical trials for our vaccine candidates, and we rely on third parties such as contract research organizations, medical institutions and clinical investigators to enroll qualified patients and conduct our clinical trials. Our reliance on these third parties for clinical development activities reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for and commercialize our vaccine candidates may be delayed or prevented.

We may be required to conduct clinical trials of our IS patch with flu vaccines developed by different manufacturers, which may lead to added cost and delay in approval and commercialization of our IS patch.

In order for our IS patch to gain approval from the FDA and to be used with commercially available injectable flu vaccines, we may need to conduct multiple clinical trials of our IS patch with multiple flu vaccines developed by different manufacturers. This may substantially expand the cost and time required for the clinical trials of our IS patch, which could delay its potential approval by the FDA and its commercialization.

The skin preparation systems used in connection with our product candidates may make our products less attractive to consumers.

We have observed in our product development efforts that the delivery of antigens and adjuvants to Langerhans cells through the skin is significantly improved by prepping the skin to disrupt the outer dead layer of skin, known as the stratum corneum. Based on animal studies, we believe that the method and level of skin preparation may differ from one product candidate to another because of the different physical properties of the active ingredients. Therefore, more than one skin preparation system (SPS) may be required for our different products to be effective. In recent clinical studies for our needle-free travelers’ diarrhea and flu vaccine patches, we have tested simple abrasive materials to disrupt the stratum corneum and are now working to design and test improved embodiments of

these materials for use in our upcoming clinical trials for our product candidates. We believe our SPS will be simple to perform and will not involve discomfort to the patient. However, to the degree that our SPS is not perceived to be simple to perform or involve patient discomfort, it could reduce the attractiveness of our products since alternative vaccines or treatments are available for many of the indications that our product candidates under development seek to address.

None of our product candidates has been approved for commercial sale, and we may never receive such approval.

All of our product candidates are in early pre-commercial stages, and we do not expect our product candidates to be commercially available for several years, if at all. We expect that each of our product candidates, consisting of a patch and one or more active ingredients, will be treated together as a separate investigational product by the FDA, even if any active ingredient is part of an existing approved product. None of the active ingredients in our product candidates have been approved by the FDA for commercial sale in any product. Our product candidates are subject to stringent regulation by regulatory authorities in the United States and in other countries. We cannot market any product candidate until we have completed our clinical trials and have obtained the necessary regulatory approvals for that product candidate. We do not know whether regulatory authorities will grant approval for any of our product candidates.

Conducting clinical trials and obtaining regulatory approvals are uncertain, time consuming and expensive processes. Our product candidates must complete rigorous preclinical testing and clinical trials. It will take us many years to complete our testing, and failure could occur at any stage of testing. Results of early trials frequently do not predict results of later trials, and acceptable results in early trials may not be repeated.

Even if we complete preclinical and clinical trials successfully, we may not be able to obtain regulatory approvals. Data obtained from preclinical and clinical studies are subject to varying interpretations that could delay, limit or prevent regulatory approval, and failure to observe regulatory requirements or inadequate manufacturing processes are examples of other problems that could prevent approval. In addition, we may encounter delays or rejections due to additional government regulation from future legislation, administrative action or changes in FDA policy. Even if the FDA approves a product, the approval will be limited to those indications encompassed in the approval; marketing the product for a different indication would require a supplementary application.

Outside the United States, our ability to market any of our potential products is contingent upon receiving marketing authorizations from the appropriate regulatory authorities. These foreign regulatory approval processes include all of the risks associated with the FDA approval process described above.

If our research and testing is not successful, or if we cannot show that our product candidates are safe and effective, we will be unable to commercialize our product candidates, and our business may fail.

If physicians and patients do not accept our products, we may be unable to generate significant revenue.

Even if any of our vaccine candidates obtain regulatory approval, they still may not gain market acceptance among physicians, patients and the medical community, which would limit our ability to generate revenue and would adversely affect our results of operations. Physicians will not recommend products developed by us or our collaborators until clinical data or other factors demonstrate the safety and efficacy of our products as compared to other available treatments. Even if the clinical safety and efficacy of our products is established, physicians may elect not to recommend these products for a variety of factors, including the reimbursement policies of government and third-party payors. There are other established treatment options for the diseases that many of our product candidates target, such as travelers’ diarrhea and the flu. In order to successfully launch a product based on our TCI technology, we must educate physicians and patients about the relative benefits of our products. If our products are not perceived as easy and convenient to use, for example as compared to an injectable vaccine or antibiotics, or are perceived to present a greater risk of side effects or are not perceived to be as effective as other available treatments, physicians and patients might not adopt our products. A failure of our technology to gain commercial acceptance would have a material adverse effect on our business. We expect that, if approved for commercialization, our needle-free travelers’ diarrhea vaccine patch will be paid for by patients out of pocket. Our needle-free travelers’ diarrhea vaccine patch is not designed to protect against all forms of travelers’ diarrhea, rather it is designed to

protect against only those cases of travelers’ diarrhea caused by enterotoxigenic E. coli bacteria, or ETEC, and in which the LT toxin is present. We estimate this to be approximately one-third of all cases of travelers’ diarrhea. This could limit commercial acceptance of this product. Because our needle-free flu vaccine patch and IS patch candidates are targeted at preventing or ameliorating the effects of flu infection, if the launch of these products for a particular flu season fails, we may not receive significant revenues from that product until the next season, if at all. See the risk factors set forth below entitled “Our competitors in the biopharmaceutical industry may have superior products, manufacturing capability or marketing expertise,” “Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products,” and “We have no experience in sales, marketing and distribution and will depend on the sales and marketing efforts of third parties.”

Our license to use TCI technology from The Walter Reed Army Institute of Research, or WRAIR, is critical to our success. Under some circumstances, WRAIR may modify or terminate our license or sublicense the TCI technology to third parties which could adversely affect our business.

We license substantially all of our patented and patentable TCI technology through an exclusive license from WRAIR, a federal government entity. This license will terminate automatically on the expiration date of the last to expire patent subject to the license, which, based on currently issued patents and our assumption that such patents will not be invalidated, would be February 2019. WRAIR may unilaterally modify or terminate the license if we, among other things:


	•	do not expend reasonable efforts and resources to carry out the development and marketing of the licensed TCI technology and do not manufacture, use, or operate products that use the TCI technology by April 2008 (subject to extension based upon a showing of reasonable diligence in developing the technology);

	•	do not continue to make our TCI-based products available to the public on commercially reasonable terms after we have developed such products;

	•	misuse the licensed TCI technology or permit any of our affiliates or sub-licensees to do so;

	•	fail to pay royalties or meet our other payment or reporting obligations under the license;

	•	become bankrupt; or

	•	otherwise materially breach our obligations under the license.

As we do not expect to have regulatory approval for any of our TCI-based product candidates by April 2008, we may need to seek an extension of the April 2008 milestone. If we violate the terms of the WRAIR license, or otherwise lose our licensed rights to the TCI technology, we would likely be unable to continue to develop our products. WRAIR and third parties may dispute the scope of our rights to the TCI technology under the license. Additionally, WRAIR may breach the terms of its obligations under the license or fail to prevent infringement or fail to assist us to prevent infringement by third parties of the patents underlying the licensed TCI technology. Loss or impairment of the WRAIR license for any reason could materially harm our financial condition and operating results.

In addition to WRAIR’s termination and modification rights described above, our license is subject to a non-exclusive, non-transferable, royalty-free right of the United States government to practice the licensed TCI technology for research and other governmental purposes on behalf of the United States and on behalf of any foreign government or international organization pursuant to any existing or future treaty or agreement with the United States. WRAIR also reserves the right to require us to grant sublicenses to third parties if WRAIR determines that:


	•	such sublicenses are necessary to fulfill public health and safety needs that we are not reasonably addressing;

	•	such sublicenses are necessary to meet requirements for public use specified by applicable United States government regulations with which we are not reasonably in compliance; or

	•	we are not manufacturing our products substantially in the United States.

Although we are currently the only party licensed to actively develop the TCI technology, we cannot assure you that WRAIR will not in the future require us to sublicense the TCI technology. Any action by WRAIR to force

us to issue such sublicenses or development activities instituted by the United States government pursuant to its reserved rights in the TCI technology would erode our ability to exclusively develop products based on the TCI technology and could materially harm our financial condition and operating results.

Licenses of technology owned by agencies of the United States government, including the WRAIR license, require that licensees — in this case, us — and our affiliates and sub-licensees agree that products covered by the license will be manufactured substantially in the United States. This may restrict our ability to contract for manufacturing facilities, if we attempt to do so, outside the United States and we may risk losing our rights under the WRAIR license, which could materially harm our financial condition and operating results.

If we are unable to protect our intellectual property, we may not be able to operate our business profitably.

We base our TCI technology in large part on innovations for which WRAIR has sought protection under the United States and certain foreign patent laws. We consider patent protection of our TCI technology to be critical to our business prospects. As of March 8, 2007, there are four issued United States patents, 23 issued foreign patents and 41 United States and foreign patent applications relating to TCI and improvements on the technology. The four issued United States patents will expire between November 2016 and February 2019. The issued foreign patents will expire between November 2016 and February 2019. Under our license agreement with WRAIR, we bear financial responsibility for the preparation, filing, prosecution and maintenance of any and all patents and patent applications licensed. With respect to enforcement, we have the right to bring actions to enforce patents licensed under the WRAIR license agreement, subject to WRAIR’s continuing right to intervene, and WRAIR maintains the right to bring enforcement actions if we fail to do so.

Patent protection in the field of biopharmaceuticals is highly uncertain and involves complex legal and scientific questions and has recently been the subject of much litigation. We cannot control when or if any patent applications will result in issued patents. Even if issued, our patents may not afford us protection against competitors marketing similar products. Neither the US Patent and Trademark Office nor the courts have a consistent policy regarding the breadth of claims allowed or the degree of protection afforded under many biopharmaceutical patents. The claims of our existing US patents and those that may issue in the future, or those licensed to us, may not offer significant protection of our TCI technology and other technologies. Our patents on transcutaneous immunization, in particular, are broad in that they cover the delivery of antigens and adjuvants to the skin to induce an immune response. While our TCI technology is covered by issued patents and we are not aware of any challenges, patents with broad claims tend to be more vulnerable to challenge by other parties than patents with more narrowly written claims. Patent applications in the United States and many foreign jurisdictions are typically not published until 18 months following their priority filing date, and in some cases not at all. In addition, publication of discoveries in scientific literature often lags significantly behind actual discoveries. Therefore, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in our issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in these patent applications. In addition, changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. Furthermore, our competitors may independently develop similar technologies or duplicate technology developed by us in a manner that does not infringe our patents or other intellectual property.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. We and our licensors seek to protect this information in part by confidentiality agreements with employees, consultants and third parties. These agreements may be breached, and there may not be adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business.

If the use of our technology conflicts with the intellectual property rights of third parties, we may incur substantial liabilities, and we may be unable to commercialize products based on this technology in a profitable manner, if at all.

Our competitors or others may have or acquire patent rights that they could enforce against us. In addition, we may be subject to claims from others that we are misappropriating their trade secrets or confidential proprietary information. If our technology conflicts with the intellectual property rights of others, they could bring legal action against us or our licensors, licensees, suppliers, customers or collaborators. If a third party claims that we infringe upon its proprietary rights, any of the following may occur:


	•	we may become involved in time-consuming and expensive litigation, even if the claim is without merit;

	•	we may become liable for substantial damages for past infringement if a court decides that our technology infringes upon a competitor’s patent;

	•	a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our patents; and

	•	we may have to redesign our product so that it does not infringe upon others’ patent rights, which may not be possible or could be very expensive and time-consuming.

If any of these events occurs, our business will suffer and the market price of our common stock will likely decline.

We may be involved in lawsuits to protect or enforce our patents or the patents of our collaborators or licensors, which could be expensive and time consuming.

Competitors may infringe our patents or the patents of our collaborators or licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings brought by the US Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications or those of our collaborators or licensors. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and be a distraction to our management. We may not be able, alone or with our collaborators and licensors, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other

interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

We depend on our key personnel, the loss of whom would adversely affect our operations. If we fail to attract and retain the talent required for our business, our business will be materially harmed.

We are a small company with 101 employees as of December 31, 2006, and we depend to a great extent on principal members of our management and scientific staff. If we lose the services of any key personnel, in particular, Stanley Erck, our President and Chief Executive Officer, or Gregory Glenn, our Chief Scientific Officer, it could significantly impede the achievement of our research and development objectives and could delay our product development programs and approval and commercialization of our product candidates. We do not currently have any key man life insurance policies. While we have entered into agreements with certain of our executive officers relating to severance after a change of control and these officers have agreed to restrictive covenants relating to non-competition and non solicitation, we have not entered into employment agreements with members of our senior management team other than Stanley Erck. Our agreement with Stanley Erck does not ensure that we will retain his services for any period of time in the future. Our success depends on our ability to attract and retain highly qualified scientific, technical and managerial personnel and research partners. Competition among biopharmaceutical and biotechnology companies for qualified employees is intense, and we may not be able to retain existing personnel or attract and retain qualified staff in the future. If we fail to hire and retain personnel in key positions, we will be unable to develop or commercialize our product candidates in a timely manner.

Our competitors may have superior products, manufacturing capability or marketing expertise.

Our business may fail because it faces intense competition from major pharmaceutical companies, specialized biopharmaceutical and biotechnology companies and drug development companies engaged in the development and production of vaccines, vaccine delivery technologies and other biopharmaceutical products. Several companies are pursuing programs that target the same markets we are targeting. In addition to pharmaceutical, biopharmaceutical and biotechnology companies, our competitors include academic and scientific institutions, government agencies and other public and private research organizations. Many of our competitors have greater financial and human resources and more experience. Our competitors may:


	•	develop products or product candidates earlier than we do;

	•	form collaborations before we do, or preclude us from forming collaborations with others;

	•	obtain approvals from the FDA or other regulatory agencies for such products more rapidly than we do;

	•	develop and validate manufacturing processes more rapidly than we do;

	•	obtain patent protection or other intellectual property rights that would limit our ability to use our technologies or develop our product candidates;

	•	develop products that are safer or more effective than those we develop or propose to develop; or

	•	implement more effective approaches to sales and marketing.

Alternative competitive technologies and products could render our TCI technology and our product candidates based on this technology obsolete and non-competitive. Presently, there are a number of companies developing alternative methods to the syringe for delivering vaccines. These alternative methods include microneedles, electroporations, microporations, jet injectors, nasal sprays and oral delivery, and several of these delivery mechanisms are in clinical trials.

While there are no vaccines against infection by ETEC that have been approved for sale in the United States, we are aware of several companies with ETEC vaccine product candidates that are in development, which, if approved, would compete against our needle-free travelers’ diarrhea vaccine patch. Those companies with potential ETEC vaccine candidates include Avant Immunotherapeutics, Inc., Crucell, N.V., Cambridge Biostability Ltd., SBL Vaccin AB (acquired by Crucell) and Emergent BioSolutions, Inc. One of our competitors, SBL Vaccin AB, has announced the results from a study of an ETEC vaccine indicating the vaccine may be effective in preventing

diarrhea caused by ETEC. In the absence of vaccines, travelers’ diarrhea is generally treated, either prophylactically or following onset, with antibiotics or over-the-counter, or OTC, products that alleviate symptoms. Some of these OTC products and antibiotics, such as Cipro, are marketed by pharmaceutical companies with substantial resources and enjoy widespread acceptance among physicians and patients. In addition, Salix Pharmaceuticals, Inc. has announced that it has completed a Phase 3 study and initiated another to evaluate the efficacy and safety of an antibiotic specifically designed to be taken prophylactically for the prevention of travelers’ diarrhea, and is targeting filing a license application in the first half of 2008.

