ITEM 1. BUSINESS

THE CORPORATION

OVERVIEW

We are a biotechnology research and development company devoted to fundamental and applied research in the area of human biology and medicine conducting our business from our European offices located in Lausanne and Nyon (near Geneva), Switzerland. We were incorporated in July 1994 pursuant to the laws of the Commonwealth of Pennsylvania under the name "PDG Remediation, Inc." In November 1996, we reincorporated under the laws of the State of Delaware and changed our name to "ICHOR Corporation." In July 2001, we changed our name to "Mymetics Corporation."

We own all of the outstanding voting stock of 6543 Luxembourg S.A., a joint stock company organized in 2001 under the laws of Luxembourg, and 99.9% of Mymetics S.A. (formerly Hippocampe S.A.), a company organized in 1990 under the laws of France ("Mymetics S.A."), which is a subsidiary of 6543 Luxembourg S.A. In this document, unless the context otherwise requires, "Mymetics" and the "Corporation" refer to Mymetics Corporation and its subsidiaries.

We currently do not make, market or sell any products or services, and thus, we have no revenues. We believe, however, that our research and development activities will result in strong intellectual property that can generate revenues for us in the future. Our business model is to conduct our research and development far enough to sign a partnership agreement with one or more major pharmaceutical companies active in either or both the fields of HIV-AIDS preventive vaccines and therapies.

DEVELOPMENT OF THE COMPANY

From our inception in 1990 to December 1997, we operated in the environmental services industry, focusing on thermal treatment, remediation services and waste oil recycling. In February 1995, we completed an initial public offering. In 1998 and 1999, after disposing of our environmental services businesses, we provided consulting services to an industrial customer in Europe. In June 1999, we acquired a majority interest in Nazca Holdings Ltd., whose business involved the exploration for and development of groundwater resources in Chile. Following the disposal of our interest in Nazca in July 2000, we did not have an operating business.

In March 2001, we acquired 99.9% of the outstanding shares of Mymetics S.A. in consideration for shares of our common stock and shares of Class B Exchangeable Preferential Non-Voting Stock of 6543 Luxembourg S.A., or Preferential Shares, which are convertible into shares of our common stock. In 2002, we acquired all but 0.01% of the remaining outstanding common stock of Mymetics S.A. pursuant to share exchanges with the remaining stockholders of Mymetics S.A. The terms of these share exchanges were substantially similar to the terms of the share exchange that occurred in March 2001. In 2004, all the remaining convertible shares of 6543 Luxembourg S.A. not already held by Mymetics Corporation were converted into shares of Mymetics Corporation.

MYMETICS CORPORATION

Mymetics's primary objective is to develop vaccines and therapies to prevent and treat the effects of certain retroviruses, including the human immunodeficiency virus, or HIV, the virus that leads to acquired immunodeficiency syndrome, or AIDS. Additional applications of Mymetics's research include potential treatments and/or vaccines for human oncoviral leukemias, multiple sclerosis, and organ transplantation.

Prior to 2002, our activities such as design of the prototype molecules, synthesis, and in vitro testing, had been conducted exclusively in Europe. During the second quarter of 2002, we launched programs in the United States in an attempt to reinforce our intellectual property portfolio and to accelerate the commercialization of our technology. Our previous management believed that expanding

our operating activities in the United States offered numerous advantages, including greater access to expertise, grants, subsidies, intellectual property and public and private research teams. Due to financial constraints, it decided to limit these activities in January 2003. Following the management changes of July 2003, our activities have again been conducted exclusively in Europe, with certain pre-clinical tests being performed in the United States by the National Institutes of Health (NIH).

Under our "best of class" R&D model, the overall research strategy, as well as most original ideas, are defined and contributed by our own scientific team, including Dr. Sylvain Fleury, Ph.D. (Chief Scientific Officer) and Professor Marc Girard, DVM, D.Sc. (Head of Vaccine Development). Any given project is first subdivided into "technology modules" which are then subcontracted to "best of class" teams from academia, public or private laboratories or industry, all chosen for their high standards and specific knowledge. For example, if we need rabbits to be bred, we will outsource this work on a commercial basis to the best company we can find. Most of the work that we outsource is available through other vendors and to date there have not been any providers that are the only source of expertise that we require. We believe that having such specialized expertise in-house would make us dependent on the staff required to carry out such tasks. We believe we benefit from the established relationships with our partners and that it is a cost effective approach to achieving our business plan. Mymetics pays for and coordinates the work, consolidates the results and retains all intellectual property associated with it. In certain limited cases, we will sign partnership agreements with companies offering technologies that can enhance or add value to our own products under development. An example of this approach is the scientific collaboration agreement with Pevion AG, a small Swiss company that granted us an exclusive license to use their Virosome vaccine delivery technology in conjunction with our AIDS preventive vaccine under development. Under this model, Mymetics retains all intellectual property rights in the combined research and applies for domestic and international patents whenever justified. In limited cases, the patent ownership is shared with certain partners such as the French INSERM (Institut National de la Sante Et de la Recherche Medicale). In this case, Mymetics nevertheless received an exclusive license for the eventual exploitation of the shared patents.

Our business model is to sign a partnership agreement with at least one of the few major pharmaceutical companies presently active in the preventive vaccine against HIV-AIDS as soon as our human clinical Phase I trials are completed. We are trying to achieve this by June 2008. We expect that partnership agreement to be typical in the world of biotechnology: an initial cash payment, followed by a series of payments associated with specific milestones and finally, royalties on any sales of end products, assuming these will have been approved by the various regulatory authorities involved, such as the Food and Drug Administration. We would not expect this to occur prior to 2010-2011.

LUXEMBOURG 6543 S.A.

Our Luxembourg subsidiary, Luxembourg 6543 S.A., was founded in 2001 in connection with the acquisition of Mymetics S.A. by Mymetics Corporation as a vehicle to allow the former French shareholders of Hippocampe S.A. to defer French taxes due on the exchange of their Hippocampe S.A. shares for Mymetics Corporation shares. Luxembourg 6543 S.A. is dormant. We intend to liquidate it as soon as Mymetics S.A. is dissolved following its emergence from its receivership status discussed below.

MYMETICS S.A.

Our French subsidiary, Mymetics S.A. (formerly, Hippocampe S.A.), founded in 1990, is a biotechnology research and development company devoted to fundamental and applied research in the area of biology and medicine. The company is the legal owner of our initial key patents, which were applied for prior to it being acquired by Mymetics Corporation. At this time, it is not possible to transfer these patents to any non-French legal entity without the French tax authorities' approval. This approval requires an assessment of the actual economic value of the patents, which the French tax authorities will only accept as resulting from one or more arms-length transactions in which the technology protected by the patents is licensed or sold to one or more third parties. Mymetics S.A. is presently inactive. Its last salaried employee completed her assignment and had her employment contract terminated on January 31, 2005. We do not intend to hire new staff in France in the

foreseeable future, and all R&D will be conducted by Mymetics Corporation. We intend to liquidate Mymetics S.A. as soon as it emerges from receivership, discussed below.

On February 7, 2006, the Tribunal de Commerce in Lyon, France placed Mymetics S.A., under receivership ("Redressement Judiciaire") as a result of an ongoing dispute between Mymetics Corporation and a former officer and director, Dr. Pierre-Francois Serres, who obtained an initial judgment against Mymetics S.A. in France in the amount of E173,000 for an alleged wrongful termination by the Company's prior management during 2003, which judgment was reversed on appeal. The court appointed two judges to oversee the case, a lawyer to represent the creditors and a judicial administrator to manage Mymetics S.A., all of whom are considered agents of the court. The court further imposed a two-month "observation period" during which management and the administrator should strive to find a solution to the crisis. This period has been extended several times, the last time until May 7, 2007. We expect to arrive at a viable solution before the end of this observation period.

Under the order of the French court, Mymetics S.A. recently sold its patents to Lomastar Technologies for E80,000 in order to pay its creditors and the administration costs of the case. We do not believe that the sale of the patents is significant to us since they expire in 2017 and 2018, the dates we first expect to be selling the vaccine. To protect the value of our intellectual property, however, we are negotiating an exclusive worldwide perpetual license with Lomastar Technologies with respect to these patents that we hope to conclude in the next several weeks. There can be no assurance, however, that we will be successful in achieving this result, which could limit the value of our intellectual property and the potential value of our company to a prospective purchaser.

TECHNOLOGY

CURRENT APPROACHES

Current drug treatments in HIV focus on slowing or impeding the progress of the virus once it has infected the body's host cells. Recent approaches seek to develop therapies that prevent the virus from fusing with host cells. If the virus cannot fuse, it cannot enter inside the cell(infect) and reproduce, thereby facilitating the successful fight of the body's immune system against the invasion.

HIV transmission generally occurs through sexual contact. Indeed, semen and cervico-vaginal secretions may potentially transmit HIV to the gastrointestinal, anorectal and genitourinary tracts because these fluids contain cell-free HIV particles and numerous HIV-infected cells. Contracting HIV infection may be subdivided into two main events. The first event, considered as a very early step, corresponds to viral translocation across mucosal surfaces that facilitates virus penetration and spreading into the body. The second event, which usually takes place after virus translocation such as by transcytosis, represents the infection step that leads to virus entry into target cells (ex. CD4+ T lymphocytes). Therefore, the HIV vaccine should ideally elicit immune responses not only in the blood but most importantly, also at the primary entry site, which corresponds to two important anatomically compartments:
genital-reproductive tracts and intestine/rectal mucosal tissues. Therefore, vaccines or therapies for preventing this very early event of HIV translocation at the mucosa levels (ex. Transcytosis) became another important research aspect.

Until recently, vaccine development was focusing on clade B strains, which dominate the epidemic in industrialized countries but cause only about 12% of infections globally. Development of non-clade B candidates, having clade C as a key target became a priority and Mymetics seriously intends to invest all its research effort in developing its "universal" vaccine, with a primary interest for the clade C because of its world dominance, especially in countries under development like Africa, India and Asia.

MYMETICS'S APPROACH

Mymetics proposes an innovative AIDS vaccine that could prevent or reduce HIV entry at the mucosal level (primary entry: early event) as well as preventing cell infection by HIV (late event). To achieve this goal, Mymetics has combined three important concepts in the vaccine design for eliciting different sets of antibodies:

1- Preferential induction of mucosal antibodies for protecting various anatomical compartments

Mymetics postulates that the induction of protective mucosal antibodies such as IgA and secretory IgA might block the early event of HIV entry across the genito-reproductive and intestinal tracts. These mucosal antibodies could also contribute to prevent the HIV infection of target cells located just under the mucosal epithelium, thus preventing HIV entry and spreading in the body. Neutralizing blood antibodies (systemic) such as IgG will also be elicited by Mymetics's vaccine candidate. These blood antibodies will likely act on later events that may take place into secondary lymphoid organs, which consist to prevent the infection of target cells in the periphery, outside of the mucosal system. These mucosal (mostly IgA) and blood (mostly IgG) antibodies should act synergistically for optimal protection against HIV transmission and they may circulate from one compartment to another one, especially blood antibodies migrating to the mucosa levels.

2- Focused antibody response against relevant conserved gp41 regions

To achieve this objective, Mymetics's HIV vaccine candidate is constituted of gp41 peptides and recombinant proteins that are devoid of immunodistractive and useless areas. Generally, the immune system develops immune responses toward all possible regions of the foreign antigens (peptides, proteins, etc.). However, antigens are often harbouring several immunodominant regions, each eliciting an immune response of different magnitude (low, intermediate or strong recognition/affinity by the immune system) and frequency (region rarely, sometimes or often recognized by the immune system). Therefore, it is common to observe an immune response that preferentially recognizes some protein areas (immunodominant), while others are neglected. Furthermore, viruses have developed antigens that contain often immunodominant regions for distracting the immune system. These immunodistractive regions may have little or no function for the pathogen protein but may blind the immune system. Consequently, immune responses against the pathogen might be sometimes useless. Mymetics is developing vaccines that contain different antigens expressing limited and useful immunodominant regions, while useless immunodistractive regions have been removed or altered with minimal effect on the immunogenicity of the viral antigen. Using this approach, it forces the antibody response to focus on relevant viral protein regions.

3- Minimal mimicry

This concept is intended to remove in part or entirely the human protein homologies naturally present in many HIV proteins that serve as a vaccine component. To achieve that objective, Mymetics intends to use as a candidate vaccine the smallest engineered viral antigen sequence for two main reasons. First, the smaller the protein, the more limited are the homologies with human proteins. Second, it is easier to remove human homologies into a small viral protein or peptide because of their limited distribution. Using this approach, Mymetics believes that an HIV vaccine constituted of viral antigens or genes encoding viral antigens with minimal human homologies should reduce the risk of developing potential long-term autoimmunity side-effects after HIV vaccination.

How to trigger the protective immune response?

Mymetics's vaccine uses the technology of Virosomes(R), a lipid-like structure highly efficient for delivering the vaccine's active ingredients.

The virosome-based vaccine is constituted of two types of virosomes, each with surface anchored gp41-derived conserved antigens, each eliciting different antibodies not mutually exclusive with a broad activity spectrum:

- Virosomes with peptides corresponding to the conserved Membrane Proximal Region (MPR) of gp41 for triggering protective mucosal antibodies (mostly IgA) against a broad spectrum of HIV isolates.

- Virosomes with soluble/stable recombinant gp41 without the MPR for eliciting complementary neutralizing IgA and IgG antibodies.

This Virosomes(R) technology is already market approved in more than 40 countries with excellent safety profile and no mucosal adjuvant is required for triggering mucosal antibodies.

We executed an exclusive License Agreement dated March 1, 2007 with Pevion Biotech for the use of Virosomes(R) in the production of our HIV vaccine. We believe that our exclusive agreement with Pevion Biotech provides a competitive advantage by allowing us to avoid using an adjuvant for our HIV vaccine. We believe that adjuvants have not sufficiently advanced to allow clinical testing for our HIV vaccines.