There are multiple influenza vaccines approved for sale in both the United States and Europe. In many cases, these products are manufactured and distributed by pharmaceutical companies with substantial resources, such as Novartis AG, GlaxoSmithKline plc, sanofi-aventis SA, Solvay SA and MedImmune, Inc. FluMist, a nasal flu vaccine, has received marketing approval from the FDA and would compete against our needle-free flu vaccine. We are also aware of other flu vaccine candidates to be delivered by alternative methods, such as nasal spray and skin delivery, which, if approved, would compete against our needle-free flu vaccine. In addition, we know of multiple flu vaccine candidates that incorporate adjuvants to enhance immune responses, particularly in the elderly. Some of these adjuvanted flu vaccines are being developed by pharmaceutical companies with substantial resources, such as sanofi-aventis, GlaxoSmithKline and Novartis. These adjuvanted vaccines would compete against our IS patch for the elderly and for pandemic flu applications. For example, both GlaxoSmithKline and Novartis were awarded “dose-sparing” contracts by DHHS totaling $63.3 million and $54.8 million, respectively, in January 2007 to develop pandemic flu vaccines with their proprietary adjuvant systems. Both GlaxoSmithKline and Novartis have reported separately initial data indicating that low doses (3.8 ug and 7.5 ug, respectively) of their respective adjuvanted pandemic flu vaccines have elicited immune responses at levels considered protective by health authorities, as well as strong immune responses against “drifted” strains of pandemic flu that have changed over time. In addition, sanofi-aventis has a micro-injection flu vaccine in Phase 3 clinical trials aimed at providing a superior immune response in the elderly.

Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products.

We expect that most patients will rely on private health insurers, Medicare and Medicaid and other third party payors to pay for any products that we or our collaborators may market, other than our needle-free travelers’ diarrhea vaccine patch for which we expect patients will pay out-of-pocket. The continuing efforts of government and third party payors to contain or reduce the costs of health care through various means may limit our commercial opportunity. For example, in some foreign markets, pricing and profitability of prescription biopharmaceuticals are subject to government control. In the United States, we expect that there will continue to be a number of federal and state proposals to implement similar government controls. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of biopharmaceutical products. Cost control initiatives could decrease the price that we would receive for any products in the future.

Our ability to commercialize biopharmaceutical product candidates, alone or with third parties, could be adversely affected by cost control initiatives and also may depend in part on the extent to which reimbursement for the product candidates will be available from:


	•	government and health administration authorities;

	•	private health insurers; and

	•	other third party payors.

Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other third party payors increasingly attempt to contain health care costs by limiting both coverage and the level of reimbursement for new biopharmaceutical products and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. In the United States, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to market and sell our product candidates profitably. In particular, in December

2003, President Bush signed into law new Medicare prescription drug coverage legislation which went into effect on January 1, 2006. Under this legislation, the Centers for Medicare and Medicaid Services, or CMS, the agency within the Department of Health and Human Services that administers Medicare and is responsible for reimbursement of the cost of drugs, has asserted the authority of Medicare to elect not to cover particular drugs if CMS determines that the drugs are not “reasonable and necessary” for Medicare beneficiaries or to elect to cover a drug at a lower rate similar to that of drugs that CMS considers to be “therapeutically comparable.” Changes in reimbursement policies or health care cost containment initiatives that limit or restrict reimbursement for our products may cause our potential revenues to decline. Third party insurance coverage may not be available to patients for any product candidates we discover and develop, alone or through our strategic relationships. If government and other third party payors do not provide adequate coverage and reimbursement levels for our product candidates, the market acceptance of these product candidates may be reduced.

We have no experience in sales, marketing and distribution and will depend on the sales and marketing efforts of third parties.

We plan to establish marketing arrangements with third parties or major pharmaceutical companies and do not expect to establish direct sales capability for several years. However, these types of marketing arrangements might not be available on acceptable terms, or at all. In the future, to market any of our product candidates directly, we will need to develop a marketing and sales force with technical expertise and distribution capability. To the extent that we enter into marketing or distribution arrangements, any revenues we receive will depend upon the efforts of third parties. We cannot assure you that we will be successful in gaining market acceptance for any products we may develop.

Our business exposes us to potential product liability claims.

Our proposed products could be the subject of product liability claims. A failure of our product candidates to function as anticipated, whether as a result of the design of these products, unanticipated health consequences or side effects, or misuse or mishandling by third parties of such products, could result in injury. Claims also could be based on failure to immunize as anticipated. Tort claims could be substantial in size and could include punitive damages. We cannot assure you that any warranty disclaimers provided with our proposed products would be successful in protecting us from product liability exposure. Damages from any such claims could be substantial and could affect our financial condition.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of biopharmaceutical products. We have obtained clinical trial liability insurance for our clinical trials in the aggregate amount of $10 million. We cannot be certain that we will be able to maintain adequate insurance for our clinical trials. We also intend to seek product liability insurance in the future for products approved for marketing, if any. However, we may not be able to acquire or maintain adequate insurance at a reasonable cost. Any insurance coverage may not be sufficient to satisfy any liability resulting from product liability claims. A successful product liability claim or series of claims could have a material adverse impact on our operations.

We deal with hazardous materials that may cause injury to others and are regulated by environmental laws that may impose significant costs and restrictions on our business.

Our research and development programs and manufacturing operations involve the controlled use of potentially harmful biological materials such as toxins from E. coli and other hazardous materials. We cannot completely eliminate the risk of accidental contamination or injury to others from the use, manufacture, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have. We are also subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling or disposal of hazardous materials and waste products. If we fail to comply with these laws and regulations or with the conditions attached to our operating licenses, then our operating licenses could be revoked, we could be subjected to criminal sanctions and substantial liability and we could be required to suspend, modify or terminate our operations. We may also have to incur significant costs to comply with future environmental laws and regulations. We do not currently have a pollution and remediation insurance policy.

Until recently, we have operated as a private company and as a result, we have limited experience attempting to comply with public company obligations. Attempting to comply with these requirements will increase our costs and require additional management resources, and we still may fail to comply.

In February 2006, we closed our initial public offering. Previously, as a private company, we maintained a small finance and accounting staff. While we expect to continue to expand our staff, we may encounter substantial difficulty attracting qualified staff with requisite experience due to the high level of competition for experienced financial professionals.

We face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private company. Compliance with the Sarbanes Oxley Act of 2002, as well as other rules of the SEC, the Public Company Accounting Oversight Board and The Nasdaq Stock Market will result in a significant initial cost to us as well as an ongoing increase in our legal, audit and financial compliance costs. As a public company, we expect to become subject to Section 404 of the Sarbanes Oxley Act relating to internal control over financial reporting for the year ended December 31, 2007. We have only recently begun a formal process to evaluate our internal controls for purposes of Section 404, and we cannot assure that our internal control over financial reporting will prove to be effective.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Also, to account for our continued growth, as well the additional reporting obligations under the DHHS contract, we have installed a new accounting software system, which went live on January 1, 2007. Our experience with this new system is limited and could impact our ability to provide timely financial reports. We have only recently begun a formal process to evaluate our internal control over financial reporting. Given the status of our efforts, coupled with the fact that guidance from regulatory authorities in the area of internal controls continues to evolve, substantial uncertainty exists regarding our ability to comply by applicable deadlines. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Investment Risks

We expect that our stock price will fluctuate significantly, which may adversely affect holders of our stock and our ability to raise capital.

The stock market, particularly in recent years, has experienced significant volatility particularly with respect to pharmaceutical, biopharmaceutical and biotechnology stocks. The volatility of pharmaceutical, biopharmaceutical and biotechnology stocks often does not relate to the operating performance of the companies represented by the shares. Factors that could cause volatility in the market price of our common stock include:


	•	the timing and the results from our clinical trial programs;

	•	FDA or international regulatory actions;

	•	failure of any of our product candidates, if approved, to achieve commercial success;

	•	announcements of clinical trial results or new product introductions by our competitors;

	•	market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors;

	•	developments concerning intellectual property rights;

	•	litigation or public concern about the safety of our potential products;


	•	actual and anticipated fluctuations in our quarterly operating results;

	•	deviations in our operating results from the estimates of securities analysts;

	•	additions or departures of key personnel;

	•	third party reimbursement policies; and

	•	developments concerning current or future strategic alliances.

These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock and our ability to raise capital.

If the price and volume of our common stock experience extreme fluctuations, then we could face costly litigation.

In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation. Whether or not meritorious, if any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management and harm our ability to grow our business.

Our directors and management exercise significant control over our company.

Our directors and executive officers and their affiliates collectively control approximately 43.5% of our outstanding common stock. These stockholders, if they act together, may be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. The concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock.

We may not achieve our projected development goals in the time frames we announce and expect.

We set goals for and make public statements regarding timing of the accomplishment of objectives material to our success, such as the commencement and completion of clinical trials. The actual timing of these events can vary dramatically due to factors such as delays or failures in our clinical trials, the uncertainties inherent in the regulatory approval process and delays in achieving manufacturing or marketing arrangements sufficient to commercialize our products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive regulatory approvals as planned or that we will be able to adhere to our current schedule for the launch of any of our products. If we fail to achieve one or more of these milestones as planned, the market price of our shares could decline.

Provisions of Delaware law or our charter documents could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for you to change management.

Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. This is because these provisions may prevent or frustrate attempts by stockholders to replace or remove our current management or members of our board of directors.

These provisions include:


	•	a staggered board of directors;

	•	a prohibition on stockholder action through written consent;


	•	a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, or the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors;

	•	advance notice requirements for stockholder proposals and nominations; and

	•	the authority of the board of directors to issue preferred stock with such terms as it may determine.

As a result, these provisions and others available under Delaware law could limit the price that investors are willing to pay in the future for shares of our common stock.

Because we do not expect to pay dividends in the foreseeable future, you must rely on stock appreciation for any return on your investment.

We have paid no cash dividends on any of our capital stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future, and payment of cash dividends, if any, will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Accordingly, the success of your investment in our common stock will likely depend entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value after you purchase them or even maintain the price at which you purchased your shares, and you may not realize a return on your investment in our common stock.


Item 1B.	*Unresolved Staff Comments*

Not applicable.


Item 2.	*Properties*

We currently lease approximately 46,449 square feet of research, manufacturing and administrative space in Gaithersburg, Maryland for our principal laboratories, pilot manufacturing facility and corporate offices. In January 2007, we signed a lease amendment under which we will lease an additional 1,365 square feet in our current facility beginning on or about July 1, 2007 and an additional 5,650 square feet in our current facility beginning on our about September 1, 2007. At that time, we will occupy the entire facility. The lease expires in May 2013 and has a five-year renewal option.


Item 3.	*Legal Proceedings*

We are not party to any material legal proceedings.


Item 4.	*Submission of Matters to a Vote of Security Holders*

No matters were submitted to stockholders for a vote during the fourth quarter of 2006.

Executive Officers of the Registrant

The following table sets forth the names and ages of our executive officers as of December 31, 2006.

Stanley C. Erck. Mr. Erck has served as President, Chief Executive Officer, Treasurer and Director since May 2000. Mr. Erck has 30 years of management experience in healthcare and biotechnology. Mr. Erck has worked at

Baxter International, Procept, and Integrated Genetics. Mr. Erck has a B.S. from the University of Illinois and an M.B.A. from the University of Chicago.

Gregory M. Glenn, M.D. Dr. Glenn has served as Senior Vice President and Chief Scientific Officer since September 1997 and was a Director from February 1998 through May 2000. Dr. Glenn is the co-discoverer of the TCI technology and a co-founder of Iomai. He has been responsible for the conception, implementation and development of the basic science and early clinical trials relating to TCI, and has multiple patents, publications and book chapters describing TCI. Dr. Glenn is a pediatrician who completed the Medical Research Fellowship at the Walter Reed Army Institute of Research, or WRAIR, where he continued his research in vaccine delivery while on active duty. He received a B.A. from Whitman College and his M.D. from Oral Roberts University School of Medicine, where he received the Pediatrics Award and Dean’s Award for Academic Excellence.

Russell P. Wilson. Mr. Wilson has served as Senior Vice President since May 2005, Chief Financial Officer since June 2002, General Counsel since March 2000 and Secretary since May 2000, and served as Vice President, Business Development from March 2000 to June 2002. Mr. Wilson received a B.A. from Princeton University and holds a joint M.B.A./J.D. degree from the University of Virginia.

PART II


Item 5.	*Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Our common stock has been traded on The NASDAQ Global Market under the symbol “IOMI” since February 1, 2006.

The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on the NASDAQ Global Market.


	High		Low

2006
First Quarter (beginning February 1, 2006)	$	7.34	$	5.22
Second Quarter		6.00		3.91
Third Quarter		4.81		2.61
Fourth Quarter		6.40		4.60

As of March 14, 2007, there were approximately 166 registered holders and approximately 1,290 beneficial owners of our common stock.

We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance operations. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants and other factors that our board of directors may deem relevant.

Securities Authorized For Issuance Under Equity Compensation Plans

The following table summarizes the number of securities issuable under our incentive compensation plans as of December 31, 2006.

Number of Securities

Remaining Available for

to Be Issued

Weighted-average

Future Issuance Under

Upon Exercise of

Exercise Price of

Equity Compensation Plan

Outstanding Options,

(Excluding Securities

Warrants and Rights(1)

Warrants and Rights

Reflected in Column(a))(2)

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

2,918,805

2.93

182,648

Equity compensation plans not approved by security holders

—

Total

2,918,805

182,648


(1)		Includes (i) outstanding options to purchase 50,380 shares of common stock under the 1998 Plan, of which 50,380 have been vested; and (ii) outstanding awards to purchase 1,808,664 shares of common stock under the 1999 Plan, of which 1,137,396 have been vested; and (iii) outstanding awards to purchase 1,059,761 shares of common stock under the 2005 Plan, of which 7,775 have been vested. Options granted under the 1999 Plan to purchase 52,199 shares of common stock were exercised prior to December 31, 2006.

(2)		Includes (i) up to 26,543 shares of common stock that may be issued under the 1998 Plan; (ii) up to 156,105 shares of common stock that may be issued under the 1999 Plan; and (iii) no shares of common stock that may be issued under the 2005 Plan. Does not include up to 80,000 shares that may be issued under the 2006 Employee Stock Purchase Plan which became effective upon our initial public offering.


Item 6.	*Selected Financial Data*

The following table sets forth selected financial data that is qualified in its entirety by and should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K. The financial data for the fiscal years ended December 31, 2006, 2005 and 2004 are derived from our audited financial statements appearing elsewhere in this document. The financial data for the fiscal years ended December 31, 2003 and 2002 are derived from our audited financial statements not included in this document.