By carefully modifying parts of the HIV gp41 molecule, Mymetics has obtained vaccine subunits such as gp41 peptides and engineered recombinant gp41 molecules that:

- May form stable dimers, trimers or tetramers and the protein folding isclose to the native protein;

- Are soluble in the absence of detergent and can be incorporated into an artificial lipidic membrane, which is more suitable for in vivo work;

- Can be chemically synthesized or easily produced by recombinant bacterialike E. coli;

- Have been stripped of immunodominant areas that generates numerous non-neutralizing antibodies, which may fool the immune response.

- Have been stripped of its key IL-2-like sequence and other human homologies, minimizing the important potential cross-reaction with host proteins that may contribute to the destruction of the immune system seen in HIV patients;

This type of new engineered gp41 molecules should be able to elicit antibodies with a broad spectrum of action (cross-clade neutralization like A, B and C):
blocking virus translocation across the mucosal barrier and/or to inhibit cell infection, thus preventing HIV-1 infection.

Based on our recent research results, we believe that Mymetics's HIV vaccine candidate and strategies definitely place us amongst the most advanced teams devoted to AIDS prophylactic vaccine research that aims to prevent HIV transmission across the mucosal barrier.

Mymetics's findings further apply to a range of additional diseases, including certain oncoviruses often associated with leukemia.

THE IMMUNE RESPONSE

Normally, the body's immune system responds to the invasion of pathogens. In the case of HIV, for example, an infected host cell alerts the immune system by secreting interleukine-2 (IL-2), a special protein (called a cytokine) that acts as a key messenger for many cells of the immune system.

IL-2 acts as a T cell growth factor, promotes NK proliferation and stimulates B cell growth (cells that produce antibodies). Together, these "soldier cells" attack foreign pathogens like viruses, and help to destroy them. From the first encounter with the invader, the immune system keeps a memory of what happened and specialized "memory" T and B cells are established as guardians in the host's body. The next time the invaders try to enter, they will be swiftly attacked and disarmed.

HIV AND AIDS

The HIV (human immunodeficiency virus) is a retrovirus that gradually destroys the immune system and ultimately leads to AIDS, is famously the most genetically diverse viral pathogen known, specially in Africa where HIV is also rapidly mutating. Indeed, HIV exists under many different versions like members of a large family, they are different from, but related to each other.

By sequencing the viral genomes (genes), researchers have been able to map out the family tree of HIV. At the root of the tree, there are three groups called M, N and

O, group M being responsible for the current AIDS pandemic. Group M is split into nine genetic subtypes, also called nine clades (designated A through K, with no E or I). The original definition of clades was based on short genomic sequences, mostly within the HIV envelope protein (Env: gp160).

These nine clades have uneven geographic distribution patterns. Clade C circulates in South Africa, India and parts of China. Clade A and D are common in East Africa and clade B is common in North & South America and Western Europe. Looking at the global numbers, it emerges that four clades (A, B, C and
D) plus two recombinant forms called CRFs 01 and 02 (both of which are about 70% clade A) account for over 90% of all infections worldwide. From this perspective, diversity can be mostly limited to 4 key major clades, plus small contributions from the non-A segments of these two CRFs. According to the statistics, clade C represents the world's most dominant HIV (>50%).

HIV attaches itself to the target host cell using a harpoon-like surface protein called gp160. This protein spears the host cell's membrane, drawing them together so that the virus can fuse with the host cell. Once attached, the virus penetrates the cell and commandeers the cell's machinery. Then it rapidly replicates itself.

HIV-1 is lethal since it targets the most central cell of the immune system, the CD4+ T cells which produce the IL-2 cytokine, a key messenger for immune cells. These cells usually coordinate the cellular and humoral responses that are directed to thwart the pathogen (HIV). When the number of such CD4+ T cells decreases significantly over time, the amount of IL-2 becomes too low for an efficient immune attack orchestration. Consequently, HIV as well as other pathogens evade the activity of the immune system, leaving the host vulnerable to disease.

HIV proves itself an elusive target because it:

- Reproduces itself at an extraordinary rate (several million new virus particles are created daily)

- Mutates rapidly: as it reproduces itself, it makes mistakes that produce new virus particles that are slightly different; these differences make the virus harder to target by the immune system.

MYMETICS AND HIV-AIDS

Normally, the immune system would respond to this attack: IL-2 would be secreted mostly by activated CD4+ T cells to signal the alarm to the other T-Cells subtypes and B-cells. With HIV, this approach backfires. Why?

Mymetics has discovered a peculiar inter-reactivity between part of the virus's "harpoon" and the host cell's "alarm" (IL-2). We call it "mimicry". Several other homologies between HIV and human proteins have been reported. It has also been reported that most of HIV infected subjects develop auto-antibodies (antibodies attacking your own proteins), even in early phase of the infection. It has been postulated that some mimicries must exist between HIV and human proteins, which could lead to such autoimmunity problems.

The shaft of the virus' harpoon, called gp41, actually appears to "mimic" the host cell's IL-2. This dynamic enables the virus to attach itself to the host cell membrane at a precise portal. An unusual consequence: when the "soldiers" (antibodies against the viral gp41 protein) arrive to battle the virus, they can potentially "confuse" the virus's gp41 with the host cell IL-2 and attack and destroy them both.

As the immune system methodically kills its own soldiers, the HIV continues to replicate swiftly. The equilibrium shifts and the HIV outpace our body's defenses. Such events likely contribute to the development of AIDS, a fatal disease that affects an increasing number of people worldwide. In light of these reported observations, Mymetics is using this information to develop a safer HIV vaccine that would be constituted of vaccine subunits having minimal human homologies.

WHERE ARE WE AND WHERE ARE WE GOING?

From 1997 to 2001, Mymetics's R&D has documented the existence of an important three-dimensional molecular mimicry between the gp41 glycoprotein of HIV-1 and the human interleukin-2 (IL-2) cytokine, a mimicry also found in lentiviruses causing AIDS in other animal species. Mymetics has explored this mimicry as the starting point for developing a safe HIV-1 candidate vaccine capable of eliciting protective antibodies, while preventing potential harmful cross-reactivities toward host proteins such as the human IL-2 (Mymetics US Patent 6,455,265). We believe that this innovative concept may render vaccines from the 21st century as efficacious as those from the 20th century, in addition to being safer.

Together with Protein'eXpert S.A. (Grenoble, France), we have succeeded in engineering and producing in bacteria E. Coli the first gp41 generation in September 2003, which forms soluble and stable gp41 trimers that closely resembles the native gp41 found on HIV-1. This first generation of gp41 immunogen is devoid of the cluster I and 2F5/4E10 epitopes, in addition of being mutated in one important IL-2 mimicry area. The design of the first gp41 generation was intended to identify new important epitopes as well as to focus the immune response on possible neutralizing epitopes different from the 2F5/4E10 previously identified by other teams.