	Years Ended December 31,
Statement of Operations Data:	2002			2003			2004			2005			2006
	(In thousands, except share and per share data)

Revenues:
License, option agreements and grants	$	995		$	1,601		$	2,345		$	2,371		$	1,475

Total revenues		995			1,601			2,345			2,371			1,475
Cost and expenses:
Research and development		7,354			13,332			14,349			16,529			28,041
General and administrative		2,411			3,348			3,206			3,780			5,857
Purchased in-process research and development		2,517
Reimbursed by related party		(426	)

Total costs and expenses		11,856			16,680			17,555			20,309			33,898
Loss from operations		(10,861	)		(15,079	)		(15,210	)		(17,938	)		(32,423	)
Other (expense) income:
Gain on discharge of convertible notes payable		11,219
Interest income		57			953			620			392			1,006
Interest expense		(2,120	)		(128	)		(265	)		(467	)		(377	)
Other expense, net		(75	)		(448	)		(225	)		(17	)		(8	)

Total other (expense) income, net		9,081			377			130			(92	)		621
Cumulative effect of change in accounting principle														17
Net loss		(1,780	)		(14,702	)		(15,080	)		(18,030	)		(31,785	)
Dividends on and accretion of convertible preferred stock		(380	)		(5,466	)		(5,525	)		(5,562	)		(471	)
Carrying value of preferred stock in excess of fair value transferred		11,092

Net income (loss) available to common stockholders	$	8,932		$	(20,168	)	$	(20,605	)	$	(23,592	)	$	(32,256	)
Net income (loss) per share of common stock — basic and diluted	$	11.79		$	(26.43	)	$	(26.90	)	$	(30.14	)	$	(2.03	)

Weighted average shares of common stock outstanding — basic and diluted		757,402			763,075			765,945			782,715			15,915,797


	As of December 31,
Balance Sheet Data:	2002			2003			2004			2005			2006
	(In thousands)

Cash, cash equivalents and marketable securities	$	49,493		$	38,213		$	22,397		$	5,190		$	15,336
Working capital		47,263			34,945			18,878			270			10,401
Total assets(1)		51,398			41,511			28,942			11,861			23,085
Debt and capital lease obligations		706			2,966			5,273			4,239			4,759
Redeemable convertible preferred stock and Series C warrant		52,435			59,555			65,357			70,386			—
Common stock subject to put right		1,958			1,958			1,958			1,959			—
Total stockholders’ equity (deficit)		(6,533	)		(26,038	)		(45,993	)		(68,458	)		14,035


(1)		As of December 31, 2006, we had net operating loss (NOL) and research and development credit carryforwards of approximately $83.7 million. Tax benefits may arise from these carryforwards in the future in the event that we realize U.S. taxable income. Potential tax benefits arising from these carryforwards are not reflected in our total assets. Despite the NOL carryforward, we may have an income tax liability in future years due to the application of the alternative minimum tax rules. The NOL may also be limited in its ability to offset future losses in the event that there is a change in the stock ownership as defined by federal tax regulations.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this annual report on Form 10-K. This discussion contains forward-looking statements, which are identified under our “Cautionary Statement Regarding Forward-Looking Statements” at the beginning of this report, that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Item 1A and elsewhere in this annual report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

OVERVIEW

We are a biopharmaceutical company focused on the discovery, development and commercialization of vaccines and immune system stimulants delivered to the skin via a novel, needle-free technology called transcutaneous immunization (TCI). TCI exploits the unique benefits of a major group of antigen-presenting cells found in the outer layers of the skin (Langerhans cells) to generate an enhanced immune response. TCI has the potential to enhance the efficacy of existing vaccines, enable new vaccines that are viable only through transcutaneous administration and expand the global vaccine market. We are developing two distinct product applications: (1) an immunostimulant, or IS, patch and (2) a needle-free vaccine patch. We currently have five product candidates in development: four targeting influenza and pandemic flu and one to prevent E. coli-related travelers’ diarrhea.

Our five product candidates are (1) an IS patch intended to stimulate an immune response to even small doses of a pandemic flu vaccine, thereby extending vaccine supply in the event of an influenza pandemic, (2) an IS patch intended to boost the immune response of the elderly to the standard flu vaccine, (3) a needle-free vaccine patch for seasonal flu, (4) a needle-free pandemic flu vaccine patch, and (5) a needle-free travelers’ diarrhea vaccine patch. None of our product candidates has been approved for commercial sale by the FDA or any comparable foreign agencies.

As of December 31, 2006, we had an accumulated deficit of $100.8 million. We expect to incur substantial expenses over the next several years as we continue the clinical development of our IS patch to extend the supply of pandemic flu vaccines, our needle-free flu vaccine patch, IS patch for elderly receiving flu vaccines; expand the clinical trial program for our needle-free travelers’ diarrhea vaccine patch; continue our existing preclinical development programs, including our needle-free pandemic flu vaccine program, and commence new programs; increase our manufacturing capabilities for product candidates; and expand our research and development activities.

We anticipate that a substantial portion of our efforts throughout 2007 will be focused on conducting additional development for our four product candidates in clinical development, as well as continue to build up our infrastructure to support our operations as a public company.

Management Review of 2006

The following is a summary of key events that occurred during 2006:


	•	On February 6, 2006, we closed our initial public offering, in which we sold 5,000,000 shares of common stock at a public offering price of $7.00 per share. Net proceeds, before expenses, were $32,853,574. Our total expenses for the initial public offering were $1.9 million, so our total net proceeds, after expenses, were $30.9 million.

	•	In February 2006, the National Institutes of Health, or NIH, awarded us the remaining $1.4 million available under the last year of a two-year grant to fund up to $2.9 million for further development of our IS technology for pandemic flu applications. We completed work under this grant in the second quarter of 2006.

	•	In May 2006, we submitted to the Department of Health and Human Services, or DHHS, a response to the government’s request for proposal (RFP) for further development of our IS patch for pandemic influenza vaccines. This patch is designed to enhance the immune response to any manufactured pandemic influenza vaccine, an advantage that may allow the public health service to employ a universal dose-sparing strategy to extend the supply of vaccine. In January 2007, DHHS awarded us a five-year, cost-plus reimbursement contract to fund our development of a dose-sparing patch for use with a pandemic flu vaccine. If the product is developed through licensure, the total cost reimbursed by DHHS, plus a fixed fee, is estimated to be $128 million. During the first 15 months of the contract, DHHS has allotted approximately $14.5 million for us to assess the safety and immunogenicity of the patch in two clinical trials and to develop plans on how we would produce 150 million IS patches in a six-month period, as required under the contract. Once we demonstrate the safety and dose-sparing capability of our IS patch, we hope to sell up to 150 million IS patches to the United States government for its stockpile of pandemic flu products.

	•	During 2006, we completed a number of Phase 1 and 2 studies to further advance our dry vaccine patch for travelers’ diarrhea. These trials demonstrated, among other things, that our current dry patch formulation achieved high immune responses in those vaccinated and outperformed our earlier liquid-based patch and that our travelers’ diarrhea vaccine patch can be self-applied by individuals, not just by healthcare providers. We also have gathered data that shows that the dry patch is stable for more than 12 months at room temperature. All of this data could also have important implications not only for our travelers’ diarrhea program, but for our other programs, particularly our influenza programs, and could form the basis for our development of vaccine patches that could be stockpiled, mailed and self-applied — all important considerations in the event of a pandemic influenza outbreak. We also initiated during 2006 a Phase 2 dose-ranging study for our travelers’ diarrhea vaccine patch, as well as a Phase 2 field study designed to evaluate the logistics around how to best conduct a larger pivotal field study for our travelers’ diarrhea program. We expect data from these two trials to be available during the second quarter of 2007. Based on these data, we will design an additional Phase 2 trial to determine the final dry patch formulation, and that trial is expected to commence in the fourth quarter of 2007.

	•	During the fall of 2006, we initiated a large, multi-center Phase 1 trial for our needle-free flu vaccine patch. This study is designed to test the safety and immunogenicity of our needle-free flu vaccine in comparison with the traditional injected vaccine. Vaccinations were completed during the first quarter of 2007, and we expect interim data from this trial to be available by the middle of 2007. We expect this data to guide us in our design for a Phase 2 program that could potentially support licensure of a self-administered, needle-free flu vaccine patch. As we do not manufacture commercial flu antigens, we are also actively seeking to collaborate with suppliers of commercial flu antigens in order to advance further development of this program.


	•	In May 2006, we negotiated an extension of our credit facility to finance up to $2 million of additional capital expenditures for our pilot manufacturing plant, as well as for our research and development laboratories. We drew down the entire $2 million during 2006.

	•	By the end of third quarter of 2007, we will occupy the entire facility which houses our principal laboratories, pilot manufacturing facility and corporate offices in approximately 53,500 square feet. In July 2006, we amended our lease for the facility to add approximately 12,000 square feet, and in January 2007, we signed another amendment to lease the remaining approximately 7,000 square feet in the building over the course of first nine months of 2007.

	•	Over the past six months, we have raised approximately $40.2 million in net proceeds through two separate private placements. In October 2006, we raised approximately $9.9 million in net proceeds when we sold 2,283,106 shares of our common stock at a price of $4.38 per share in a private placement to existing stockholders, Essex Woodlands Health Ventures and New Enterprise Associates (NEA). Then in early March 2007, we raised $30.3 million in net proceeds when we sold 6,291,828 units, each unit consisting of one share of our common stock and two warrants to purchase, in total, 0.7 additional shares of Common Stock, at a purchase price of $5.0675 per unit. The purchase price for the share component of each unit is $4.98 per share. Each warrant provides the right to acquire 0.35 shares of Common Stock at an exercise price of $5.25 per full share. One warrant is exercisable at any time until March 2, 2012, and the other warrant is exercisable at any time until the date four months after a registration statement for the resale of the shares and the common stock underlying the warrants is declared effective by the SEC.

HISTORICAL RESULTS OF OPERATIONS / LIQUIDITY & CAPITAL RESOURCES

Revenues

Our revenues to date have principally been limited to amounts we have received under U.S. federal grant programs. During 2006, we had one principal active grant, which the NIH originally awarded us in January 2005 to fund over two years up to $2.9 million for further development of our IS technology for pandemic influenza applications. In the first quarter of 2006, the NIH awarded us the $1.4 million remaining to be received under this grant for 2006. Through December 31, 2006, we have been reimbursed for the full $1.4 million of expenses under this grant. These amounts include reimbursement for our employees’ time and benefits and other expenses related to performance under the relevant grants.

Research and development expenses

Our research and development expenses consist primarily of:


	•	salaries and related expenses for personnel;

	•	fees paid to consultants and clinical research organizations in conjunction with their monitoring our clinical trials and acquiring and evaluating data in conjunction with our clinical trials;

	•	consulting fees paid to third parties in connection with other aspects of our product development efforts;

	•	fees paid to research organizations in conjunction with preclinical animal studies;

	•	costs of materials used in research and development;

	•	depreciation of facilities and equipment used to develop our product candidates; and

	•	milestone payments, license fees, and royalty payments for technology licenses.

We expense both internal and external research and development costs as incurred, other than those capital expenditures that have alternative future uses, such as the build-out of our pilot plant. Due to the risks inherent in the clinical trial process and the early stage of development of our product candidates, we do not currently track our internal research and development costs by program and cannot state precisely the costs incurred for each of our

research and development programs. However, the following table shows, for the periods presented, our estimate of the total costs that have been incurred for our lead product candidates: from January 1, 2003 to December 31, 2006:


	Years Ended December 31,				Cumulative Since
Product Candidate	2006		2005		January 1, 2003
	(In thousands)

IS patch for pandemic flu	$	2,593	$	2,409	$	5,006
IS patch for elderly receiving flu vaccines		1,262		1,545		15,816
Needle-free flu vaccine patch		5,889		4,895		13,093
Needle-free travelers’ diarrhea vaccine patch		16,726		5,641		26,927
Other programs		1,571		2,039		11,407

TOTAL		28,041		16,529		72,249

We expect our research and development costs will continue to be substantial and that they will increase as we advance our current portfolio of product candidates through clinical trials and move other product candidates into preclinical and clinical trials.

General and administrative expense

General and administrative expense consists primarily of compensation for employees in executive and operational functions, including finance and accounting, business development, and corporate development. Other significant costs include facilities costs and professional fees for accounting and legal services. With the completion of our initial public offering, our general and administrative expenses have increased due to increased costs for insurance, professional fees, public company reporting requirements, and investor relations costs associated with operating as a publicly-traded company. In addition, there will likely be further increases going forward related to the hiring of additional personnel.

RESULTS OF OPERATIONS

Comparison of the years ended December 31, 2006 and 2005


	Year Ended December 31,
	2006			2005			$ Change			% Change
	(In thousands, except percentages)

Revenues	$	1,475		$	2,371		$	(896	)		(37.8	)%
Costs & Expenses:
Research & development		28,041			16,529			11,512			69.6	%
General & administrative		5,857			3,780			2,077			54.9	%

Total costs & expenses		33,898			20,309			13,589			66.9	%
Other income (expense)		621			(92	)		713			775.0	%
Cumulative effect of a change in accounting principle		17			—			17			—

Net loss	$	(31,785	)	$	(18,030	)	$	(13,755	)		76.3	%

Revenues. The $0.9 million decrease in grant revenues was principally the result of fewer active grants in 2006. The principal grant revenue in 2006 was from the second-year award under our NIH grant to further development of our IS patch technology for pandemic flu applications, which ended in the second quarter of 2006. There was only one other small active grant in the second half of 2006. Grant revenues in 2005 were principally from reimbursable expenses incurred under the first year of our NIH grant to further development of our IS patch technology for pandemic flu applications, as well as revenues from a cancer grant that ended in the fourth quarter of 2005.

Research and Development Expenses. The $11.5 million increase in research and development expenditures was driven by three major factors associated with supporting our clinical and product development programs:

(1) increased clinical trial activity, (2) increased development costs for our skin preparation system; and (3) higher payroll costs associated with a 41% increase in headcount and the expensing of stock options. These increased costs were partially offset by lower depreciation and amortization costs associated with our pilot manufacturing plant in 2006. Prior to signing the lease extension for our facility in October 2005, we amortized all leasehold improvements for the facility over the lesser of the useful life or the expiration of the lease term, which was May 2006. Once we entered into the lease extension, the amortization period for the remaining unamortized leasehold improvements was extended to May 2013.

General and Administrative Expenses. The $2.1 million increase in general and administrative expenses was principally due to (1) higher payroll costs associated with expensing stock options, (2) higher insurance, legal, and investor relation costs associated with being a public company, and (3) higher facilities cost associated with leasing additional space in our facility.

Interest Income (Expense) and Other — Net. The net interest and other income reflects the interest received on our cash and marketable securities, offset by interest expense on financing to purchase equipment and leasehold improvements, and the amortization income / expense associated with the purchase of marketable securities at a discount or premium. The increase in other income was primarily the result of amortization income associated with securities purchased at a discount after our initial public offering in February 2006.

Net Loss. The $13.8 million increase in our net loss was principally a result of increased research and development expenses in the year ended December 31, 2006.

Comparison of the years ended December 31, 2005 and 2004


	Year Ended December 31,
	2005			2004			$ Change			% Change
	(In thousands, except percentages)

Revenues	$	2,371		$	2,345		$	26			1.1	%
Costs & Expenses:
Research & development		16,529			14,349			2,180			15.2	%
General & administrative		3,780			3,206			574			17.9	%

Total costs & expenses		20,309			17,555			2,754			15.7	%
Other (expense) income		(92	)		130			(222	)		(170.8	)%

Net loss	$	(18,030	)	$	(15,080	)	$	(2,950	)		19.6	%

Revenues. The slight increase in grant revenues is principally the result of revenues from the NIH grant awarded in January 2005 for further development of our IS patch technology for pandemic flu applications, which was offset by a decline in reimbursable activities in 2005 under other grants for our needle-free patch programs.

Research and Development Expenses. The $2.2 million increase in research expenditures was driven by three major factors associated with supporting our clinical and product development programs: (1) increased preclinical study costs as a result of higher charges for services and continuing development of preclinical models; (2) increased depreciation and amortization costs associated with our pilot manufacturing facility, which was put into service in July 2004; and (3) higher payroll costs associated with a 25% increase in headcount and expensing of stock options. These increased costs were partially offset by lower clinical trial costs and contract manufacturing expenses, both of which were higher during 2004 as we initiated five clinical trials during 2004.

General and Administrative Expenses. The $0.6 million increase in general and administrative expenses was principally due to consulting expenses associated with evaluating potential corporate collaborations, higher legal costs associated with prosecuting our patent portfolio, and higher payroll costs associated with expensing stock options.

Interest Income (Expense) and Other — Net. Our net interest and other expense was approximately $92,000 for 2005, as compared to net interest and other income of approximately $130,000 for 2004. The net interest and other income reflects the interest received on our cash and marketable securities, offset by interest expense on financing to purchase equipment and leasehold improvements. The decrease in net interest and other income was a

result of lower interest income because of declining cash balances and higher interest expense associated funds borrowed to finance the construction of our pilot manufacturing facility.

Net Loss. The $3.0 million increase in our net loss was principally a result of increased research and development expenses in 2005.

Liquidity and capital resources

We have incurred annual operating losses since inception, and, as of December 31, 2006, we had an accumulated deficit of $100.8 million. We expect to incur increasing and significant losses over the next several years as we continue our clinical trials, apply for regulatory approvals, continue development of our technologies, and expand our operations. Since our inception, we have financed our operations primarily through the sale of equity securities, interest income earned on cash, cash equivalents, and short-term investment balances, and debt. We have also generated funds from collaborative partners and research grants.

As of December 31, 2006 we had approximately $15.3 million in unrestricted cash, cash equivalents, and marketable securities. We invest in cash equivalents and US government and agency obligations. Our investment objectives are, primarily, to assure liquidity and preservation of capital and, secondarily, to obtain investment income. All of our marketable securities are classified as available-for-sale. These securities are carried at fair value, plus any accrued interest. We have used cash primarily to finance our research operations, including clinical trials. These costs will be offset by reimbursements from DHHS under our pandemic flu contract, which was awarded in January 2007. DHHS has allotted approximately $14.5 million in the first 15 months of that contract and we expect to be reimbursed for research, development and capital costs associated with the preclinical and clinical testing of the IS patch under the contract on a monthly basis. Also, in March 2007, we closed a private placement in our common stock in which we raised approximately $30.3 million in net proceeds.

We expect that we will be able to fund our capital expenditures and growing operations with our current working capital through the second quarter of 2008. In order to fund our needs subsequently, we will need to raise additional money and may seek to do so by: (1) out-licensing technologies or product candidates to one or more corporate partners, (2) completing an outright sale of assets, (3) securing debt financing, and/or (4) selling additional equity securities. Our ability to successfully enter into any such arrangements is uncertain, and, if funds are not available, or not available on terms acceptable to us, we may be required to revise our planned clinical trials, other development activities, capital expenditure requirements, and the scale of our operations. We expect to attempt to raise additional funds in advance of depleting our existing cash balances; however, we may not be able to raise funds or raise amounts sufficient to meet the long-term needs of the business. Satisfying long-term needs will require the successful commercialization of our product candidates and, at this time, we cannot reliably estimate if or when that will occur.

Our future cash requirements include, but are not limited to, supporting our clinical trial efforts and continuing our other research and development programs. We have entered into various agreements with institutions and clinical research organizations to conduct and monitor our current clinical studies. Under these agreements, subject to the enrollment of patients and performance by the applicable institution of certain services, we have estimated our potential payments to be $14.3 million over the term of currently ongoing studies. Through December 31, 2006, approximately $7.7 million of this amount has been expensed as research and development expenses and $6.3 million has been paid related to these clinical studies. The timing of our expense recognition and future payments related to these agreements are subject to the enrollment of patients and performance by the applicable institutions of certain services. The actual amounts we pay out, if any, will depend on a range of factors outside of our control, including the success of our pre-clinical and clinical development efforts with respect to any products being developed, the content and timing of decisions made by the FDA and other regulatory authorities, and other factors affecting future operating results. As we expand our clinical studies, we plan to enter into additional agreements.

The following table summarizes sources and uses of cash and cash equivalents for the years ended December 31, 2006 and 2005.


	Years Ended December 31,
	2006			2005			$ Change
	(In thousands)

Net cash used in operating activities	$	(28,866	)	$	(14,304	)	$	(14,562	)
Net cash (used in) provided by investing activities		(4,357	)		14,056			(18,413	)
Net cash provided by (used in) financing activities		41,880			(1,504	)		43,384
Net increase (decrease) in cash and cash equivalents		8,657			(1,752	)		10,409
Cash and cash equivalents at end of period	$	13,847		$	5,190		$	8,657

The $14.6 million increase in net cash used in operations was primarily attributable to the increase in net loss from the prior period. As we develop our technologies and further our clinical trial programs, we expect to increase our spending. Our future ability to generate cash from operations will depend on achieving regulatory approval of our products, market acceptance of such products, and our ability to enter into collaborations.

The $18.4 million increase in net cash used in investing activities was principally the result of investing the proceeds from our initial public offering in February 2006. For the year ended December 31, 2006, we invested $17.7 million of our available cash in marketable securities and received proceeds of $16.5 million from the maturity of such investments, as compared to $6.8 million of our available cash invested in marketable securities and $22.1 million received in proceeds from the maturity of such investments for the year ended December 31, 2005. Additionally, for the year ended December 31, 2006, we invested approximately $3.5 million in the purchase of equipment, furniture, and fixtures, for our pilot manufacturing facility and our build-out of additional office and laboratory space, as compared to approximately $1.3 million for such purchases in 2005.

The $43.3 million increase in net cash provided by financing activities was principally the result of the $30.9 million in net proceeds from the company’s initial public offering in February 2006, and from $9.9 million in net proceeds from a private placement to existing stockholders in October 2006. During 2006 and 2005, net proceeds from debt borrowings, including landlord leasehold financing, totaled $2.3 million and $0.5 million, respectively, as we financed the build-out of additional office space and the purchase of additional equipment. During 2006, we repaid $1.8 million of our debt, as compared to $1.5 million during the comparable period in 2005.

The following summarizes our long-term contractual obligations as of December 31, 2006:


	Payments Due by Period
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(In thousands)

Long-Term Debt(1)	$	5,772	$	1,964	$	2,410	$	935	$	463
Capital Lease Obligations		1		1		—		—		—
Operating Lease Obligations(2)		7,921		1,074		2,433		2,532		1,882

Total	$	13,694	$	3,039	$	4,843	$	3,467	$	2,345


(1)		Includes interest payable in the period.

(2)		These amounts include payments for additional facility space leased under a lease amendment signed in January 2007. See discussion of amended lease terms below.

In January 2007, we amended our lease to acquire access to approximately 7,000 square feet in the building over the course of first nine months of 2007. Upon leasing the additional space, we will lease the entire building.

Under our existing license agreements, we could be required to pay up to a total of $800,000 for each product candidate in milestone payments through product approval, in addition to sales milestones, and royalties on commercial sales, if any occur.

Our future capital uses and requirements depend on numerous forward-looking factors. These factors include but are not limited to the following:


	•	the progress and costs of preclinical development and laboratory testing and clinical trials;

	•	the time and costs involved in obtaining regulatory approvals;

	•	delays that may be caused by evolving requirements of regulatory agencies;

	•	our ability to establish, enforce, and maintain collaborations required for product commercialization;

	•	the number of product candidates we pursue;

	•	the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;

	•	our plans to establish sales, marketing, and/or manufacturing capabilities;

	•	the acquisition of technologies, products, and other business opportunities that require financial commitments; and

	•	our revenues, if any, from successful development and commercialization of our products.

As of December 31, 2006, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. Therefore, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included in this report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition. We recognize revenue when all terms and conditions of the agreements have been met, including persuasive evidence of an arrangement, services have been rendered, price is fixed or determinable, and collectability is reasonably assured. For reimbursable cost research grants, we recognize revenue as costs are incurred once the grant funding is authorized. Funding of government grants beyond the U.S. government’s current fiscal year is subject to annual congressional appropriations, and the Company cannot recognize revenue for subsequent years until the period in which such funding is duly authorized. Provisions for estimated losses on research grant projects and any other contracts are made in the period such losses are determined.

Research and Development Costs. We expense our research and development costs as incurred.

Stock-Based Compensation. We have four stock-based employee compensation plans, described more fully in Note 5 to the Financial Statements, and we record compensation expense based upon the fair value of stock-based awards. Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). The recognition provisions have been applied to all employee awards granted, modified, or settled after January 1, 2003.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), “Share-Based Payment” (Statement 123(R)), using the modified-prospective-transition method. As we have expensed options since 2003, the adoption of Statement 123(R) did not have a material impact on our stock-

based compensation expenses for the first quarter of 2006, and management believes that the adoption of Statement 123(R) will not have a material impact on its financial statements going forward. We have continued to use the Black-Scholes formula to estimate the value of stock-based awards with the adoption of Statement 123(R).

With the adoption of Statement 123(R), we recognized in our statement of operations for the year ended December 31, 2006 a one-time charge recorded as the cumulative effect of a change in accounting principle, which reflects an estimate of forfeitures for unvested awards outstanding as of the adoption of Statement 123(R). This charge represents a reduction in the compensation cost for prior periods for any unvested options remaining that would not have been recognized in those prior periods had forfeitures for such unvested options been estimated during those prior periods. The cumulative effect for this change in accounting principle totaled $16,726 and is recorded on the statement of operations for the year ended December 31, 2006.

As of December 31, 2006, we anticipate recognizing approximately $3.5 million of total unrecognized compensation expense, less estimated forfeitures, related to nonvested options under the stock compensation plans in future periods. These expenses are expected to be recognized over a weighted-average period of 2.1 years.

Based on the closing price of our stock on December 29, 2006, the intrinsic value of options outstanding as of that date was $6.0 million, of which $3.6 million related to vested options and $2.4 million related to unvested options.

We account for equity instruments issued to nonemployees under the provisions of SFAS 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in conjunction with, Selling, Goods and Services. Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the performance commitment date or the date the services required are completed.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are in short-term US government and agency debt securities. The market value of these investments fluctuates with changes in current market interest rates. In general, as rates increase, the market value of a debt investment would be expected to decrease. Likewise, as rates decrease, the market value of a debt investment would be expected to increase. To minimize such market risk, we generally hold these instruments to maturity at which time they are redeemed at their stated or face value. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure.

The interest rates on our debt obligations are fixed so repayment of these obligations is not subject to any material market risk exposure.

We do not have any foreign currency or other derivative financial instruments.


Item 8.	*Financial Statements and Supplementary Data*

Financial Statements and Supplementary Data are submitted as a separate section of this report commencing on Page F-1.


Item 9.	*Changes in and Disagreements With Accountants on Accounting and Financial Disclosure*

Not Applicable.


Item 9A.	*Controls and Procedures*

Disclosure Controls and Procedures

We currently have in place systems relating to disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Our principal executive officer and our principal financial officer evaluated the effectiveness of these disclosure controls and procedures as of the end of

our 2006 fiscal year in connection with the preparation of this annual report. They concluded that the controls and procedures are effective and adequate at that time.

Changes in Internal Controls Over Financial Reporting

There have been no significant changes in our internal control over financial reporting during the quarter ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	*Other Information*

None.

PART III

The information required by Item 10 — Directors, Executive Officers and Corporate Governance; Item 11 — Executive Compensation; Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Item 13 — Certain Relationships and Related Transactions and Director Independence; and Item 14 — Principal Accounting Fees and Services is incorporated into Part III of this Annual Report on Form 10-K by reference to our Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 5, 2007, except that the information required by Item 10 pertaining to our executive officers is contained in Part I of this report.

PART IV


Item 15.	*Exhibits, Financial Statement Schedules*

(a) 1. Financial Statements

The financial statements are listed under Item 8 of this report.

2. Financial Statement Schedules

The financial statement schedules required under this Item and Item 8 are omitted because they are not applicable or the required information is shown in the financial statements or the footnotes thereto.

3. Exhibits

The exhibits are listed below under Part IV Item 15(b).

(b) Exhibits

The exhibits are set forth in the Exhibit Index.

EXHIBIT INDEX


Exhibit No.			Description	Location

	3	.1.3	Third Amended and Restated Certificate of Incorporation		(1)
	3	.2.3	Third Amended and Restated By-laws		(2)
	4	.2	Grant of Put Option dated April 6, 2001 by Iomai Corporation to the Walter Reed Army Institute of Research as representative of the United States of America.		(1)
	4	.3	Option Agreement dated December 4, 2002 by and between Iomai Corporation and Elan Corporation, plc.		(1)
	4	.4	Stock Purchase Warrant dated December 4, 2002 issued by Iomai Corporation to Friedman Billings Ramsey & Co., Inc.		(1)


Exhibit No.			Description	Location

	4	.5.1	Investor Rights Agreement dated December 4, 2002 between Iomai Corporation and the individuals specified in Exhibit A thereto.		(1)
	4	.5.2	Amendment to the Investor Rights Agreement dated March 27, 2003 among Iomai Corporation and the Purchasers listed on the signature pages thereto.		(1)
	4	.5.3	Amendment to Investor Rights Agreement and Consent dated May 30, 2003 among Iomai Corporation and the Purchasers listed on the signature pages thereto.		(1)
	4	.5.4	Amendment to Investor Rights Agreement and Consent dated December 1, 2005 among Iomai Corporation and the purchasers listed on the signature pages thereto.		(1)
	4	.6	Registration Rights Agreement dated April 6, 2001 by and between Iomai Corporation and MdBio, Inc. as trustee for and on behalf of the Walter Reed Army Institute of Research, a representative of the United States of America.		(1)
	4	.7	Registration Rights Agreement dated March 30, 1999 by and between Iomai Corporation and Maryland Health Care Product Development Corporation.		(1)
	4	.8	Registration Rights Agreement dated July 18, 2000 by and between Iomai Corporation and Eiicha Ida.		(1)
	4	.9	Registration Rights Agreement dated July 18, 2000 by and between Iomai Corporation and Yuichi Suzuki.		(1)
	4	.10	Registration Rights Agreement dated July 18, 2000 by and between Iomai Corporation and Toshiro Osoegawa.		(1)
	4	.11	Registration Rights Agreement dated August 15, 2000 by and between Iomai Corporation and CZ Venture Operations, Inc.		(1)
	4	.12	Registration Rights Agreement dated January 4, 2001 by and between Iomai Corporation and Alexandria Real Estate Equities, L.P.		(1)
	4	.13	Form of common stock warrant dated March 2, 2007		(7)
	4	.14	Form of common stock warrant dated March 2, 2007		(7)
	9	.1	Voting Trust and Escrow Agreement dated April 6, 2001 between Iomai Corporation and MdBio, Inc., as trustee for and on behalf of Walter Reed Army Institute of Research, a representative of the United States of America.		(1)
	10	.1	Employment Agreement dated May 18, 2002 between Iomai Corporation and Stanley Erck, as amended on October 25, 2002.**		(1)
	10	.1.1	Amendment No. 2, dated December 1, 2005, to the Employment Agreement between Iomai Corporation and Stanley Erck.**		(1)
	10	.2	1998 Stock Option Plan, as amended January 16, 2002.**		(1)
	10	.3.1	1999 Stock Incentive Plan.		(1)
	10	.3.2	Form of Incentive Stock Option Agreement.**		(1)
	10	.3.3	Form of Nonqualified Stock Option Agreement.**		(1)
	10	.4	2005 Incentive Plan, as amended March 6, 2007.**		(8)
	10	.5	2006 Employee Stock Purchase Plan.**		(1)
	10	.6	Terms of Non-Employee Director Compensation.**		(1)
	10	.7	Amended and Restated License Agreement dated April 6, 2001 by and between Iomai Corporation and the Walter Reed Army Institute of Research as representative of the United States of America.+		(1)
	10	.8	Form of Subordinated Convertible Promissory Note issued by Iomai Corporation to the Walter Reed Army Institute of Research as representative of the United States of America.		(1)