In 2004, we started a collaboration with Dr. Morgane Bomsel(Cochin Institute, Paris, France), a renowned scientist in the field of HIV transcytosis and mucosal immunity. Dr Bomsel had few monoclonal IgA antibodies obtained from a phage display libraries issued from B cells of HIV resistant women. These monoclonal IgA antibodies were found later capable of preventing HIV transcytosis and HIV infection of primary isolates. Interestingly, these IgA have recognized epitopes on our gp41 first generation devoid of the 2F5/4E10 epitopes, meaning that other potential neutralizing epitopes exist and they are not limited to IgG isotypes.

From January to August 2004, the first gp41 generation was tested in rabbits for it's capacity to elicit neutralizing antibodies toward HIV-1. Such antibodies were obtained in large quantities and their neutralizing potential was evaluated by our academic collaborators. Thus, Dr. Morgane Bomsel obtained 60% inhibition of HIV-1 transcytosis with primary strains. Sera were also tested in the laboratory of Dr Christiane Moog (Institut Pasteur, Strasbourg, France), a well acclaimed specialist in neutralizing antibodies in the HIV field. In the performed assay, primary T cells infection by primary HIV-1 strains from clade B (Bx-08 and SF-162) and clade C (TV1) were respectively neutralized at 70%, 80% and 90% by low sera dilutions. When total rabbit antibodies were purified from the serum, a neutralizing activity of 80% was obtained with an antibody concentration of 20ug/ml, using three primary HIV-1 strains. These results are similar to those obtained with the 2F5 monoclonal antibody (>90% inhibition), one of the most potent neutralizing antibodies so far identified. Infection of primary human macrophages by primary HIV-1 strains was also strongly inhibited (>90%) with a low antibody concentration (<2ug/ml). These preliminary results were highly encouraging, considering that the first gp41 generation of immunogen did not include the 2F5/4E10 epitopes.

A second gp41 generation that has included the 2F5 and 4E10 epitopes was obtained in August 2004 and produced on a larger scale in September 2004. However, several technical difficulties were encountered during the production of this antigen. First, these gp41 proteins formed inclusion bodies in bacteria that were difficult to solubilize. Gp41 proteins obtained after denaturation and refolding were forming dimer of trimers instead of the natural trimeric form, as observed with the gp41 1st generation. Despite of this, these new gp41 immunogens were incorporated into liposomes and were well recognized by the 2F5 and 4E10 monoclonal antibodies kindly provided by Dr Wayne Koff (IAVI), which suggest the presence of functional epitopes. Rabbit immunizations with gp41-liposomes have been achieved from Fall 2004 to Winter 2005 and animal sera were tested. Not surprisingly, this gp41 2nd generation did not elicit neutralizing antibodies in rabbits, as we initially expected. When mixed with liposomes, the gp41 2nd generation can form proteo-liposomes that are unstable. Furthermore, gp41 proteins can bind randomly to liposomes with no preferential orientation. In such situation, some key epitopes like the 2F5 may not be properly maintained or presented to the immune system and consequently, these epitopes are ignored or poorly recognized.

Based on the experience acquired over the first three years (2003-2005), we were strongly convinced that orienting the anchorage of gp41 proteins or gp41-derived peptides onto stable synthetic lipid membranes would better present the antigen to the immune system. Therefore, a third generation of recombinant gp41 proteins was

engineered during Winter-Spring 2005, which lead to the conclusion that not all epitopes should be present on the same antigenic structure. In fact, to avoid protein aggregation and to improve the yield of protein production, some epitopes most be taken separately from others on different antigens. This approach offers the main advantage to present key epitopes to the immune system, using different antigens, which should eliminate the problem of epitope immunodominance. Furthermore, we intend to better target the mucosal immune system by a more adequate vaccine delivery system: testing nasal administration alone or in combination with intra-muscular injection.

In parallel to the protein approach, during Winter-Spring 2005 and in collaboration with Pevion Biotech Ltd. (Bern, Switzerland) and Dr. Bomsel, the second vaccine prototype has been formulated. This prototype consisted of using peptides derived from the conserved proximal membrane region of the gp41 ectodomain grafted in an oriented manner onto biosynthetic stable lipidic spheres called Virosomes(R). Rabbit immunizations (France) were launched from May to November 2005 for targeting the mucosal immune response. Biological samples were analyzed and all rabbits have produced specific antibodies toward the gp41 peptides. More importantly, when these samples were tested into transcytosis assays, most of these vaginal and rectal secretions (diluted 10-fold for the assay) contained antibodies that were able to prevent translocation (transcytosis) of primary R5 clades B and C with an efficiency of 70-90%, which is close to what is observed with human secretions isolated from HIV-resistant women.

This successful rabbit study lead us to another pre-clinical trial in 2006 on non-human primates (macaques), hoping to reproduce the same results with virosomes-gp41 peptides. From March to September 2006, sixteen female macaques (animal facilities in Beijing, China) were immunized four times (40ug/100ul injected) over 6 months.

- Mymetics's vaccine based on virosomes(R)-gp41 peptides have elicited mucosal IgA and blood IgG antibodies in >90% of vaccinated macaques.

- These IgA and IgG antibodies could get redistributed into the genital and intestinal compartments, even in animals vaccinated by intra-muscular injection in the absence of mucosal adjuvant.

- These antibodies were also capable of preventing at least 60% of HIV entry across a human mucosal epithelium in vitro and up to 98% in two out of sixteen animals. Significant inhibitions were obtained with primary HIV from clades B and C.

- Such success into the macaque animal model, in the absence of mucosal adjuvant, is a major breakthrough which is highly encouraging for future human clinical trials.

- Antibodies from secretions will be purified and evaluated for their potential to neutralize HIV infection.

Following vaccination, macaques will be rectally challenged 5 months later with SHIV162P3 for measuring the level of protection.

In parallel, we are close to finishing the production of the gp41 4th generation for clades B and C that will combine the best characteristics of the first three generations of gp41 previously synthesized. This gp41 will be grafted on virosomes for being tested during the next pre-clinical trial on non-human primates. This second pre-clinical trial should be launched in Spring 2007 for evaluating the vaccine candidate constituting two virosomes: virosomes-gp41 peptides combined with virosomes-rgp41. Mymetics is expecting this HIV vaccine prototype to trigger the best immune protection. Clinical lots of gp41 peptides and proteins are planed for Q3 2007, then toxicology and phamacokinetics evaluations will be conducted. If pre-clinical results are as good as with induction of mucosal antibodies as the primary end point of the study.

Visit the IAVI web site (www.iavi.org) for more background information on AIDS.

VACCINAL USE OF THE MIMICRY DISCOVERY

Our current research modules focus on the following two fields:

PREVENTIVE VACCINES

Mymetics believes that its discovery of the host-virus IL-2 mimicry opens the door to novel therapeutic and HIV-AIDS preventive vaccine strategies. We are convinced that properly mutated and engineered trimeric gp41 molecules represent excellent candidate vaccines because they are devoid of the "IL-2" like structure and other major human homologies and consequently, its potential harmful associated auto-immune side effects. Furthermore, these engineered gp41 have conserved their antigenic properties and correspond to the most conserved region of the viral envelope glycoprotein, which otherwise exhibits considerable genetic diversity. Mymetics specific preventive vaccine would be "universal" in that it would train the body's mucosal and blood immune system to recognize and defeat a broad array of HIV strains, while preventing the potential induction of the autoimmune reaction toward IL-2. Mymetics recent advances in protein engineering, peptide designs and mucosal antibody results have kept Mymetics's vaccine program very competitive.