Exhibit No.			Description	Location

	10	.9	Commercial License Agreement dated June 30, 2005 by and between Iomai Corporation and Dow Global Technologies Incorporated.+		(1)
	10	.10.1	Master Security Agreement dated September 26, 2003 by and between Iomai Corporation and Oxford Finance Corporation.		(1)
	10	.10.2	Form of Promissory Note issued by Iomai Corporation to Oxford Finance Corporation together with schedule identifying dates, principal amounts and interest rates of all outstanding promissory notes.		(1)
	10	.11.1	Lease Agreement dated December 18, 2000 by and between Iomai Corporation and ARE-20/22/1300 Firstfield Quince Orchard, LLC.		(1)
	10	.11.2	First Amendment to Lease dated November 29, 2001 by and between Iomai Corporation and ARE-20/22/1300 Firstfield Quince Orchard, LLC.		(1)
	10	.11.3	Second Amendment to Lease dated April 14, 2003 by and between Iomai Corporation and ARE-20/22/1300 Firstfield Quince Orchard, LLC.		(1)
	10	.11.4	Third Amendment to Lease dated August 28, 2003 by and between Iomai Corporation and ARE-20/22/1300 Firstfield Quince Orchard, LLC.		(1)
	10	.11.5	Fourth Amendment to Lease dated October 26, 2005 by and between Iomai Corporation and ARE 20/22/1300 Firstfield Quince Orchard, LLC.		(1)
	10	.11.6	Letter Agreement amending Fourth Amendment to Lease dated January 3, 2006 by and between Iomai Corporation and ARE 20/22/1300 Firstfield Quince Orchard, LLC.		(3)
	10	.11.7	Sublease Agreement dated February 28, 2006 by and between Geomet Technologies, LLC and Iomai Corporation.		(3)
	10	.11.8	Fifth Amendment to Lease dated July 25, 2006 by and between Iomai Corporation and ARE 20/22/1300 Firstfield Quince Orchard, LLC.		(4)
	10	.11.9	Sixth Amendment to Lease dated January 26, 2007 by and between Iomai Corporation and ARE 20/22/1300 Firstfield Quince Orchard, LLC.		(6)
	10	.12	Form of Change in Control Agreement, between Iomai Corporation and certain officers.**		(1)
	10	.13	Securities Purchase Agreement dated October 23, 2006 by and among Iomai Corporation and the Purchasers thereto.		(5)
	10	.14	Securities Purchase Agreement dated March 2, 2007 by and among Iomai Corporation and Investors thereto.		(7)
	23	.1	Consent of Independent Registered Public Accounting Firm.
	31	.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
	31	.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
	32	.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


**		Indicates a management contract or compensatory plan.

+		Confidential Treatment Requested Under 17 C.F.R. §§ 200.80(b)(4) and 230.406. The confidential portions of this exhibit have been omitted and are marked by an asterisk.

(1)		Previously filed as an exhibit to the Company’s Form S-1/A (File No. 333-128765) and incorporated herein by reference thereto.

(2)		Previously filed as an exhibit to the Company’s Form 8-K filed March 24, 2006 and incorporated herein by reference thereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

IOMAI CORPORATION


	By:	/s/ Stanley C. Erck

Name: Stanley C. Erck

Title: President, Chief Executive Officer,
Treasurer and Director

Dated: March 22, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated as of March 22, 2007.


Signature				Title

/s/ Stanley C. Erck Stanley C. Erck				Chief Executive Officer, President, Treasurer and Director (Principal Executive Officer)

/s/ Russell P. Wilson Russell P. Wilson				Senior Vice President, Chief Financial Officer, General Counsel and Secretary (Principal Financial and Accounting Officer)

/s/ M. James Barrett M. James Barrett, Ph.D.				Chairman of the Board of Directors

/s/ R. Gordon Douglas R. Gordon Douglas, M.D.				Director

/s/ Richard Douglas Richard Douglas, Ph.D.				Director

/s/ Jeff Himawan Jeff Himawan, Ph.D.				Director

/s/ F. Weller Meyer F. Weller Meyer				Director

/s/ Thomas Martin Vernon Thomas Martin Vernon, M.D.				Director

IOMAI CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of

Iomai Corporation

We have audited the accompanying balance sheets of Iomai Corporation as of December 31, 2006 and 2005 and the related statements of operations, changes in redeemable preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Iomai Corporation at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for stock-based compensation in 2006 upon adoption of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”.

/s/ Ernst & Young LLP

McLean, Virginia

March 19, 2007

F-2

IOMAI CORPORATION

BALANCE SHEETS


	December 31,
	2006			2005
	(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	13,847		$	5,190
Marketable securities		1,489			—
Accounts receivable		62			12
Prepaid expenses and other current assets		500			258

Total current assets		15,898			5,460
Property and equipment, net		6,736			4,465
Restricted cash		—			49
Restricted marketable securities		268			590
Deferred financing costs		—			1,108
Other noncurrent assets		183			189

Total assets	$	23,085		$	11,861


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		1,598			2,012
Accrued expenses		2,353			1,611
Notes payable, current portion		1,369			1,333
Notes payable to related party, current portion		176			229
Capital lease obligation, current portion		1			5

Total current liabilities		5,497			5,190
Notes payable, long-term portion		1,866			1,397
Notes payable to related party, long-term portion		1,347			1,264
Capital lease obligation, long-term portion		—			1
Deferred rent		340			122

Total liabilities		9,050			7,974
Common stock subject to put right		—			1,959
Warrant to purchase Series C preferred stock		—			23
Series C convertible redeemable preferred stock, $0.01 par value; 0 shares authorized, issued and outstanding as of December 31, 2006; 150,000,000 shares authorized; 129,590,034 shares issued and outstanding at December 31, 2005		—			70,363
Stockholders’ equity (deficit):
Series B convertible preferred stock; $0.01 par value; 0 shares authorized, issued and outstanding as of December 31, 2006; 15,200,000 shares authorized; 14,734,578 shares issued and outstanding at December 31, 2005		—			147
Common stock, $0.01 par value; 200,000,000 shares authorized and 19,197,387 shares issued and outstanding as of December 31, 2006; 220,000,000 shares authorized and 795,519 shares issued and outstanding at December 31, 2005		192			8
Additional paid-in capital		114,631			—
Accumulated other comprehensive income		—			1
Accumulated deficit		(100,788	)		(68,614	)

Total stockholders’ equity (deficit)		14,035			(68,458	)

Total liabilities and stockholders’ equity (deficit)	$	23,085		$	11,861

See accompanying notes.

F-3

IOMAI CORPORATION

STATEMENTS OF OPERATIONS


	Year Ended December 31,
	2006			2005			2004
	(In thousands, except share and per share data)

Revenues	$	1,475		$	2,371		$	2,345
Cost and expenses:
Research and development		28,041			16,529			14,349
General and administrative		5,857			3,780			3,206

Total costs and expenses		33,898			20,309			17,555

Loss from operations		(32,423	)		(17,938	)		(15,210	)
Other income (expense)
Interest income		1,006			392			621
Interest expense		(377	)		(467	)		(266	)
Other expense, net		(8	)		(17	)		(225	)

Total other income (expense), net		621			(92	)		130

Net loss before cumulative effect of a change in accounting principle		(31,802	)		(18,030	)		(15,080	)
Cumulative effect of change in accounting principle		17			—			—
Net loss		(31,785	)		(18,030	)		(15,080	)
Dividends on and accretion of convertible preferred stock		(471	)		(5,562	)		(5,526	)

Net loss available to common stockholders	$	(32,256	)	$	(23,592	)	$	(20,606	)

Net loss available to common stockholders per share of common stock — basic and diluted	$	(2.03	)	$	(30.14	)	$	(26.90	)

Weighted-average number of shares of common stock — basic and diluted		15,915,797			782,715			765,945

See accompanying notes.

F-4

IOMAI CORPORATION

STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)


							Stockholders’ Equity (Deficit)
	Series C Convertible																				Accumulated						Total
	Redeemable						Series B Convertible											Additional			Other						Stockholders’
	Preferred Stock						Preferred Stock						Common Stock					Paid-In			Comprehensive			Accumulated			Equity
	Shares			Amount			Shares			Amount			Shares			Amount		Capital			Income (Loss)			Deficit			(Deficit)
	(In thousands, except share data)

Balance at December 31, 2003		127,685,982			59,507			14,734,578			147			764,325			8		8,679			18			(34,890	)		(26,038	)
Issuance of Series C convertible redeemable preferred stock, net of issuance costs of $31,741		1,904,052			810			—			—			—			—		—			—			—			—
Amortization of Series C warrants		—			12			—			—			—			—		—			—			—			—
Accretion of issuance costs		—			438			—			—			—			—		(438	)		—			—			(438	)
Accrual of dividends		—			4,554			—			—			—			—		(4,554	)		—			—			(4,554	)
Issuance of Common Stock warrants		—			—			—			—			—			—		1			—			—			1
Stock option compensation		—			—			—			—			—			—		154			—			—			154
Exercise of options		—			—			—			—			7,596			—		7			—			—			7
Other comprehensive loss:		—			—			—			—			—			—		—			—			—			—
Net loss		—			—			—			—			—			—		—			—			(15,080	)		(15,080	)
Unrealized loss on investments		—			—			—			—			—			—		—			(44	)		—			(44	)

Comprehensive loss		—			—			—			—			—			—		—			—			—			(15,124	)

Balance at December 31, 2004		129,590,034			65,321			14,734,578			147			771,921			8		3,849			(26	)		(49,970	)		(45,992	)
Amortization of Series C warrants		—			12			—			—			—			—		—			—			—			—
Accretion of issuance costs		—			443			—			—			—			—		(333	)		—			(110	)		(443	)
Accrual of dividends		—			4,587			—			—			—			—		(4,084	)		—			(504	)		(4,588	)
Issuance of Common Stock warrants		—			—			—			—			—			—		9			—			—			9
Stock option compensation		—			—			—			—			—			—		538			—			—			538
Cash in lieu of fractional common shares		—			—			—			—			(60	)		—		(1	)		—			—			(1	)
Exercise of options		—			—			—			—			23,658			—		22			—			—			22
Net loss		—			—			—			—			—			—		—			—			(18,030	)		(18,030	)
Unrealized gain on investments		—			—			—			—			—			—		—			27			—			27

Comprehensive loss		—			—			—			—			—			—		—			—			—			(18,003	)

Balance at December 31, 2005		129,590,034			70,363			14,734,578			147			795,519			8		—			1			(68,614	)		(68,458	)
Amortization of Series C warrants		—			1			—			—			—			—		—			(1	)		—			(1	)
Accretion of issuance costs		—			37			—			—			—			—		(37	)		—			—			(37	)
Accrual of dividends		—			389			—			—			—			—		—			—			(389	)		(389	)
Stock option compensation		—			—			—			—			—			—		1,065			—			—			1,065
Exercise of options		—			—			—			—			14,030			—		13			—			—			13
Exercise of warrants		—			—			—			—			2,865			—		—			—			—			—
Issuance of common stock in connection with initial public offering, net of offering costs of $4,012,584		—			—			—			—			5,000,000			50		30,892			—			—			30,942
Automatic conversion of common stock subject to put right into common stock upon initial public offering		—			—			—			—			—			—		1,958			—			—			1,958
Automatic conversion of preferred stock into common stock upon initial public offering		(129,590,034	)		(70,790	)		(14,734,578	)		(147	)		11,101,867			111		70,849			—			—			70,813
Issuance of common stock, net of offering costs of $86,593		—			—			—			—			2,283,106			23		9,891			—			—			9,914
Net loss		—			—			—			—			—			—		—			—			(31,785	)		(31,785	)
Unrealized gain on investments		—			—			—			—			—			—		—			—						—

Comprehensive loss		—			—			—			—			—			—		—			—			—			(31,785	)

Balance at December 31, 2006		—		$	—			—			—			19,197,387		$	192	$	114,631		$	—		$	(100,788	)	$	14,035

See accompanying notes.

F-5

IOMAI CORPORATION

STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2006			2005			2004
	(In thousands)

Cash flows from operating activities
Net loss	$	(31,785	)	$	(18,030	)	$	(15,080	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,261			2,670			1,627
Stock-based compensation expense		1,065			538			154
Non-cash interest expense and amortization of premium/discount of marketable securities		(255	)		28			229
Deferred rent		194			(54	)		(36	)
Provision for doubtful accounts		—			—			(135	)
Loss on disposal of property and equipment		10			4			—
Changes in operating assets and liabilities:
Accounts receivable		(50	)		62			265
Prepaid expenses and other current assets		(242	)		(40	)		135
Other noncurrent assets		2			(45	)		29
Accounts payable		(9	)		420			(471	)
Accrued expenses		943			143			(218	)

Net cash used in operating activities		(28,866	)		(14,304	)		(13,501	)
Cash flows from investing activities
Purchases of property and equipment		(3,501	)		(1,339	)		(5,075	)
Sale of property and equipment		7			—			—
Restricted cash and marketable securities		384			35			(4	)
Sales/maturities of marketable securities		16,500			22,150			32,450
Purchases of marketable securities		(17,747	)		(6,790	)		(18,510	)

Net cash (used in) provided by investing activities		(4,357	)		14,056			8,861
Cash flows from financing activities
Proceeds from the exercise of stock options		13			22			7
Cash issued in lieu of fractional common stock		—			(1	)		—
Proceeds from issuance of Series C convertible redeemable preferred stock, net		—			—			810
Proceeds from initial public offering, net of underwriting commissions		32,854			—			—
Proceeds from private placement of common stock		10,000			—			—
Stock issuance costs		(1,517	)		—			—
Deferred stock issuance costs		—			(481	)		—
Proceeds from notes payable		2,000			468			1,902
Principal payments on notes payable		(1,495	)		(1,166	)		(820	)
Proceeds from notes payable to related party		280			—			1,451
Principal payments on notes payable to related party		(250	)		(333	)		(207	)
Payments under capital lease obligations		(5	)		(13	)		(18	)

Net cash provided by (used in) financing activities		41,880			(1,504	)		3,125

Net increase (decrease) in cash and cash equivalents		8,657			(1,752	)		(1,515	)
Cash and cash equivalents at beginning of year		5,190			6,942			8,457

Cash and cash equivalents at end of year	$	13,847		$	5,190		$	6,942

Supplemental schedule of noncash investing and financing activities
Cash paid for interest	$	902		$	497		$	424

See accompanying notes.