THERAPEUTIC MOLECULES

Based on insights into mimicry, we have developed a series of synthetic peptides, based on the well-conserved IL-2 homologous regions, that might inhibit the fusion between HIV or FIV (the virus causing AIDS in cat) and its target cell in an infected host. For the in vitro work, these synthetic peptides have been effective for blocking both HIV and FIV infections, while in vivo experiments with FIV peptides were investigated until 2003. This application would complement available antiretroviral drugs, or may even provide a substitute for the available antiretroviral drugs for FIV and HIV. FIV causes a disease with a low mortality incidence and the market for such peptides is too limited and hardly profitable. Therefore, we have decided to cease this research activity, especially in light of our difficult financial situation. Similarly, we stopped research on HIV peptides because new compounds were emerging in the market and we could not remain competitive. However, if our financial situation improves in a short term, we have the possibility to combine our HIV peptide technology with another one for creating a new type of drug orally available, which could become highly attractive.

We currently have compound prototypes potentially capable of commercialization, including:

- Preventive vaccines - administered to healthy subjects (HIV-negative) to prevent infection by HIV.

- Therapeutic molecules (pharmacological agents) - administered to infected subjects to prevent cell infection by HIV and slowing down the spread of the virus.

Visit our web site www.mymetics.com for more detailed information on our technology platform.

INTERNATIONAL AIDS VACCINE INITIATIVE (IAVI)

Visit the IAVI site (www.iavi.org)for more background information on AIDS or download the IAVI Global Report (pdf format) which has a great deal of useful information about AIDS, vaccines and other related issues in a few easy-to-read pages at (www.iavi.org/pdf/globalscience.pdf).

RESEARCH AND DEVELOPMENT EXPENSES

INTELLECTUAL PROPERTY

We are the exclusive owner of intellectual property relating to our core business which is focused on the development of novel HIV-AIDS preventive vaccines and therapeutics. Particularly, we have:

- Two issued French patents FR99 06528 and FR01 15424 on IL-2 mimicry.

- One European issued patent EP1034000 on IL-2 mimicry.

- One U.S. issued patent US 6,455,265 on gp41 & IL-2 mimicry and its corresponding national filings and divisional filings in various countries including Europe, the United States, Japan, Canada and Israel.

- Filed two patents under the Patent Cooperation Treaty, or PCT:

- WO 03/048187 (PCT/US02/38152 filed on November 27, 2002 for peptides rich in tryptophane as inhibitors of HIV infection from PFS).

- WO 03/104262 (PCT/US03/18251 filled on June 10, 2003 for describing gp41 peptides or proteins to block HIV fusion/infection), with national phases in the United States and EP.

- We have additionally filed four United States provisional applications related to the field.

- On July 29, 2004, we applied for a new PCT (PCT/IB2004/002433 or WO2005010033) which covers our mutated, trimeric, stable recombinant gp41 protein.

- On May 2, 2005, we applied with INSERM for a new PCT (PCT/IB05/001182), which covers the description of IgA antibodies against our recombinant gp41 protein.

- On March 3, 2006, we applied with INSERM and Pevion for a new PCT which covers our latest prototype HIV-AIDS preventive vaccine based on the usage of the virosome technology with HIV peptides and proteins.

We rely primarily on a combination of patent, copyright, trademark and trade secret laws, as well as contractual restrictions, to protect our intellectual property. These legal protections afford limited protection. We generally require employees, strategic research partners and consultants with access to our intellectual property to execute confidentiality agreements. Despite our efforts to protect our intellectual property, unauthorized parties may attempt to copy the research and research methods that form the basis of our intellectual property. The laws of many countries do not afford the same level of protection as those provided by United States intellectual property laws. Litigation may be necessary to protect and enforce our rights in our intellectual property.

COMPETITION

We have not yet developed an actual product or generated any revenues. Our future competitive position depends on our ability to successfully develop our intellectual property, and to license or sell such intellectual property to third parties on financially favorable terms. Although we believe that the results of our research and development activities have been favorable, there are numerous entities and individuals conducting research and development activities in the area of human biology and medicine all of which could be considered competitors. We are conducting research aimed at developing a "universal" preventive vaccine that could elicit protective mucosal and blood antibodies against HIV, with a primary interest for the clade C because of its world dominance. Our vaccine shall provide protection against a broad array of viral HIV-1 strains from different clades such as A, B, C and D.

In the field of HIV vaccines, the failure in 2003 of the VAXGEN product in Phase III clinical trials underscores the need for an effective solution to the global challenge posed by HIV. As this particular candidate was based on technology unrelated to our technology, we do not feel that the cessation of clinical trials with respect to VAXGEN negatively impacts our prospects for developing a viable preventive vaccine.

The worldwide vaccine market is dominated by four large multinational companies:
Sanofi Pasteur S.A. (formerly Aventis Pasteur S.A.), Merck & Co., GlaxoSmithKline Plc, and Novartis-Chiron Inc. Other companies such as Progenics Pharmaceuticals, Inc., are developing therapeutic HIV vaccines, i.e. vaccines that target HIV-infected persons in an attempt to control the development of the disease.

While many of these individuals and entities have greater financial and scientific capabilities, and greater experience in conducting pre-clinical and clinical trials, we believe that our innovative approach to vaccine development is very competitive. Our approach is based on three main aspects: 1) design of lipid membrane anchored-antigens forming dimmers, trimers and tetramers that force the immune system to focus the response only on key relevant conserved regions; 2) the induction of protective antibodies not only in the blood but most importantly in the genito-reproductive and intestinal mucosal compartments (primary HIV entry site) and; 3) on the observed immunological cross-reactivity (or mimicry) between the well preserved, antigenic and immunodominant domain of GP41 and IL-2, and on the observation of expected autoimmune consequences in HIV infected subjects. Overall, our vaccine candidate will provide an advantage over existing and future approaches that have been pursued so far because all our competitors are using DNA, viral vectors, recombinant proteins or peptides with native viral sequences with no or limited deletion of human sequence homologies (linear or tridimensional) and poorly induce mucosal immunity. Therefore, all these vaccine prototypes are potentially harmful on a long-term basis for human health and do not target properly mucosal tissues. Vaccine candidates under development of investigation include:

- Sub-unit vaccine: a technology addressing a piece of the outer surface of HIV, such as GP160, GP140 or GP120, produced by genetic engineering.

- Live vector vaccine: a live bacterium or virus such as vaccinia (used in the smallpox vaccine) modified so it cannot cause disease, but can transport into the body one or more genes that makes one or more HIV proteins.

- Vaccine combination: an example includes a "prime-boost strategy", use of a recombinant vector vaccine to induce cellular immune responses followed by booster shots of a sub-unit vaccine to stimulate antibody production.

- Peptide vaccine: chemically synthesized pieces of HIV proteins (peptides) known to stimulate HIV-specific immunity.

- Virus-like particle vaccine (pseudovirion vaccine): a non-infectious HIV look-alike that has one or more, but not all, HIV proteins.

- DNA vaccine: direct injection of genes coding for HIV proteins.

- Whole-killed virus vaccine: HIV that has been inactivated by chemicals, irradiation or other means rendering it non-infectious.

- Live-attenuated virus vaccine: live HIV from which one or more apparent disease-promoting genes of the virus have been deleted.

GOVERNMENTAL REGULATION

Our strategy was crafted in part to minimize the risks usually associated with clinical trials, regulatory approvals and marketing, which we would expect to be borne by one or more future partners.

We contract with third parties to perform research projects related to our business. These third parties are located in various countries and are subject to the applicable laws and regulations of their respective countries. Accordingly, regulation by government authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of our proposed products by our future partners and therefore has a direct impact on our ongoing research and product development activities.

Any products that will be developed by our future partners based on our technology will require regulatory approval by government agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous pre-clinical studies and clinical trials and other approval procedures of the FDA and similar regulatory authorities in foreign countries. In addition, various federal and state statutes and regulations will also govern or influence testing, manufacturing, safety, labelling, storage and record keeping related to such products and their marketing. The process of obtaining these approvals and the subsequent substantial compliance with appropriate federal and state statutes and regulations require the

expenditure of substantial time and financial resources. Obtaining royalties in the future will depend on our future partners' ability to obtain and maintain the necessary regulatory approvals.

Pre-clinical studies generally are conducted on laboratory animals to evaluate the potential safety and the efficacy of a product. In the United States, we must submit the results of pre-clinical studies to the FDA as a part of an investigational new drug application, or IND, which application must become effective before we can begin clinical trials in the United States. An IND becomes effective 30 days after receipt by the FDA unless the FDA objects to it. Typically, clinical evaluation involves a time-consuming and costly three-phase process. At this time, neither we nor any of our partners has submitted any of our pre-clinical results to the FDA nor any European or other health regulation agency. The process which is described below is therefore to be considered as generic background information which is relevant to the industry as a whole.

Phase I. Refers typically to closely monitored clinical trials and includes the initial introduction of an investigational new drug into human patients or normal volunteer subjects. Phase I clinical trials are designed to determine the metabolic and pharmacologic actions of a drug in humans, the side effects associated with increasing drug doses and, if possible, to gain early evidence on effectiveness. Phase I trials also include the study of structure-activity relationships and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or disease processes. During Phase I clinical trials, sufficient information about a drug's pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically valid, Phase II studies. The total number of subjects and patients included in Phase I clinical trials varies, but is generally in the range of 20 to 80 people.

Phase II. Refers to controlled clinical trials conducted to evaluate the effectiveness of a drug for a particular indication or indications in patients with a disease or condition under study and to determine the common short-term side effects and risks associated with the drug. These clinical trials are typically well-controlled, closely monitored and conducted in a relatively small number of patients, usually involving no more than several hundred subjects.

Phase III. Refers to expanded controlled clinical trials, which many times are designated as "pivotal trials" designed to reach end points that the FDA has agreed in advance, if met, would allow approval for marketing. These clinical trials are performed after preliminary evidence suggesting effectiveness of a drug has been obtained. They are intended to gather additional information about the effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labelling. Phase III trials can include from several hundred to several thousand subjects depending on the specific indication being treated.

The FDA closely monitors the progress of each of the three phases of clinical trials that are conducted in the United States and may, at its discretion, re-evaluate, alter, suspend or terminate the testing based upon the data accumulated to that point and the FDA's assessment of the risk/benefit ratio to the patient. We have not yet conducted any clinical trials and are currently focused on research. Once Phase III trials are completed, drug developers submit the results of pre-clinical studies and clinical trials to the FDA, in the form of an new drug application, or NDA, for approval to commence commercial sales. In response, the FDA may grant marketing approval, request additional information or deny the application if the FDA determines that the application does not meet the predetermined study end points and other regulatory approval criteria.

Furthermore, the FDA may prevent a drug developer from marketing a product under a label for its desired indications, which may impair commercialization of the product.

If the FDA approves the new drug application, the drug becomes available for physicians to prescribe in the United States. After approval, the drug developer must submit periodic reports to the FDA, including descriptions of any adverse reactions reported. The FDA may request additional studies, known as Phase IV

trials, to evaluate long-term effects. We will be required to comply with similar regulatory procedures in countries other than the United States.

In addition to studies requested by the FDA after approval, a drug developer may conduct other trials and studies to explore use of the approved compound for treatment of new indications. The purpose of these trials and studies and related publications is to broaden the application and use of the drug and its acceptance in the medical community.

Our future partner(s) will have to complete an approval process, similar to the one required in the United States, in virtually every foreign target market in order to commercialize product candidates based on our technology in those countries. The approval procedure and the time required for approval vary from country to country and may involve additional testing. Approvals (both foreign and in the United States) may not be granted on a timely basis, or at all. In addition, regulatory approval of prices is required in most countries other than the United States. We face the risk that the resulting prices would be insufficient to generate an acceptable return to our partner(s).

EMPLOYEES

As of December 31, 2006, neither our Luxembourg nor our French affiliates had any employees.

Mymetics Corporation had three full-time employees: Mr. Christian J.-F. Rochet, our Chief Executive Officer, Mr. Ernst Luebke, our Chief Financial Officer and Dr. Sylvain Fleury, Ph.D., our Chief Scientific Officer. Mymetics Corporation further had one part-time consultant: Professor Marc Girard, DVM, D. SC., our acting Head of Vaccine Development.

Under their respective employment or consulting agreements, all our officers have agreed that their salaries, fees and out-of-pocket expenses will only be paid to them from time to time as the Company's financial position allows. As a result, Mr. Rochet, Mr. Luebke, Dr. Fleury and Prof. Girard were respectively owed E45,796, E176,167, E58,601 and E57,053 at December 31, 2006 after having agreed to convert approximately 50% of their respective claims into Mymetics common restricted shares at $0.10 per share, the current market price at the time of the conversion being $0.05 or less.

WWW.MYMETICS.COM

News and information about Mymetics Corporation and its subsidiaries is available on our web site, www.mymetics.com.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below together with all of the other information included in this report on Form 10-K. An investment in our common stock is very risky. If any of the following risks materialize, our business, financial condition or results of operations could be adversely affected. In such an event, the trading price of our common stock could decline, and you may lose part or all of your investment. When used in these risk factors, the terms "we" or "our" refer to Mymetics Corporation and its subsidiaries.

We are a company engaged exclusively in research and development activities, focusing primarily on human biology and medicine. Our strategy was crafted in part to minimize the risks usually associated with clinical trials, regulatory approvals and marketing, which we would expect to be borne by our future partner(s).

WE HISTORICALLY HAVE LOST MONEY, EXPECT LOSSES TO CONTINUE FOR THE FORESEEABLE FUTURE AND MAY NEVER ACHIEVE PROFITABILITY.