F-6

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS


1.	ORGANIZATION

Iomai Corporation (the Company or Iomai) was incorporated in May 1997 as a Delaware corporation to discover and develop vaccines and immune system stimulants, delivered to the skin via a novel, needle-free technology called transcutaneous immunization (TCI). TCI exploits the unique benefits of a major group of antigen-presenting cells found in the outer layers of the skin (Langerhans cells) to generate an enhanced immune response. TCI has the potential to enhance the efficacy of existing vaccines, develop new vaccines that are viable only through transcutaneous administration and expand the global vaccine market. The Company currently has five product candidates in development: four targeting influenza and pandemic flu and one to prevent E. coli-related travelers’ diarrhea.


2.	SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers demand deposits and all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. As of December 31, 2006 and 2005, the Company’s cash equivalents consisted of money market accounts, an overnight repurchase agreement and a savings account.

Marketable securities

All marketable securities, consisting of U.S. government obligations and U.S. agency obligations, are classified as available-for-sale. These securities are carried at fair value, plus accrued interest. Any unrealized holding gains and losses are reported as accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit). Realized gains and losses are reported in operations, and gains and losses on sales of securities are computed using the specific-identification method.

The Company periodically reviews its marketable securities to determine whether a decline in fair value below the carrying value exists and is other-than-temporary. This evaluation consists of a review of several factors, including but not limited to: the length of time and extent that a security has been in an unrealized loss position, the existence of an event that would impair the issuer’s future earnings potential, the near-term prospects for recovery of the market value of a security, and the intent and ability of the Company to hold the security until the market value recovers. Declines in value below cost for debt securities are not assumed to be other-than-temporary where: it is considered probable that all contractual terms of the security will be satisfied, the decline is due primarily to changes in interest rates (and not because of increased credit risk), or the Company intends and has the ability to hold the investment for a period of time sufficient to allow a market recovery. Unrealized losses related to debt securities greater than and less than one year are not significant.

If management determines that such an impairment exists, the carrying value of the investment will be reduced to the current fair value of the investment and the Company will recognize a change in the statement of operations equal to the amount of the carrying value reduction.

F-7

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Restricted cash and marketable securities

Restricted cash as of December 31, 2006 and 2005 was $0 and $49,150, respectively. Restricted cash at December 31, 2005 related to a deposit held as collateral for a letter of credit acting as a security deposit on a facility operating lease. In December 2006, the letter of credit was terminated.

Restricted marketable securities at December 31, 2006 and 2005 include marketable securities with a face value of $265,000 and $600,000, respectively, pledged as collateral to secure payment of promissory notes issued to finance, in part, the build-out of the Company’s facilities (see Note 6 — Long-Term Debt).

Accounts receivable

Accounts receivable that management has the intent and ability to hold until payment are reported in the balance sheets at outstanding amounts, less the allowance for doubtful accounts. The Company writes off uncollectible receivables when the likelihood of collection is remote. The Company maintains an allowance for doubtful accounts, which is determined based on historical experience and management’s expectations of future losses. There was no allowance for doubtful accounts in either 2005 or 2006.

Unbilled accounts receivable consist principally of expenses incurred on reimbursable research grants prior to year-end that have not yet been billed to the contracting agent.

Concentration of credit risk and fair value of financial instruments

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, accounts receivable, and notes payable. The Company places its cash and cash equivalents with financial institutions, and its marketable securities consist of U.S. government obligations and U.S. agency obligations. Management believes that the financial risks associated with its cash and cash equivalents and marketable securities are minimal. Accounts receivable principally consist of amounts due from government agencies under government grants.

The carrying amount of current assets and liabilities approximates their fair values due to their short-term maturities. The fair value of notes payable approximates their carrying amount as of December 31, 2006 and 2005 based on rates currently available to the Company for debt with similar terms and remaining maturities.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives as follows:


Asset Description	Useful Life (Years)

Furniture and equipment		3 - 7
Lab equipment		5

Leasehold improvements are amortized over the shorter of the life of the lease or the related asset. Maintenance and repairs are charged to expense as incurred.

Income taxes

Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

F-8

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Revenue recognition

The Company recognizes revenue when all terms and conditions of the agreements have been met, including persuasive evidence of an arrangement, services have been rendered, price is fixed or determinable, and collectability is reasonably assured. For reimbursable cost research grants and contracts, the Company recognizes revenue as costs are incurred. Provisions for estimated losses on research grant projects and any other contracts are made in the period such losses are determined.

Research and development costs

The Company expenses its research and development costs as incurred; however, equipment and facilities that are acquired or constructed for research and development activities that have alternative future uses (in research and development projects or otherwise) are capitalized and depreciated as tangible assets.

Comprehensive loss

Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income (SFAS No. 130), requires the presentation of the comprehensive loss and its components as part of the financial statements. Comprehensive loss is comprised of net loss and other changes in equity that are excluded from net loss. The Company includes unrealized holding gains and losses on available-for-sale securities in accumulated other comprehensive loss on its balance sheets and statements of changes in redeemable preferred stock and stockholders’ equity (deficit).

Stock-based compensation

The Company has four stock-based employee compensation plans, described more fully in Note 9 — Stockholders’ Equity (Deficit). Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Under the prospective method of adoption selected by the Company under the provisions of FASB Statement No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123 (SFAS No. 148), the recognition provisions have been applied to all employee awards granted, modified, or settled after January 1, 2003. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), “Share-Based Payment” (Statement 123(R)), using the modified-prospective-transition method. See Note 9 — Stockholders’ Equity (Deficit) for discussion of impact of adoption of Statement 123(R). The Company uses the Black-Scholes-Merton formula to estimate the value of stock options granted to employees.

Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption; however, the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options).

Equity instruments issued to nonemployees are accounted for under the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in conjunction with, Selling, Goods and Services. Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the performance commitment date or the date the services required are completed.

F-9

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Prior to the Company’s initial public offering, our board of directors determined fair value of our common stock for options to acquire shares of our common stock. Our board of directors made contemporaneous determinations of fair value and did not employ a third party valuation firm to determine fair value. In the absence of a public trading market prior to the Company’s initial public offering, and as a clinical-stage company with no significant revenues, the Company believes that it was appropriate to consider a range of factors to determine the fair value market value of the common stock at each option grant date. These factors included: (1) the achievement of clinical and operational milestones by the Company, (2) the status of strategic relationships with collaborators, (3) the significant risks associated with the Company’s early stage of development of a new technology, (4) capital market conditions for life science companies, particularly similarly situated privately-held, early-stage life science companies, (5) the Company’s available cash, financial condition and results of operations, (6) the most recent sales of the Company’s preferred stock and (7) the preferential rights of the outstanding preferred stock. In connection with the preparation of the financial statements for the Company’s initial public offering, the Company reassessed its estimate of the fair value for financial reporting purposes of its common stock following its stock option grants in March 2004. This valuation was done retrospectively by management, a related party, and the Company did not obtain contemporaneous valuations from an independent valuation specialist. Based on this reassessment, the Company determined that there were five periods between March 2004 and October 2005 in which the Company’s reassessment of the fair value of its common stock ranged from $2.75 to $9.00 per share during the period options were granted.

Basic and diluted net loss attributable to common stockholders per share of common stock

Basic net loss attributable to common stockholders per share of common stock excludes dilution for potential common stock issuances and is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares outstanding for the period. Diluted net loss attributable to common stockholders per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Mandatory redeemable convertible preferred stock, stock options and warrants were not considered in the computation of diluted net loss attributable to common stockholders per share for the years ended December 31, 2006, 2005 and 2004 as their effect is antidilutive.

Reverse stock split

All share and per share amounts have been retroactively adjusted to give effect to a 1-for-13 reverse stock split effective on December 2, 2005.

F-10

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)


3.	MARKETABLE SECURITIES

Following is a summary of the available-for-sale marketable securities at December 31, 2006 and 2005 (in thousands):


	December 31, 2006
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value

Available for Sale
U.S. Treasury and agency obligations	$	1,489	$	—	$	—	$	1,489
Accrued interest		—		—		—		—

Total — Marketable securities	$	1,489	$	—	$	—	$	1,489

Restricted Marketable Securities
U.S. Treasury and agency obligations	$	265	$	—	$	—	$	265
Accrued interest		3		—		—		3

Total — Restricted marketable securities	$	268	$	—	$	—	$	268


	December 31, 2005
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value

Available for Sale
U.S. Treasury and agency obligations	$	—	$	—	$	—	$	—
Accrued interest		—		—		—		—

Total — Marketable securities	$	—	$	—	$	—	$	—

Restricted Marketable Securities
U.S. Treasury and agency obligations	$	590	$	—	$	—	$	590
Accrued interest		—		—		—		—

Total — Restricted marketable securities	$	590	$	—	$	—	$	590

The contractual maturities of the Company’s marketable securities and restricted marketable securities were less than one year at December 31, 2006 and 2005. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

The Company’s gross proceeds from maturities of its marketable securities for the years ended December 31, 2006, 2005 and 2004 were $16,500,000 $22,150,000 and $32,450,000, respectively. For these periods, the Company did not realize any gains or losses related to its marketable securities.

F-11

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)


4.	PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):


	December 31,
	2006			2005

Furniture and equipment	$	1,465		$	769
Lab equipment		4,225			3,327
Leasehold improvements		6,051			5,297
Construction-in-progress		1,377			208

Subtotal		13,117			9,602
Accumulated depreciation		(6,381	)		(5,137	)

Property and equipment, net	$	6,736		$	4,465

Depreciation and amortization expense on property, plant and equipment totaled approximately $1.3 million, $2.7 million, and $1.6 million for the years ended December 31, 2006, 2005 and 2004 respectively. For the years ended December 31, 2006, 2005 and 2004, the Company capitalized interest expense of approximately $65,000, $26,000 and $175,000, respectively.


5.	ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):


	December 31,
	2006		2005

Salary and employee benefits	$	1,282	$	775
Clinical trial obligations		561		395
Other		510		441

	$	2,353	$	1,611


6.	LONG-TERM DEBT

Notes payable

In September 2003, the Company entered into a loan arrangement with an equipment leasing company to finance up to $5 million for the build-out of the Company’s facility to accommodate (1) a GMP pilot plant for biological and patch manufacturing to support clinical trials and to advance patch formulation and development, and (2) laboratories to support patch formulation and development, as well as small-scale biological research. Under the terms of the loan, the Company was permitted to draw down up to $5 million through September 2005. In May 2006, the Company negotiated an extension of this facility to finance up to $2 million of additional capital expenditures. The extension is subject to a covenant that any additional drawdowns maintain a specific collateral mix.

In connection with the original loan agreement, the Company entered into a master security agreement under which the Company pledged to the equipment leasing company as collateral (i) a security interest in existing equipment then having a net book value of approximately $416,000, (ii) a security interest in all laboratory/scientific and related manufacturing equipment, together with furniture and computer hardware, financed under the facility, and (iii) marketable securities with a face value of $600,000, which was reduced to a face value of $265,000 during the second quarter of 2006. As of December 31, 2006 and 2005, the Company had aggregate drawdowns of $6,843,672 and $4,843,672, respectively, under the loan agreement. The lender has the right to accelerate

F-12

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

repayment of the indebtedness upon a default, including if the lender determines in good faith that there has been a material adverse change in the Company’s business plan which would materially impair the ability of the Company to perform its obligations or of the lender to enforce the indebtedness or realize upon the collateral.

The components of notes payable are as follows (in thousands):


	December 31,
	2006			2005

Promissory Note dated September 26, 2003; 8.93%, maturing March 26, 2007	$	114		$	547
Promissory Note dated September 26, 2003; 9.03%, maturing September 26, 2007		16			35
Promissory Note dated December 30, 2003; 9.24%, maturing June 30, 2007		162			465
Promissory Note dated February 26, 2004; 9.03%, maturing February 26, 2008		70			124
Promissory Note dated April 30, 2004; 9.48%, maturing April 30, 2008		127			213
Promissory Note dated June 30, 2004; 10.06%, maturing December 30, 2007		33			63
Promissory Note dated June 30, 2004; 10.03%, maturing June 30, 2008		327			520
Promissory Note dated September 30, 2004; 9.58%, maturing March 30, 2008		11			20
Promissory Note dated September 30, 2004; 9.40%, maturing September 30, 2008		90			135
Promissory Note dated November 30, 2004; 9.72%, maturing November 30, 2008		129			188
Promissory Note dated March 30, 2005; 10.46%, maturing March 30, 2009		43			59
Promissory Note dated March 30, 2005; 10.70%, maturing September 30, 2008		14			20
Promissory Note dated July 27, 2005; 10.32%, maturing July 27, 2009		131			173
Promissory Note dated July 27, 2005; 10.66%, maturing January 27, 2009		15			21
Promissory Note dated September 30, 2005; 10.31%, maturing September 30, 2009		114			147
Promissory Note dated May 31, 2006; 11,38%, maturing May 31, 2010		381			—
Promissory Note dated May 31, 2006; 11.73%, maturing November 30, 2009		220			—
Promissory Note dated August 28, 2006; 11.27%, maturing August 28, 2010		525			—
Promissory Note dated August 28, 2006, 11.65%, maturing February 28, 2010		79			—
Promissory Note dated December 20, 2006; 10.96%, maturing December 20, 2010		492			—
Promissory Note dated December 20, 2006, 11.35%, maturing June 1, 2010		142			—

Total notes payable		3,235			2,730
Less current portion of notes payable		(1,369	)		(1,333	)

Long-term portion of notes payable	$	1,866		$	1,397

F-13

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

The Company has long-term obligations to a related party (see Note 7 — Related Party Transactions). Related-party notes payable consist of the following at December 31, 2006 and 2005 (in thousands):


	2006			2005

Total related-party notes payable, with interest rates ranging from 14.0% to 10.5%, maturing May 31, 2013(1)		1,523			1,494
Less current portion of related-party notes payable		(176	)		(229	)

Long-term portion of related-party notes payable	$	1,347		$	1,264


(1)		On October 26, 2005, the Company amended its lease agreement to, among things, extend the maturity of the related-party notes payable from May 2009 until May 2013. In connection with this lease amendment, the then-remaining balance owed to the landlord as of May 31, 2006 under the related-party notes payable, which totaled $1,342,719, is being amortized over the seven-year period until May 2013 at a revised rate of 10.5%. See Note 7 — Related Party Transactions.

As of December 31, 2006, scheduled principal repayments on notes payable are as follows (in thousands):


			Notes Payable from
	Notes Payable		Related Party(1)		Total

Year ending:
2007	$	1,369	$	176	$	1,545
2008		896		195		1,091
2009		628		216		844
2010		342		240		582
2011 and thereafter		—		696		696

	$	3,235	$	1,523	$	4,758


(1)		On October 26, 2005, the Company amended its lease agreement to, among things, extend the maturity of the related-party notes payable from May 2009 until May 2013. In connection with this lease amendment, the then-remaining balance owed to the landlord as of May 31, 2006 under the related-party notes payable, which totaled $1,342,719, is being amortized over the seven-year period until May 2013 at a revised rate of 10.5%. See Note 7 — Related Party Transactions


7.	RELATED PARTY TRANSACTIONS

The landlord for the Company’s laboratory and office facilities participated in the Series C financing in 2002 and, therefore, is a related party. Accordingly, the landlord’s financing of the Company’s leasehold improvements has been recorded on the balance sheets as notes payable to related party.

When the Company entered into its original laboratory and office facilities lease agreement with the landlord in 2001, the Company also entered into a participation agreement with the landlord. The agreement provided the landlord with the right to purchase any capital stock of Iomai or any options, warrants, or other securities convertible into Iomai capital stock in the Company’s next two rounds of equity financing that raise gross proceeds of at least $1.0 million (subject to certain limitations). The Series C Preferred Stock financing constituted the first of these two rounds. In the Series C financing, the landlord purchased 565,483 shares of Series Preferred Stock for $250,000 in the aggregate (see Note 8 — Redeemable Preferred Stock). In connection with the Company’s initial public offering in February 2006 (see Note 9 — Stockholders’ Equity (Deficit)), the landlord agreed to terminate this participation agreement and its shares of Series C Preferred Stock were automatically converted into 43,498 shares of Common Stock (see Note 8 — Redeemable Preferred Stock).

F-14

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Under the terms of the original lease agreement, the Company leased its laboratory and office facilities from June 2001 through May 31, 2006, and the Company had a three-year renewal option to extend the term through May 31, 2009. In June 2001, the landlord financed leasehold improvements of approximately $740,000, which amount was repayable monthly through May 31, 2009 with imputed interest rate of 14% (assuming exercise of the three-year renewal option). In 2003, the Company amended its lease agreement to take over the balance of the second floor not already leased by the Company in its building. In conjunction with the lease amendment, the landlord provided the Company with a tenant improvement allowance of $29,010 and agreed to finance a portion of any additional leasehold improvements up to approximately $1.4 million. During 2004, the Company drew down from the landlord $1,450,500 to finance leasehold improvements for the build-out of its pilot plant. The repayment commenced in June 2004 and was repayable monthly through May 2009 (assuming exercise of three-year renewal option) under the following terms: (1) $870,300 of principal at an imputed interest rate of 12%, and (2) $580,200 of principal at an imputed interest rate of 10.5%.

In October 2005, the Company amended its lease to extend its term by seven years from June 2006 to May 2013. In connection with the lease extension, the Company renegotiated with the landlord the terms of the financing for the build-out of its pilot plant and agreed to lease approximately 8,000 square feet of additional space in the same building. Effective as of June 1, 2006, the then-remaining balance owed to the landlord under all of its existing debt financing, which totaled $1,342,719, is being amortized over the seven-year extension period at a rate of 10.5%. This change will result in a monthly payment of approximately $22,639 through May 2013, as opposed to the prior monthly payment of approximately $44,689, which was being amortized through May 2009. In addition, the Company now has the right to prepay this debt obligation at any time upon four months’ written notice to the landlord.

As part of the amended lease, the landlord provided the Company with tenant improvement allowances totaling approximately $134,000 for the existing space and approximately $120,000 for the expansion space. As of December 31, 2006, the Company had utilized all of these allowances. Both tenant improvement allowances are classified as other current assets in the accompanying balance sheets. The landlord also provided us with up to $280,000 of additional financing to apply toward alterations to the expansion space on the same terms and conditions as the existing landlord financing (that is, amortized from date of draw down through May 2013 at a rate of 10.5%). The Company drew down the full $280,000 in additional financing during the first half of 2006.

In July 2006, the Company amended its lease again to provide that, among other things, (a) the Company will lease an additional 6,117 square feet in the facility and (b) directly lease from the landlord an additional 5,572 square feet, currently subleased by the Company, after February 28, 2007. Under the amendment, the monthly rent for the new premises began on August 1, 2006 (although rent was abated through December 31, 2006), while the monthly rent for the formerly subleased space will begin upon the expiration or earlier termination of the sublease.

The Company amended its lease in January 2007 to lease the remaining space available in the building. See Note 14 — Subsequent Events.


8.	REDEEMABLE PREFERRED STOCK

Series C convertible redeemable preferred stock

In December 2002, the Company issued 122,935,926 shares of Series C Redeemable Convertible Preferred Stock (Series C Preferred Stock) for $0.4421 per share for net proceeds of $52,093,856, which includes $60,000 of Series C Preferred Stock issued to an investor for professional fees. In 2003, the Company issued an additional 4,750,056 shares of Series C Preferred Stock at $0.4421 per share for gross proceeds of $2,100,000. In June 2004, the Company issued an additional 1,904,052 shares of Series C Preferred Stock at $0.4421 per share for gross proceeds of $841,781. All shares of Series C Preferred Stock were automatically converted by their terms into

F-15

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

9,968,443 shares of Common Stock upon closing of the Company’s initial public offering in February 2006 (see Note 9 — Stockholders’ Equity (Deficit)).

Prior to the Company’s initial public offering, the Series C Preferred Stock bore a cumulative annual dividend at a rate of $0.0354 per share, and had a liquidation preference equal to the greater of (i) $0.4421 per share increased by an annual implicit growth factor of 20% compounded annually, subject to certain adjustments, plus any declared or accrued and unpaid dividends, and (ii) the amount per share that would have been payable had each such share of Series C Preferred Stock been converted into common stock immediately prior to a liquidation, dissolution, winding up, sale or merger. As of December 31, 2006 and 2005, the aggregate per share liquidation preference of the outstanding shares of Series C Preferred Stock was $0 and 0.8783, respectively, which includes accrued and unpaid dividends of $0 and $13,940,759, respectively.

Series C preferred stock warrants

In connection with the Series C Preferred Stock financing, the Company issued to its placement agent warrants to purchase 250,000 shares of Series C Preferred Stock at an exercise price of $0.4421 per share. The fair value of the warrants of $60,000 was recorded as a reduction to the Series C preferred stock. The fair value was estimated using the Black-Scholes option-pricing model assuming a risk-free interest rate of 2.79%, dividend yield of 0%, volatility of 60.0%, and expected term of approximately five years. The Company accreted $1,000 and $12,000 of the Series C warrants to the Series C Preferred Stock in 2006 and 2005, respectively. The conversion rate is one-thirteenth (1/13) of one share of common stock for each share of Series C Preferred Stock, which is adjustable for certain dilutive events, as defined. With completion of the Company’s initial public offering in February 2006, the warrant holder can now purchase up to 19,231 shares of Common Stock at an exercise price of $5.7473 per share.


9.	STOCKHOLDERS’ EQUITY (DEFICIT)

Series B convertible preferred stock

In connection with the closing of the Series C Preferred Stock financing, the Company issued 14,734,578 shares of Series B Convertible Preferred Stock (Series B Preferred Stock) to a subsidiary of Elan Corporation plc (Elan) as part of the unwinding of a pre-existing joint venture. On January 5, 2006, Elan sold all of the 14,734,578 shares of our Series B Preferred Stock held by it to certain of the holders of Series C Preferred Stock pursuant to a contractual right of first refusal. All Series B Preferred Stock were automatically converted into 1,133,424 shares of common stock upon closing of the Company’s initial public offering in February 2006.

Prior to the Company’s initial public offering, the Series B Preferred Stock bore a cumulative annual dividend at a rate of $0.0354 per share, and a liquidation preference equal to the greater of (i) $0.4421 per share, subject to certain adjustments, plus any declared or accrued and unpaid dividends, and (ii) the amount per share that would have been payable had each such share of Series B Preferred Stock been converted into common stock immediately prior to a liquidation, dissolution, winding up, sale or merger. As of December 31, 2006 and 2005, the aggregate per share liquidation preference of the outstanding shares of Series B Preferred Stock was $0 and $0.4421, respectively, plus accrued and unpaid dividends of $0 and $1,603,397, respectively.

Initial Public Offering

On February 6, 2006, the Company closed its initial public offering by selling 5,000,000 shares of its common stock at a public offering price of $7.00 per share. Net proceeds, before expenses, were $32.8 million. The Company’s total expenses for the initial public offering, including legal, accounting and printing fees, were $1.9 million, so total net proceeds, after expenses, were $30.9 million.

Upon the closing of the Company’s initial public offering, a put option on 57,500 shares of common stock terminated in accordance with its terms without further financial obligation to the Company. In 2001, the Company

F-16

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

granted the put option to the Walter Reed Army Institute of Research (WRAIR) in connection with the issuance of those shares to WRAIR as part of an amendment to the master license agreement for the transcutaneous immunization technology. Prior to initial public offering WRAIR had the right to put these shares to the Company, upon certain conditions, for the greater of $1,958,450 or the then fair market value of those shares at the date of exercise.

Also in connection with the initial public offering, all of the Company’s preferred stock was automatically converted into shares of Common Stock as follows:


	•	All shares of Series B Preferred Stock were automatically converted into 1,133,424 shares of common stock;

	•	All shares of Series C Preferred Stock were automatically converted into 9,968,443 shares of common stock; and

	•	A warrant issued to the Company’s placement agent in connection with the Series C Stock financing in December 2002 for 250,000 shares of Series C Preferred Stock was automatically converted into a warrant to purchase up to 19,231 shares of Common Stock at an exercise price of $5.7473 per share.

In connection with the financing of the build-out of the Company’s facility, the Company previously issued warrants to purchase up to 16,529 shares at an exercise price of $5.75 per share. Upon the initial public offering, the holder exercised these warrants in accordance with their terms in a cashless exercise for 2,865 shares of Common Stock.

Upon closing of our initial public offering, the Company amended and restated its certificate of incorporation to reduce (1) the number of shares of common stock authorized for issuance from 220,000,000 shares to 200,000,000 shares, and (2) the number of shares of preferred stock authorized for issuance from 166,700,000 shares to 25,000,000 shares.

Private Placement in Public Equity

In October 2006, the Company closed a private placement (Private Placement) with two existing stockholders, Essex Woodlands Health Ventures and New Enterprise Associates (NEA), pursuant to which the Company raised gross proceeds of approximately $10 million through the sale of 2,283,106 shares of the Company’s Common Stock. The price per share under the securities purchase agreement was $4.38. The Company incurred costs of $86,593 associated with the sale and registration of these shares as described below.

Pursuant to the securities purchase agreement dated October 23, 2006, the Company agreed to file a registration statement on Form S-1 with the SEC to register the resale of the shares. The registration statement was declared effective on December 8, 2006, and the Company has agreed to use commercially reasonable efforts to keep it effective until the fourth anniversary of such date, at the latest. If the registration statement ceases to be effective or useable for resales during this period, then the Company has agreed to pay each purchaser liquidated damages at a rate equal to 2.5% per month of the total purchase price of the shares purchased by such purchaser that are covered by the Registration Statement immediately prior to such lapse. Notwithstanding the foregoing provisions, in no event shall the Company be obligated to pay such liquidated damages (a) to more than one purchaser in respect of the same share for the same period of time or (b) for the first two (2) years following the closing date, in an annual aggregate amount that exceeds 18% of the purchase price paid by the purchasers for the shares or (c) after the first two (2) years following the closing date, in an aggregate amount that exceeds 18% of the purchase price paid by the purchasers for the shares. At this time, management does not believe that the payment of liquidated damages is probable.

F-17

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Stock Options

Since 2003, the Company expensed options in accordance with the fair value recognition provisions of SFAS No. 123, whereby the Company recognized stock-based compensation based on the fair value of the options at the date of grant using the Black-Scholes model.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement 123(R), using the modified-prospective-transition method. Results for prior periods have not been restated.

Under the modified-prospective-transition method, the Company will continue to recognize compensation as options vest. The principal change in accounting with the adoption of Statement 123(R) is that beginning with the first quarter of 2006, management must estimate forfeitures of options (resulting from the failure of optionholders to satisfy service or performance conditions) prior to vesting, and reduce stock-based compensation expense by the amount of these estimated forfeitures. Previously, under Statement 123, the Company had elected to adjust stock-based compensation expense only for actual forfeitures. The Company will periodically monitor the rates for actual forfeitures and, if necessary, adjust its stock-based compensation expense for changes in its estimated rate of forfeitures and differences between expectations and actual experience.

Also, with the adoption of Statement 123(R), the Company recognized in the first quarter of 2006 a one-time charge recorded as the cumulative effect of a change in accounting principle, which reflects an estimate of forfeitures for unvested awards outstanding upon the adoption of Statement 123(R). This amount represents a reduction in the compensation cost for prior periods for any unvested options remaining that would not have been recognized in those prior periods had forfeitures for such unvested options been estimated during those prior periods. The cumulative effect for this change in accounting principle totaled $16,726 and is recorded on the statement of operations for the year ended December 31, 2006.

The adoption of Statement 123(R) on January 1, 2006 did not have a material impact on the Company’s net loss and net loss per share for the year ended December 31, 2006.

Under Statement 123(R), the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible temporary difference in applying FASB Statement No. 109, Accounting for Income Taxes. The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company as all the deferred tax assets have a full valuation allowance against them.

Since the Company had a net operating loss carryforward as of December 31, 2006, no excess tax benefits for the tax deductions related to stock-based awards were recognized in the statement of operations. Additionally, no incremental tax benefits were recognized from stock options exercised in the twelve months ended December 31, 2006 which would have resulted in a reclassification to reduce net cash used in operating activities with an offsetting increase in net cash provided by financing activities.

F-18

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

A summary of all stock option plan activity during the year ended December 31, 2006 is as follows:


						Weighted-
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic Value(1)
	Shares			Exercise Price		Term		($000’s)

Outstanding at December 31, 2005		1,893,264			1.64

Exercisable at December 31, 2005		784,748			2.38

Granted		1,075,761			5.18
Exercised		(14,030	)		0.91
Forfeited		(36,190	)		3.16

Outstanding at December 31, 2006		2,918,805			2.93		7.5	$	5,991

Vested or expected to vest		2,654,673			2.87		7.4	$	5,990


Exercisable at December 31, 2006		1,195,551			1.93		6.1	$	3,641


(1)		Calculated using the per-share closing price of the Company’s common stock on December 29, 2006, which was $4.98.

The following table summarizes information about stock options outstanding under the Company’s option plans at December 31, 2006.


	Options Outstanding
			Weighted-Average				Options Exercisable
Range of	Number		Remaining Contractual		Weighted-Average		Number		Weighted-Average
Exercise Prices	Outstanding		Life—Years		Exercise Price		Exercisable		Exercise Price

$0.91		1,705,373		6.6	$	0.91		1,115,427	$	0.91
$2.86		104,258		8.7		2.86		22,936		2.86
$4.34-4.70		248,761		9.4		4.41		7,775		4.35
$5.04-5.85		811,769		9.3		5.42		769		5.85
$16.25-22.75		32,690		1.4		20.84		32,690		20.84
$28.99-34.19		15,954		2.9		32.15		15,954		32.15

		2,918,805						1,195,551

The total fair value of stock options which vested during the year ended December 31, 2006, less estimated forfeitures, was approximately $1,082,000. During the year ended December 31, 2006, participants exercised stock options totaling 14,030, and the total intrinsic value of stock options exercised during the year ended December 31, 2006 was approximately $74,000. Cash received from option exercise under all stock compensation plans was $12,767 for the year ended December 31, 2006.