We historically have lost money. In the year ended December 31, 2006, we sustained net losses of approximately E1,585,000. In the years ended December 31, 2005 and December 31, 2004, we sustained net losses of approximately E1,939,000 and E2,202,000, respectively. At December 31, 2006, we had an accumulated deficit of approximately E15,672,000. Total cash disbursed since 1990 for operating activities, including research and development, is E10,541,000.

The amount of these losses may vary significantly from year-to-year and quarter-to-quarter and will depend on, among other factors:

- the timing and cost of product development;

- the progress and cost of preclinical and clinical development programs;

- the timing and cost of obtaining necessary regulatory approvals;

- the timing and cost of sales and marketing activities for future products; and

- the costs of pending and any future litigation of which we may be subject.

We currently are engaged in research and development activities and do not have any commercially marketable products. The product research and development process requires significant capital expenditures, and we do not have any other sources of revenue to off-set such expenditures. Accordingly, we expect to generate additional operating losses at least until such time as we are able to generate significant revenues.

To become profitable, we will need to generate revenues to off-set our operating costs, including our general and administrative expenses. We may not achieve or, if achieved, sustain our revenue or profit objectives, and our losses may increase in the future, and, ultimately, we may have to cease operations.

In order to generate new and significant revenues, we must successfully develop and commercialize our proposed products or enter into collaborative agreements with others who can successfully develop and commercialize them. Our business plan is predicated on commercializing our products in collaboration with others. Even if our proposed products are commercially introduced, they may never achieve market acceptance and we may never generate significant revenues or achieve profitability.

WE NEED TO RAISE SUBSTANTIAL ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND WE MAY BE UNABLE TO RAISE SUCH FUNDS ON A TIMELY BASIS AND ON ACCEPTABLE TERMS.

Although we have restructured our existing debt as discussed below, we have not alleviated our working capital needs. We need to address our working capital needs by the end of June 2007 to allow us to continue devoting our efforts to development of the business instead of raising needed capital. If we must devote a substantial amount of time to raising capital, it will delay our ability to achieve our business plan within the time frames that we now expect, which could increase the amount of capital we need and could threaten the success of our business if competitors are able to produce an effective vaccine to the market ahead of us. In addition, the amount of time expended by our management on fund raising distracts them from concentrating on our business affairs.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OR PREDICT OUR FUTURE BUSINESS PROSPECTS.

We have no operating history, and our operating results are impossible to predict because we have not begun selling any products. We are in the development stage, and our proposed operations are subject to all of the risks inherent in establishing a new business enterprise, including:

- the absence of an operating history;

- the lack of commercialized products;

- insufficient capital;

- expected substantial and continual losses for the foreseeable future;

- limited experience in dealing with regulatory issues;

- limited marketing experience;

- an expected reliance on third parties for the commercialization of our proposed products;

- a competitive environment characterized by numerous, well-established and well-capitalized competitors;

- uncertain market acceptance of our proposed products; and

- reliance on key personnel.

The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the formation of a new business, the development of new technology, and the competitive and regulatory environment in which we will operate. See "Description of the Business".

Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our company.

OUR PROPOSED PRODUCTS ARE IN THE DEVELOPMENT STAGES AND WILL LIKELY NOT BE COMMERCIALLY INTRODUCED BEFORE 2010, IF AT ALL.

Our proposed key products still are in the development stage and will require further development, preclinical and clinical testing and investment prior to commercialization in the United States and abroad. See "Description of the Business". While we are pleased about the progress made to date on these products, we cannot be sure that these products in development will:

- be successfully developed;

- prove to be safe and efficacious in clinical trials;

- meet applicable regulatory standards or obtain required regulatory approvals;

- demonstrate substantial protective or therapeutic benefits in the prevention or treatment of any disease;

- be capable of being produced in commercial quantities at reasonable costs;

- obtain coverage and favorable reimbursement rates from insurers and other third-party payors; or

- be successfully marketed or achieve market acceptance by physicians and patients.

We do not intend to undertake any product development beyond Phase II human clinical trials (i.e., Phase III clinical studies) or be responsible for obtaining regulatory approval or marketing the products. Nevertheless, even if we are successful in selling or licensing our products to another pharmaceutical company, it likely that any revenues we may receive in connection with those arrangements will depend upon that other companies sales, which will, in turn, depend upon the factors stated above.

NEITHER CHRISTIAN ROCHET, OUR CHIEF EXECUTIVE OFFICER, NOR ERNST LUEBKE, OUR CHIEF FINANCIAL OFFICER, ARE FULLY PAID FOR THEIR EFFORTS, AND MAY BE FORCED TO SEEK OTHER EMPLOYMENT ON A FULL TIME OR PART TIME BASIS WHICH COULD ADVERSELY AFFECT THE COMPANY'S PROSPECTS.

Messrs. Rochet and Luebke are intimately familiar with the business of the Company, its funding contacts, employees, advisors, consultants and strategic partners. The inability of the Company to compensate them in accordance with the amounts due under their respective Employment Agreements could force them for economic reasons to seek other employment on a part time or full time basis. Finding people of comparable talent and dedication with the contacts that they have to persons important to the

present and future business of the Company would be difficult given our inability to pay management the amount of money they are owed and the amount of money new management would likely demand.

ALTHOUGH WE DO NOT BELIEVE EITHER SYLVAIN FLEURY, OUR CHIEF SCIENTIFIC OFFICER OR MARC GIRARD, AN IMPORTANT SCIENTIFIC CONSULTANT, HEAD OF OUR VACCINE DEVELOPMENT PROGRAM, ARE PLANNING TO LEAVE US, REPLACING EITHER OF THESE MEMBERS OF OUR SCIENTIFIC TEAM WOULD BE DIFFICULT AND WOULD DIMINISH THE COMPANY'S ABILITY TO ACHIEVE ITS BUSINESS PLAN.

If we are unable to pay Sylvain Fleury's salary, he may soon lose his Swiss residency permit. Dr. Fleury has been following, and associated with, our AIDS vaccine project since 1998 and we believe that replacing him as CSO on time for successfully prosecuting our pending patent applications would be next to impossible. We are therefore exposed to the risk of losing our pending patent applications. Similarly, our financial constraints may make it impossible for Marc Girard to remain as a consultant to us. Given his knowledge of our vaccine development, losing his services would delay progress on developing and commercializing our vaccine and may threaten our ability to achieve our business plan.

OUR BUSINESS MODEL IS PREDICATED ON OUR BELIEF THAT WE WILL BE ABLE TO ENGAGE LARGE PHARMACEUTICAL COMPANIES TO PARTNER WITH US IN THE DEVELOPMENT OF OUR PRODUCTS AND FAILURE TO DO SO WILL LIKELY MAKE THE COMPANY UNATTRACTIVE AS AN ACQUISITION TARGET.

We anticipate that we will need a large pharmaceutical company to assist us with human trials and financing. See "Funding Requirements". Our failure to succeed in this endeavor will have a dramatic adverse result regarding our financial needs and ability to successfully sell any products that we develop.

IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL ANY OF OUR FUTURE PRODUCTS, OR IF APPROVAL IS DELAYED OR WITHDRAWN, WE WILL BE UNABLE TO GENERATE REVENUE FROM THE SALE OF OUR PRODUCTS.