As of December 31, 2006, there was approximately $3.5 million of total unrecognized compensation expense, less estimated forfeitures, related to unvested options under the Company’s stock compensation plans. The expenses are expected to be recognized over a weighted-average period of 2.1 years.

Stock options awarded to directors and employees generally are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Those options generally vest in equal installments over a four-year period based on continued service and have ten-year contractual terms. The Company recognizes compensation costs for those options on a straight-line basis over the requisite service period for the entire award (that is, generally over four years).

F-19

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

During the year ended December 31, 2006, the Company issued 1,075,761 options, which vest in equal installments over a four-year period. The weighted-average fair value of options granted during the years ended December 31, 2006, 2005, and 2004 was $5.18, $4.62, and $0.77, respectively, applying the Black-Scholes option-pricing model utilizing the following weighted-average assumptions:


	December 31,
	2006			2005			2004

Expected dividend yield		0	%		0	%		0	%
Expected volatility		77	%		60	%		56	%
Risk-free interest rate		4.66	%		3.89	%		3.03	%
Expected average life of options		5 years			5 years			5 years

Dividend Yield — The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Expected Volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company tracks the historical volatility of its own stock, but since the Company went public only in February 2006, the Company also uses an estimated volatility based on the volatility of a number of similarly situated biotechnology companies, along with other factors deemed relevant by management. In 2006, estimated volatility used to value options ranged between 70% and 113%.

Risk-Free Interest Rate — This is the U.S. Treasury rate for the week of each option grant during the quarter having a term that most closely resembles the expected life of the option.

Expected Life of the Option Term — This is the period of time that the options granted are expected to remain unexercised. Options granted during the year have a maximum term of ten years. The Company estimates the expected life of the option term to be five years; however, now that the Company is a public entity, management expects that over time, management will track estimates of the expected life of the option term so that its estimates will approximate actual past behavior for similar options.

Expected Forfeiture Rate — The forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or canceled on an annual basis before becoming fully vested. The Company estimates the forfeiture rate based on past turnover data ranging anywhere from the past one to three years, with further consideration given to the class of employees to whom the options were granted.

The Company recognized the following stock option compensation expense for the years ended:


	December 31,
	2006			2005		2004

Employees and directors	$	1,077,680		$	508,575	$	152,928
Non-employee consultants		(12,664	)		29,569		777

	$	1,065,016		$	538,144	$	153,705

Following is a summary of the Company’s stock plans:

1998 Stock Incentive Plan

In 1998, the Company adopted a stock option plan (the 1998 Plan) and reserved 76,923 shares of common stock pursuant to the 1998 Plan. Incentive stock awards are granted with an exercise price equal to the fair market value of the Company’s stock on the date of grant. Nonstatutory options are granted with an exercise price at not less than 85% of the fair market value of the Company’s stock on the date of grant. The options expire 10 years from the date of grant.

F-20

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

1999 Stock Incentive Plan

In August 1999, the Company adopted the 1999 Stock Incentive Plan (the 1999 Plan). The 1999 Plan currently provides for the issuance of restricted common stock, stock options or the direct award of common stock, for up to 2,001,584 shares. Incentive stock awards are required to be granted with an exercise price equal to the estimated fair market value of the Company’s stock on the date of grant. Nonstatutory options are granted with an exercise price at not less than 85% of the fair market value of the Company’s stock on the date of grant. The 1999 Plan options expire 10 years from the date of grant.

In January 2003, the 1999 Plan was amended to increase the number of shares of Common Stock available for issuance under the 1999 Plan from 423,076 shares to 1,476,923 shares. In September 2003, the 1999 Plan was further amended to increase the number of shares of Common Stock available for issuance under the 1999 Plan by an additional 524,661 shares to 2,001,584 shares, in the aggregate.

2005 Stock Incentive Plan

Under the 2005 Incentive Plan (the 2005 Plan), a total of 1,040,000 shares of common stock has been reserved for issuance upon the exercise of awards granted under the 2005 Plan. The 2005 Plan provides for the grant of awards consisting of any or a combination of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock unit, performance and cash awards. The compensation committee may make grants to key employees of Iomai and its affiliates, board members, including outside directors, and members of an affiliate’s board of directors, and consultants, advisors or other independent contractors who perform services for us or any of our affiliates. The maximum number of shares of stock for which options and stock appreciation rights may be granted to any particular participant in a calendar year shall be, in each case, 780,000, and the maximum number of shares of stock subject to other awards that may be delivered to any particular participant in any calendar year shall be 140,000. These limits, and the total number of shares reserved under the 2005 Plan, are subject to adjustment in the case of stock dividends and other transactions affecting the common stock. Options granted under the 2005 Plan generally expire 10 years from the date of grant. In March 2007, the 2005 Plan was amended to increase the number of shares of Common Stock available for issuance under the 2005 Plan from 1,040,000 shares to 1,890,000 shares (see Note 14 — Subsequent Events).

2006 Employee Stock Purchase Plan

Under the 2006 Employee Stock Purchase Plan (the ESPP), a total of 80,000 shares of common stock has been reserved for issuance under the ESPP. The ESPP will permit eligible employees to purchase shares of our common stock at a discount from fair market value. The Company intends for the ESPP to meet the requirements for an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

The ESPP did not go into effect until completion of the Company’s initial public offering in February 2006. As of December 31, 2006, no shares of Common Stock were issued under the ESPP. The plan is expected to become operational in 2007 and, consequently, is expected to have an impact on future periods. The compensation committee, or a duly appointed administrator, will determine the frequency and duration of individual offerings under the ESPP and the dates when employees may purchase stock.

Eligible employees participate voluntarily and may withdraw from any offering at any time before they purchase stock. Participation terminates automatically upon termination of employment. The purchase price per share of common stock in an offering will equal 85% of the fair market value of the common stock at the first trading day of the offering period or at the last trading day of the offering period, whichever is less. Employees will pay through payroll deductions.

F-21

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)


10.	COMMITMENTS AND CONTINGENCIES

The Company leases laboratory and office facilities and scientific equipment under operating lease agreements. For the years ended December 31, 2006, 2005, and 2004, rent expense was $915,719, $624,310 and $601,391, and, respectively. All base rents will be subject to minimum rent escalation of 3.5%.

Future minimum payments under noncancelable operating lease obligations at December 31, 2006 are as follows (in thousands):


	Operating(1)

2007	$	1,074
2008		1,196
2009		1,236
2010		1,253
2011		1,279
Thereafter		1,883

Total minimum lease payments	$	7,921


(1)		These amounts include payments for additional facility space leased under a lease amendment signed in January 2007 (see Note 14 — Subsequent Events).

At December 31, 2006, and 2005, the Company had commitments for capital expenditures relating primarily to the expansion of the Company’s facilities of approximately $15,767 and $341,000, respectively.

License agreement with the Walter Reed Army Institute of Research (WRAIR)

On April 6, 2001, the Company entered into an Amended and Restated License Agreement with WRAIR (the WRAIR Agreement). The WRAIR Agreement grants an exclusive license to Iomai for its TCI technology as of December 15, 1997. The Company paid a license issuance fee of $150,000, annual license fees of $15,000 and additional fees upon certain milestones.

The Company may terminate the WRAIR Agreement at any time after 60 days’ notice to WRAIR without WRAIR’s consent. The Company did not expense any milestone payments to WRAIR in 2006, 2005, or 2004. No royalty payments have been made to WRAIR under the license.

In conjunction with the WRAIR Agreement, the Company issued 57,500 shares of common stock to WRAIR in 2001. These shares are held in escrow by an unrelated third party under a Voting Trust and Escrow Agreement, which provides economic benefit to WRAIR but removes WRAIR from any voting control or direct influence over the Company’s operations. The fair value of the shares of common stock was charged to research and development upon issuance.

In addition, the Company issued a put option (Put Option) to WRAIR related to the 57,500 shares of common stock. The put price will be the greater of $34.19 per share (or $1,958,450, in the aggregate) or the then fair market value at the date of exercise (Put Price). Prior to the Company’s initial public offering, the Put Option could have been exercised immediately had the Company fail to pay any amounts under the WRAIR Agreement or at any time after April 6, 2005. Upon the closing of the Company’s initial public offering in February 2006, the Put Option terminated in accordance with its terms without further financial obligation to the Company.


11.	INCOME TAXES

For the years ending December 31, 2006, 2005, and 2004, there is no current provision for federal or state income taxes. The deferred tax benefit has been entirely offset by valuation allowances.

F-22

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

The Company’s net deferred tax asset consists of the following (in thousands):


	December 31,
	2006			2005

NOL carryforward	$	32,323		$	21,239
Research and development credit carryforward		2,678			1,648
Deferred temporary differences		2,051			1,198
Valuation allowance		(37,052	)		(24,085	)

Net deferred tax asset	$	—		$	—

The net operating loss carryforwards of approximately $83.7 million will begin to expire in the year 2017 if unused. The use of the Company’s net operating loss carryforwards may be restricted due to changes in Company ownership. The Company paid no income taxes in 2004, 2005, and 2006.

The provision for income taxes differs from the amount of taxes determined by applying the U.S. federal statutory rate to loss before provision for income taxes as a result of the following:


	Year Ended December 31,
	2006			2005			2004

Federal tax at statutory rates		34.0	%		34.0	%		34.0	%
State taxes, net of federal benefit		4.6			4.6			4.6
Research and development credit		3.2			2.8			2.5
Permanent difference		(1.0	)		(1.2	)		(0.1	)
Change in valuation allowance		(40.8	)		(40.2	)		(41.0	)

Provision for income taxes		0.0	%		0.0	%		0.0	%


12.	EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution plan (the 401(k) Plan) qualified under Section 401(k) of the Internal Revenue Code. The 401(k) Plan covers substantially all employees. Under the 401(k) Plan, employees may make elective salary deferrals and the Company provides for a 50% matching of qualified deferrals, up to a maximum of 6%. During the years ended December 31, 2006, 2005, and 2004, the Company made matching contributions of approximately $164,015, $132,999 and $122,883, respectively.

F-23

IOMAI CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)


13.	QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly financial information for the years ended December 31, 2005 and 2006 is presented in the following tables (in thousands, except per share data):


	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter

Year ended December 31, 2005
Revenue	$	971		$	856		$	504		$	41
Income (loss) from operations		(3,649	)		(3,681	)		(4,343	)		(6,266	)
Net income (loss)		(3,669	)		(3,695	)		(4,365	)		(6,301	)
Net income (loss) per share, basic and diluted	$	(4.75	)	$	(4.78	)	$	(5.52	)	$	(7.94	)
Year ended December 31, 2006
Revenue	$	997		$	408		$	30		$	40
Income (loss) from operations		(5,151	)		(7,763	)		(9,474	)		(10,035	)
Net income (loss)		(5,020	)		(7,544	)		(9,326	)		(9,895	)
Net income (loss) per share, basic and diluted	$	(0.45	)	$	(0.45	)	$	(0.55	)	$	(0.53	)


14.	SUBSEQUENT EVENTS

Award of Government Contract

On January 17, 2007, the Company was awarded a five-year, cost-plus reimbursement contract by the U.S. Department of Health and Human Services (DHHS) to fund the development of a dose-sparing patch for use with a pandemic flu vaccine. The immunostimulant (IS) patch is intended to stimulate an immune response to influenza when used in conjunction with small doses of influenza vaccine. If the product is developed through licensure, the total cost reimbursed by DHHS, plus a fixed fee, is estimated to be $128 million. During the first 15 months of the contract, DHHS has allotted approximately $14.5 million for the Company to assess the safety and immunogenicity of the patch in two clinical trials and to develop plans on how the Company would produce 150 million IS patches in a six-month period, as required under the contract.

Amendment to Facility Lease

On January 26, 2007, the Company amended its lease to lease an additional 7,015 square feet in the facility, comprised of (a) 1,365 square feet currently under lease by a third party until July 1, 2007 (“Expansion Space A”), and (b) 5,650 square feet currently under lease to another third party until September 1, 2007 (“Expansion Space B”). Upon leasing this additional space, the Company will be leasing the entire facility.

Under the amendment, the Company is expected to begin leasing and paying a monthly rent of $3,242 for Expansion Space A beginning on July 1, 2007, and to begin leasing and paying a monthly rate of $13,419 for Expansion Space B beginning on September 1, 2007. The amendment does not change the May 2013 expiration date of the lease. The Company will continue to pay its proportionate share of the operating expenses of the facility.

Private Placement

On March 2, 2007, the Company entered into a securities purchase agreement with accredited investors pursuant to which the Company agreed to sell, in a private placement, an aggregate of 6,291,828 units, each unit consisting of one share of common stock, and two warrants to purchase, in total, 0.7 additional shares of common stock, at a purchase price of $5.0675 per unit. The Company expects to receive approximately $30.3 million in net proceeds, after expenses. The purchase price for the share component of each unit is $4.98 per share, the closing bid

F-24


		Page

PART I
ITEM 1.	BUSINESS		1
	Overview		1
	Our Strategy		3
	Market Overview		3
	The TCI Solution		6
	Products in Development		8
	Intellectual Property and Proprietary Technology		13
	Manufacturing and Commercial Supply		16
	Competition		17
	Government Regulation		18
	Sales and Marketing		20
	Employees		20
	Corporate Information		20
	Availability of Periodic SEC Reports		20
ITEM 1A.	RISK FACTORS		21
ITEM 1B.	UNRESOLVED STAFF COMMENTS		36
ITEM 2.	PROPERTIES		36
ITEM 3.	LEGAL PROCEEDINGS		36
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		36

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		37
ITEM 6.	SELECTED FINANCIAL DATA		40
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		41
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		49
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		49
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		49
ITEM 9A.	CONTROLS AND PROCEDURES		49
ITEM 9B.	OTHER INFORMATION		50

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		50
ITEM 11.	EXECUTIVE COMPENSATION		50
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		50
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		50
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		50

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		50
	15(a) (1) Financial Statements		50
	15(a) (2) Financial Statement Schedules		50
	15(a) (3) Exhibits		50
	15(b) Exhibits		50


	Page

Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets as of December 31, 2006 and 2005		F-3
Statements of Operations for the Years Ended December 31, 2006, 2005, and 2004		F-4
Statements of Changes in Redeemable Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2006, 2005, and 2004		F-5
Statements of Cash Flows for the Years Ended December 31, 2006, 2005, and 2004		F-6
Notes to Financial Statements		F-7

(1)		Registration Statement (Form S-8 No. 333-141097) of Iomai Corporation’s 2005 Incentive Plan,

(2)		Registration Statement (Form S-1 No. 333-138768) of Iomai Corporation,

(3)		Registration Statement (Form S-8 No. 333-131694) of Iomai Corporation’s 2006 Employee Stock Purchase Plan,

(4)		Registration Statement (Form S-8 No. 333-131693) of Iomai Corporation’s 2005 Incentive Plan,


/s/ Russell P. Wilson

Russell P. Wilson
Chief Financial Officer

	(i)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(ii)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.