We must obtain regulatory approval to sell any of our products in the United States and abroad. In the United States, we must obtain the approval of the FDA for each product or drug that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products to be commercialized abroad are subject to similar foreign government regulation.

Generally, only a very small percentage of newly discovered pharmaceutical products that enter preclinical development are approved for sale. Because of the risks and uncertainties in biopharmaceutical development, our proposed products could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. If regulatory approval is delayed or never obtained, our management's credibility, the value of our company and our operating results and liquidity would be adversely affected. Furthermore, even if a product gains regulatory approval, the product and the manufacturer of the product may be subject to continuing regulatory review. Even after obtaining regulatory approval, we may be restricted or prohibited from marketing or manufacturing a product if previously unknown problems with the product or its manufacture are subsequently discovered. The FDA may also require us to commit to perform lengthy post-approval studies, for which we would have to expend significant additional resources, which could have an adverse effect on our operating results and financial condition.

Although we have conducted pre-clinical studies, costly and lengthy human clinical trials are required to obtain regulatory approval to market our proposed vaccine, and the results of the trials are highly uncertain. In addition, the number of pre-clinical studies and human clinical trials that the FDA requires varies depending on the product, the disease or condition the product is being developed to address and regulations applicable to the particular product. Accordingly, we may need to perform additional pre-clinical studies using various doses and formulations before we can begin human clinical trials, which could result in delays in our ability to market any of our products. Furthermore, even if we obtain favorable results in pre-clinical studies on animals, the results in humans may be different.

After we have conducted pre-clinical studies in animals, we must demonstrate that our products are safe and effective for use on the target human patients in order to

receive regulatory approval for commercial sale. The data obtained from pre-clinical and human clinical testing are subject to varying interpretations that could delay, limit or prevent regulatory approval. We face the risk that the results of our clinical trials in later phases of clinical trials may be inconsistent with those obtained in earlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in early animal or human testing. Adverse or inconclusive human clinical results would prevent us from filing for regulatory approval of our products. Additional factors that can cause delay or termination of our human clinical trials include:

- slow patient enrollment;

- timely completion of clinical site protocol approval and obtaining informed consent from subjects;

- longer treatment time required to demonstrate efficacy or safety;

- adverse medical events or side effects in treated patients; and

- lack of effectiveness of the product being tested.

Delays in our clinical trials could allow our competitors additional time to develop or market competing products and thus can be extremely costly in terms of lost sales opportunities and increased clinical trial costs.

EVEN IF OUR PROPOSED PRODUCTS RECEIVE FDA APPROVAL, THEY MAY NOT ACHIEVE EXPECTED LEVELS OF MARKET ACCEPTANCE, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND OPERATING RESULTS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Even if we are able to obtain required regulatory approvals for our proposed products, the success of those products is dependent upon market acceptance by physicians and patients. Levels of market acceptance for our new products could be impacted by several factors, including:

- the availability of alternative products from competitors;

- the price of our products relative to that of our competitors;

- the timing of our market entry; and

- the ability to market our products effectively.

Some of these factors are not within our control. Our proposed products may not achieve expected levels of market acceptance. Additionally, continuing studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety and efficacy of previously marketed products. In some cases, these studies have resulted, and may in the future result, in the discontinuance of product marketing. These situations, should they occur, could have a material adverse effect on our business, financial position and results of operations, and the market value of our common stock could decline.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE TO COMPETE AS EFFECTIVELY.

The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, in part, upon our ability to obtain, enjoy and enforce protection for any products we develop or acquire under United States and foreign patent laws and other intellectual property laws, preserve the confidentiality of our trade secrets and operate without infringing the proprietary rights of third parties.

Where appropriate, we seek patent protection for certain aspects of our technology. However, our owned and licensed patents and patent applications may not ensure the protection of our intellectual property for a number of other reasons:

- Competitors may interfere with our patents and patent process in a variety of ways. Competitors may claim that they invented the claimed invention before us or may claim that we are infringing on their patents and therefore we cannot use our technology as claimed under our patent. Competitors may also have our patents reexamined by showing the patent examiner that the invention was not original or novel or was obvious.

- We are in the development stage and are in the process of developing proposed products. Even if we receive a patent, it may not provide much practical protection. If we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent. Even if the development of our proposed products is successful and approval for sale is obtained, there can be no assurance that applicable patent coverage, if any, will not have expired or will not expire shortly after this approval. Any expiration of the applicable patent could have a material adverse effect on the sales and profitability of our proposed product.

- Enforcing patents is expensive and may require significant time by our management. In litigation, a competitor could claim that our issued patents are not valid for a number of reasons. If the court agrees, we would lose protection on products covered by those patents.

- We also may support and collaborate in research conducted by government organizations or universities. We cannot guarantee that we will be able to acquire any exclusive rights to technology or products derived from these collaborations. If we do not obtain required licenses or rights, we could encounter delays in product development while we attempt to design around other patents or we may be prohibited from developing, manufacturing or selling products requiring these licenses. There is also a risk that disputes may arise as to the rights to technology or products developed in collaboration with other parties.

It also is unclear whether efforts to secure our trade secrets will provide useful protection. While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our proprietary information to competitors resulting in a loss of protection. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Finally, our competitors may independently develop equivalent knowledge, methods and know-how.

CLAIMS BY OTHERS THAT OUR PRODUCTS INFRINGE THEIR PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.

The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Patent applications are maintained in secrecy in the United States and also are maintained in secrecy outside the United States until the application is published. Accordingly, we can conduct only limited searches to determine whether our technology infringes the patents or patent applications of others. Any claims of patent infringement asserted by third parties would be time-consuming and could likely:

- result in costly litigation;

- divert the time and attention of our technical personnel and management;

- cause product development delays;

- require us to develop non-infringing technology; or

- require us to enter into royalty or licensing agreements.

Although patent and intellectual property disputes in the pharmaceutical industry often have been settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and often require the payment of ongoing royalties, which could hurt our gross margins. In addition, we cannot be sure that the necessary licenses would be available to us on satisfactory terms, or that we

could redesign our products or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing, manufacturing and selling some of our products, which could harm our business, financial condition and operating results.

OUR PRINCIPAL OFFICES ARE LOCATED IN SWITZERLAND AND IT MAY BE DIFFICULT FOR YOU TO ENFORCE JUDGMENTS AGAINST US OR OUR DIRECTORS AND EXECUTIVE OFFICERS.

Although we are a company incorporated under the laws of Delaware, all our officers and directors are located outside of the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in United States courts against those persons based on the civil liability provisions of the United States securities laws. It may be difficult and costly for an investor to have a court in Switzerland enforce a judgment obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of the United States.

WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR BYLAWS THAT MAY DISCOURAGE A CHANGE OF CONTROL.

Our bylaws contain provisions that could discourage, delay or prevent a change in control of our Company or changes in our management that the stockholders of our company may deem advantageous. These provisions

- limit the ability of our stockholders to call special meetings of stockholders;

- provide for a staggered board;

- provide that our board of directors is expressly authorized to make, alter or repeal the bylaws; and

- establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.